The Dangers of Traditional GDS Contracts: Navigating the Changing Landscape

The Dangers of Traditional GDS Contracts: Navigating the Changing Landscape

The airline industry is experiencing a major shift in the way airlines promote and sell their lowest fares. A recent article published in The Beat highlighted this growing trend, where major US airlines are increasingly offering their lowest fares exclusively through nontraditional GDS (Global Distribution System) channels. This article examined a comprehensive survey conducted by Amtrav, a prominent Travel Management Company (TMC), and the findings revealed that NDC (New Distribution Capability) and direct-connection fares on American, United, and Southwest were frequently lower than those offered on traditional GDS platforms. Only Delta continues to make all their fares available through traditional GDS channels. As our agency prepares to negotiate a new GDS contract, it is essential to understand the implications of this emerging trend and how it may affect our negotiation goals.

With the exclusion of the lowest fares in most classes of service from traditional GDS platforms, the traditional GDS contracts that have been in place for nearly four decades are now fraught with potential dangers. As we engage in discussions with GDS vendors, we must exercise caution when presented with these contracts. It is important to note that when referring to “traditional GDS,” we are excluding NDC bookings that are available through the GDS. Although all three GDS vendors offer NDC fares for many or most carriers, these fares are not processed or booked in the traditional manner. Let’s refer to these offerings as “NDC-through-GDS.”

One might question the dangers associated with NDC-through-GDS if these segments are readily available within the GDS platform. However, contrary to popular belief among agency owners and GDS representatives, such bookings do not count towards contract quotas and segment incentives in most cases. For instance, Travelport’s standard contract, which labels its NDC-through-GDS segments as NDC Limited Reservations, explicitly states that these reservations “shall not be eligible for any per-segment incentive.” The contract further clarifies that only if the per-segment incentive table explicitly outlines a per-segment incentive for NDC Limited Reservations from specific vendors, will such incentives prevail.

In simpler terms, NDC-through-GDS bookings do not generate GDS incentives, unless explicitly stated in the contract. Given that our initial contract offer is unlikely to include provisions for these incentives, we find ourselves in an unfavorable situation. Many larger travel agencies have annual segment quotas, while midsize and smaller agencies have “share quotas” requiring a high percentage of segments to be booked through the GDS. Failure to meet these quotas often results in penalties. Therefore, without any incentives and still burdened by high quotas, we are left with minimal benefits and substantial penalties. In such a scenario, our primary challenge lies in renegotiating the quota or reducing the penalty, allowing us to explore alternative channels that may offer better deals.

Furthermore, the decreasing availability of the best fares through traditional GDS platforms raises questions about the rationale for entering into long-term GDS contracts. These contracts, previously considered essential for accessing the best fares across multiple carriers, become less compelling when the most competitive fares are found elsewhere. As travel agencies, it is crucial to adapt and explore new distribution channels that align with the evolving landscape of the airline industry. By diversifying our approach, we can ensure access to the most competitive fares and provide greater value to our clients.

Negotiation Goals

Armed with this understanding, our negotiation goals must reflect the changing dynamics of the airline industry. While we recognize the continued importance of GDS platforms for certain segments and functionalities, we must strive for contracts that are flexible, accommodating the shift towards nontraditional GDS channels. Negotiating lower quotas or reducing penalties for non-GDS bookings will enable us to explore a wider range of options and secure better deals for our clients.

As the airline industry undergoes rapid transformation, it is crucial for travel agencies to embrace change and adapt their strategies accordingly. While traditional GDS contracts may have served us well in the past, their limitations in accessing the most competitive fares necessitate a reassessment of our approach. By navigating the changing landscape through strategic negotiations and exploring alternative channels, we can position ourselves as industry leaders dedicated to offering our clients the best possible travel solutions.

Airlines

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