DOT Advisory Committee on Aviation Consumer Protection

August 7, 2012

Next Generation Airline Distribution
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Speakers

» Sharon Pinkerton: Airlines for America» Montie Brewer: Former CEO, Air Canada» Al Lenza: CEO, Lenza Group» Monty Myers: Eureka Software Solutions, Inc.» Gary Doernhoefer: IATA General Counsel
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» Airlines are transparent and are committed to ensuring that consum

made aware of the prices of our products prior to purchase

» Airlines want the ability to customize their product for the benefit of 

passengers

» GDS markets are fundamentally flawed and anticompetitive» GDSs have used their market power to charge airlines supracompe

which is bad for consumers and airlines

» GDSs have used their market power to prevent new entry and elim

market forces that DOT hoped would materialize when it deregulateGDS industry in 2004

» A mandate forcing carriers to provide content to GDSs is unnecess

will raise costs for consumers and stifle innovation 

Overview of Key Points
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Historical Overview of GDSs 

» Airlines created/owned CRSs (GDSs) for electronic distribution of th

services back in the 1970s

» In 1984 DOT regulated GDSs to prevent anticompetitive practices » Late 1990s – early 2000’s airlines sold GDSs» In 2004 DOT deregulated the GDS industry, citing the divestiture of 

ownership and the expected entry of new technologies

» In deregulating the GDS industry, both DOT and DOJ (docket 

comments) expressed significant concerns about the state of Gmarkets

» DOT and DOJ found that GDSs exercised market power over airline

that booking fees were at supracompetitive levels
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AIRLINE

DISTRIBUTION

SNAPSHOT

Travel Agency Online Travel Agency

Airline Reservation Systems
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AIRLINE

DISTRIBUTION

SNAPSHOT

-HowtheMoney 

Flows

Travel AgencyOnline Travel Agency

Airlines Pay GDS

GDSs Pay Agent

Airline Reservation Systems
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The Internet Changed

Everything

Travel AgencyOnline Travel Agency Travel AgencyOnline 

Airline Reservation Systems
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DYNAMIC RETAIL REQUIRES SUPPLIER PRODUCT CONTROLLegacy Model (3rd Party Manufacture)

Anonymous Selling Model:Airline doesn’t know who the traveler is until after the sale is 

made.

New Model (Airline-Control

Passenger-centric Model:Airline knows who the traveler is anoffer.

Airline Host System

OAG

(Schedule)

ATPCo

(Fares) GDS

(Or 3rd

party)

Travel Agency Online Travel Agency

GDS

(Or 3rd

party)

Airline

Travel AgencyOnline Travel Agency
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TWOSIMULTANEOUS BATTLES

The Fight OverDistribution Costs.

The Fight OverInnovation andRevenue.

Airlines pay Supracompetitive distribution fees (~$7B per year)GDS fees represent $12-20 per ticket.There is a growing cost divide between carriers 

that sell through their websites and those using the GDS.New solutions that offer 80% cost savings are resisted by the GDS.GDS payment model incentives are in the wrong place. Customer ends up paying the cost.

Airlines compete on product dAirlines, learning to be retailerofferings to the needs of indivincluding personalized pricing service, etc.)Dynamic integration with airlloyalty status; history; inventorThe GDS channel - faced with updating their platforms - is s

The Product Gap is increasinrelying on web sites and those Customers do not have accesdesigned to meet their travel n

COST CHOIC

Customer Benefits
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•N•N•N•N•N
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•Fare families all available to the last seat•Each fare family offered enhanced benefits•Over 45% purchased a higher priced product
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» Personalization is everywhere, for 

example:

» Many retailers – Amazon, Ebay, Toyota, 

Nike

» Online search – Google, Bing» Media – Netflix, Spotify, iHeartRadio, 

Hulu

» Targeted Marketing – Groupon, Home 

Depot, Lowes, ExactTarget, MailChimp

» Social Media – Facebook, Pinterest, 

Klout/Cathay-Pacific

Consumers want and expect personalization
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New Model

Built from ground up using modern technologies

» Personalization technology/capabilities 

are enabled by Internet and technological advancements 

» Airlines have created a new model that 

will support personalization and improve transparency

» Supports efficient and robust 

comparison shopping

» Comparison can be early in shopping 

process integrated with air shopping

» Comparisons that matter to consumers 

allow clear consideration of the full spectrum of choices

» Comparison results in more 

transparency, not less

» Timely support for airline innovation and 

evolution

Legacy M

Bolted onto technology con

» Innovation has been slow 

Internet not engaged

» NOT in material producti» Only a handful of airlines 

have announced actual adoption

» Does NOT support true c

centric personalization, dthe-minute relevance for robust comparison shop

» Stifles innovation by furt

airline standardization/co
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New Model

Meets airline and consumer needs

Legacy M

Maintains the GDSs’ g

» Substantial increases in 

data uploaded to GDS

» New complex GDS rule

created/published by a

» Large delays in uploadin

processing data in antiq“hours” of latency

» Personalized and transp

not truly integrated early process considering options/prices/descriptio

» GDSs openly pushing to 

more of airline data (e.ginformation about custom

» Advanced shopping and pricing engines» Employs widely accepted Internet 

technology

» Support for fast changes and response 

time

» State-of-the-art mainstream software and 

hardware core technologies 

» Ready availability of talented software and 

hardware engineers 

» More robust ecosystem of third-party tools 

and technologies 
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» Limit new competition (difficult for 3rd parties)» Use incentive fees/back office support, restrictive contracts to loc

agencies

» Use market power to force airlines to sign restrictive contracts

(and now there are in effect just 2 GDSs in US)

» Contractual limitations on airlines promoting new entrants» Misrepresent promising new technologies to agency community» Stalled new technology pending possible new regulations

What they have done

GDS Response to Emerging Competition
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TAX

AIRFA

» Invest in the requisite technology to support full personalization» Support airline marketing strategies and customization» Facilitate non-GDS technology (afraid to lose control and lose G

more nimble, lower cost competitors)

» Airline/GDS deals signed yet to be implemented or produce mea

results (UA-Economy Plus; US; seat assignments; DL/TravelporNo OTA implemented except Priceline-AA)

What they have not done

GDS Response to Emerging Competition
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» Often require near 100% use of a single GDS» Financial incentives paid to travel agencies tied to near exclusivity» Severe penalties common for use of new technology outside of the » Restrictions placed on comparison of GDS and non-GDS fare/prod

information on a single travel agency screen

» Travel agency accounting systems interfaced to GDSs but fail to w

well with 3rd party systems

Contracts with Agencies Limit Competition
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» Airlines must provide all published fares and inventory (cannot offe

fares via less expensive channels)

» Cannot incentivize agencies to use non-GDS technology, or in som

even talk about the benefits of non-GDS technology publicly

» Cannot choose participation by region of the world» Cannot share the high cost of GDS booking fees with travel agenc» Airlines must choose—foreclose any flexibility to promote competit

pay significantly higher booking fees

Contracts with Airlines Also One-Sided
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» Majority of tickets still distributed via GDS-powered agency networ» Airlines want to present offers in manner they choose at a competi

so they can make the best offers to individual customers

» Overall GDS related costs have gone up since the GDSs consolida

remain multiple times higher than GDS alternatives

» Airlines see an opportunity to reduce $7B in annual cost and avoid 

potential of $1B in additional fees on ancillary products 

» If bilateral negotiations between airlines and GDSs are replaced by 

government mandate, GDS costs will only increase further

» GDSs and airlines are identifying opportunities to work together – 

need a mandate to achieve this cooperation. 

» Mandate likely to retard new consumer technology benefits/increas

Airline-GDS Relationship
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Today’s Consumer RealityAir travel is no longer a commodity- there are choices» Fares with differing rights or 

restrictions

» Changeable tickets – fee/no fee» Refundable tickets – fee/no fee

» Service classes on board

» First Class, Economy Plus

» Advance seat selection» Upgrade options» Priority boarding» Priority passage through security 

lanes

» Onboard food service» Travel insurance» Inflight telephones» Inflight entertainment» Inflight internet access» Flight status notifications» Checked bags with or wit» Same day standby fee/no » Airport lounge access» Frequent flyer mileage aw

bonuses. 
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What Consumers Should Expect

» A choice of competitive services related to air travel» To know the choices and services available to them» To know the cost TO THEM of each choice» To be presented with offers that are designed to meet their particu» The ability to choose the services they want and not pay for what t

not want

» To know the cost of the entire trip BEFORE they purchase the ticke
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» GDSs don’t show all airlines

» No DOT mandate there

» GDS-owned online travel agencies

» Don’t disclose which airlines are not shown» Don’t use the data they have for comparison

» When disputes arise, GDSs remove airlines» Airlines are investing in new technologies and supporting new e

Comparability is not the IssueThe GDS Middleman Is
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Proposed Mandate vs. The Consumer

» A static set of “Core” services is anti-consumer

» Limits choice of services» Confusion comparing personalized offers

» Helps preserve suspect GDS business model

» Gives GDSs leverage in negotiations with 

airlines

» Locks in high costs» Fails to open market to new innovation

IF YOU WANT APPLES TO AALL YOU CAN APPLESIF YOU WANT APPLES TO AALL YOU CAN APPLES
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Conclusion

» Consumers are served by choice and lower costs» GDS policies limit choice, inhibit transparency, and increase costs» Airlines invest to present robust fare and service choices

» Directly» And through travel agents

» Markets are not working because of GDS practices

» Few new entrants, struggling» Some Airline-GDS deals, but not very robust» Availability of consumer choice still constrained 

» Proposed DOT mandate will make matters worse, not better, for the co» What’s needed is to eliminate GDS imposed barriers to adoption of ne

technology and innovation – and then let the market work.