With the relationship between Global Distribution Systems (GDSs) and the rest of the travel industry in a state of flux, today we take a brief look at the history of the GDS and consider what the future may hold and how GDSs can stay relevant in a changing business environment. Over the last 10 years, the Internet has proved to be a crucially successful platform for selling travel, attracting a vast network of suppliers as well as a widely dispersed customer consortium, into one centralised marketplace.

The number of travelers booking airline tickets, hotel rooms and other travel services online continues to grow. According to TIA‘s Annual Travel Forecast, overall traveler spending by domestic and international visitors is forecasted to increase 4.4 percent in 2004 to $568 billion, up from $544 billion in 2003. By 2005 the level of spending is forecasted to reach $594 billion.

The airline industry initially created the first GDS in the 1960s as a way to keep track of flight schedules, availability, and prices. The main four GDSs are Amadeus, Galileo, Sabre and Worldspan
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Although accused of being “dinosaurs” due to their use of legacy systems technology, the GDSs were actually among the first e-commerce companies in the world, facilitating B2B electronic commerce as early as mid 1970s.

Before the advent of the GDS, travel agents spent excessive amounts of time manually entering reservations. The airlines realised at this point that they could make travel agents more productive and essentially re-invent them as an extension of the airlines sales force.

It is these original legacy GDSs that provide the backbone to the Internet Travel distribution. However, the changing dynamics of the distribution chain within the travel industry, coupled with economic hardships, has meant that the GDSs have recently been put in the spotlight.

With online commerce growing at a rapid pace, agents are increasingly facing a new reality whereby customers are finding the cheapest fares for themselves on the Internet.
In a bid to increase competition for consumers, The Department of Transportation in the US announced the de-regulation of the GDSs on January 31st. This is expected to spread to Europe in the next few months.

Airlines can no longer afford to put fare content through GDSs and are complaining that the prices are too high.

The low-cost airlines have added to this pressure, having found an alternative form of distribution that bypasses the GDSs. It has been suggested that low-cost carriers have inspired traditional airlines to re-evaluate their own involvement. In an effort to cut their own costs, traditional airlines have begun to make their best fares available only on their own websites.

Whilst GDSs are still a very useful distribution tool, at this stage it is crucial that they reduce their distribution costs in order to restore profitability and ensure the airlines survival. (None of the GDSs are now owned by airlines.)

Issues raised during a GDS panel debate at the Travel Technology Show 2004, included: agents’ incentives, the de-regulation of GDSs in Europe, value-pricing and low-cost airlines.

Alison Bell, Regional Director UK&I, Cendant Distribution Travel Services (Galileo) admitted: “There is no doubt the volume of GDS transactions is diminishing”.

Following de-regulation of GDSs in the US it was discussed that this will soon move to Europe, where changes to the rules governing GDSs are being considered. Richard Adams, Senior Vice President EMEA Sabre commented: “We welcome a de-regulatory environment. We can then work towards value pricing. The key will be to expand and look at different revenues. We are confident about the heart of our business, but must re-engineer ourselves in different ways”.

Graham Nichols, VP, Worldspan and General Manager, EMEA commented:
“Deregulation is entirely driven by market forces and it is only a matter of time before it comes to the UK”.

GDSs are looking at ways to get low-cost carriers on board. David Jones, Executive Vice President Commercial, Amadeus admitted: “Low cost carriers believe they don’t need GDSs because they distribute through their own websites and have managed without us so far.

“Something has to give. We think that looking forward agencies need to pay something for low fares content. They are paying anyway and need the access to this information”.
David Jones went on to claim that low cost carriers would eventually have to consider other channels of distribution because of yield management”.

Moving into a de-regulatory environment will change the rules for GDSs, meaning a shift in focus creating new opportunities. Following intense questioning by event moderator Paul Richer, Amadeus and Galileo executives said that in a de-regulated environment, they would not introduce screen biasing.

The GDSs agreed that they need to concentrate on value, content and pricing as priorities in moving ahead. Graham Nichols commented: “Value is a top priority for us. Rather than rushing we want to find a sensible solution”.

They must also re-evaluate their costs and agent incentives. BA
has recently negotiated a deal with Amadeus, Sabre and Galileo, which gives them full access to BA’s fares. This revenue cut comes at a cost and one area may be agent incentives. Richard Adams commented: “We are looking to re-shape the incentive curve”

The GDSs concluded that they would not seek exclusivity from airlines, since agents want content. David Jones commented: “Seeking exclusivity of airline content is very foolish and short sited”.
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