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Thursday, 02 July 2015 11:49

The Second Shot Heard Around the Travel Industry

Written by  Douglas Cooke
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DougIn 1995. Delta Airlines fired the first shot heard around the travel industry when it reduced, and eventually eliminated, travel agent commissions. At the time, other airlines sat in the wings waiting to hear how this bold move would affect sales of Delta by travel agents. Although trade organizations were proactive in informing their members about the perils of this move, they stopped short of warning agents not to book Delta due to concerns of collusion. Delta sales by the travel agent channel did not decrease significantly, and the rest of the US airline industry followed Delta’s lead.

Recently, the Lufthansa Group, consisting of Lufthansa, Swiss, Austrian Airlines and Brussels Airlines, fired a second shot at the travel agent distribution system. Starting September 16, all GDS sales of Lufthansa Group tickets will be subject to a 16 Euro (roughly $18) surcharge. In short, this means that the rate you quote your client, if you use a GDS, will be a least $18 more expensive than they could get booking directly with Lufthansa. This move will make travel agents even less competitive in an already hyper-competitive environment.
Why is Lufthansa risking the ire of the GDS, business travel coalitions and travel agents? At first blush it would appear that they are looking to recoup the roughly $16 difference between their cost of selling tickets directly vs. indirect channels. However, Lufthansa claims that they are doing this because the GDSs have lagged behind in their technologies, and the airline can’t adequately merchandise their ancillary services (their most profitable products) through the GDSs.
So what does this mean for travel agents and what can be done? As I said, this move will make travel agents less competitive when selling Lufthansa Group airlines through their GDS, so the simple answer would be to stop doing so. Air consolidator contracts are not subject to these fees, so booking with an air consolidator will not only likely give your client better pricing than the direct booking channel (i.e. airline websites) but, you will be able to make money selling these tickets.
Of course another obvious answer is to stop booking these carriers altogether. In many cases, there are other airline options to the destinations your clients desire. While this solution is not always going to be practical, slumping sales from the travel agent distribution system would send a clear message to Lufthansa that your place in the value chain should not be taken for granted.
One thing is very clear. Other airlines are waiting in the wings, licking their chops at the prospect of saving $18 for every ticket they sell through the GDSs. If the travel agent community doesn’t send a clear message that they will not be taken for granted, expect other carriers to follow Lufthansa Group’s lead. It’s time for your collective voice to be heard!

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