Wednesday, November 28, 2007

Low Cost Carriers, GDS and Intermediaries are friends, enemies and squabbling children all at the same time

In the early days of Low Cost Carriers (LCCs) the world was simple. No GDS, No intermediaries, No food, No frils. Then LCCs started calling themselves New World Carriers and introducing frils (see my discussion on this re Virgin Blue in June this year). A few news stories have caught my eye in the last couple of weeks which may be pointing to another evolutionary change in the LCC/GDS/Intermediary relationship:
Putting these together and we have the LCC herd splitting into the Hard Core (Ryanair, Tiger, maybe Air Asia) and the New Core (easyJet, Virgin Blue, JetBlue). Last thing we need is new acronyms (the HCLCC and the NCLCC) but is clear that the view of low cost carriers doing it for themselves is no longer universally true.


Anonymous said...

GDS = corporate bookings and corporate bookings = increased revenue. I think you can differentiate carriers that have aspirations of winning corporate business because they do a few of the following: fly to convenient/major airports, are the only alternative/duopoly carrier in the market, offer a loyalty program, or try to differentiate their onboard experience. It will be a very long time before corporate travel management co's stop using GDS's. Therefore all carriers that meet a couple of the corporate-friendly tests will end up making themselves available via the GDS. Many that do this will force agents to pay to book them that way and negotiate directly with the biggest agencies. Leisure bookers will balk at these fees and go direct.

SC said...

Wouldn't consider Air Asia hardcore since they are actively targeting corporate business and launched on Galileo sometime back, albeit not on the traditional GDS model.

Anonymous said...

Im new to this topic so forgive me if im way off. Is it because with the big OTAs they dont control the price point? Surely theres an advantage in reaching the OTAS customers and benefiting from their huge marketing budgets. I believe today it is more about best available rate which can only be controlled by the supplier and that the net rate model is becoming more and more unwanted by the suppliers. I understand there is more to it than that for example control of the customer etc however should the OTAs be considering advertising OR referal fees and / or commission models. The suppliers surely cannot afford to dismiss these completely.
It also surprises me that the suppliers pay the GDS fees. I could understand a software licence fee for managing rates and inventory across the travel networks however i would have thought the travel companies would pay the transaction fees! am i wrong?

Tim Hughes said...

The traditional low cost carrier model would say that you dont need the OTAs customers because customers will find you and be attracted to your ultra low costs enough to come back again and again. Ryanair thinks Travel Agents are deadwood because consumers are smart enough to know about Ryanair without needing help. The OTA would argue that 1. that knowledge cannot be guaranteed and 2. there is a convenience that an OTA can offer in service and functionality. It is becoming clear that this is now an airline by airline discussion not a general category discussion. Your GDS comment is priceless because it sums up what everyone thinks but history does not allow. Instead we have a historical peculiarity where the GDS charges the Airline then gives most of the charge back to the travel agent in "financial assistance" to buy the travel agents business. A clearly flawed model but too entrenched to change especially as travel agent commissions get squeezed.

Anonymous said...

We will see how rigidly the hard core the airlines stick to the, “no OTA’s no GDS line” over the next 36 months. In our region there is about 120 aircraft on order many of which will be new capacity or greater capacity than the aircraft they replace.
These aircraft will enter the market with the economy at full stretch, with interest rates possibly rising along with labor rates, when the likelihood of the economy dipping is greater than it rising. At the same time new fuel refinery capacity will come online easing some of the price pressure and other carriers may enter the market. Does anyone sniff a bubble followed by an unholy bun fight to fill seats at any point in the supply or distribution chain?