As the “Global Distribution System vs. Airline Direct Connect” tussle seems to have subdued a bit and has been off the media headlines for the past couple of months, I thought of sharing my views on the same. The thought process was triggered by Meeta’s insightful blog “Shaken or stirred – Are you connected?” and Vinod’s comments on it.
To begin with, international travel is a complicated affair when compared to domestic return journeys. In a domestic return journey, the end traveler, including the corporate customer, looks for the best value for money – the cheapest fare with a good service. He or she can also go to the airline site and book the tickets.
But in an international journey, it’s a lot more complicated: multiple leg flights, immigration port formalities, travel/health insurance, baggage allowance provided by various airlines for each travel segment and add to that, the travel package which includes car, hotel and tour operator bookings, it simply becomes more complex for the traveler, be it leisure or corporate.
Wherever there is complexity, we need middlemen to reduce the complexity for the consumer. Also, the products need international reach (distribution), otherwise they will not get sold in the global market.
Though the internet seems to be eliminating the role of the middlemen (read agencies), the complex nature of the products will never allow this to happen. Direct Connect by suppliers (be it airline, hotel, car) is not the solution for this problem for the end customers. Any supplier who looks at tapping the international market needs to have access to the sales and more importantly, service channels. Where ever there is a physical product or necessity to provide physical service (not electronic service), the suppliers/manufacturers will need the distribution system which would include trained travel agencies.
The same will be applicable for the Airline Direct Connect solution as well. From the end user perspective, the end travelers need,
From the travel agencies’ perspective,
I do not think that Direct Connect is here to solve any of the above needs. Its primary goal is cutting costs for the supplier at the cost of future sales. In my personal experience with one of the full service carriers in India, the airline call center rates were cheaper than the airline website fares! Now, thinking about the direct connect complexity and the much debated “full content availability” across multiple sites, online travel agency (OTA) sites, travel agencies, etc., it is going to be much more complex and confusing for the end users to hunt for their value for money deals!
On the contrary, it is interesting to note that even some of the Low Cost Carriers have started looking at other sales channels – travel agencies and distributors – to increase their revenue by giving accessibility of the product to multiple markets. Any supplier who needs multiple market reach, with multiple customer segment access, cannot continuously avoid distribution and sales channels.
If the supplier needs market reach with reduced complexity, the chain needs a distributor and its agencies. Another point that I have seen put forward as an argument, is that, GDS technology is dated and it has difficulty in supporting merchandising capabilities, fair break up, etc. (I read somewhere that a huge percentage of air bookings touch upon Mainframe transactions till date!).
I think GDS will wake up to this call and update their technology to support the same. Note that CRS/GDS are the founding fathers of the travel e-booking, which, dates back to the late sixties. As time went by, during the last decade or so, GDS has responded with OTA solutions, having modified contracts with the suppliers to accommodate ‘debatable’ full content, coming up with corporate booking tools and geography specific point of sale solutions.
Still, one third of the US Total Travel Market Share (Gross Bookings) is through GDS, which is almost 100 billion USD. Most of the GDS are already working on improving the financial models and technological solutions. Either they need to invest now and continue to be the distributor, or some other player like Google/ITA with lot of capability (read finance) will substitute them in due course.
In essence, for another decade at least, the travel distributors and agencies are here to stay. People who respond to the market needs will survive or we will see new players taking up those roles.