Sabre Shifts Terms: GDS Reduces Agency Incentives In Return For Access To Full Airline Content By Jay Boehmer JUNE 19, 2006 -- Redefining relationships with U.S.-based travel management companies, Sabre Travel Network this month introduced an optional fee-based program that gives its global distribution subscribers access to full airfare content and immunity from airline service charges. So far, the other GDSs have not announced specific plans for how they will handle travel management company relationships in light of newly forged airline deals, but sources said Sabre's move is the bellwether of new dynamics between GDSs and corporate travel agencies and likely would lead to additional expenses for corporate travel buyers. The GDS said it plans to launch the new model on Aug. 1. Agency sources said that to opt in they would sacrifice about 80 cents in incentives per segment. One TMC executive said, "Someone's going to lose 80 cents, or someone's going to pay 80 cents more." The new agency terms offset recent deals through which the GDSs gave up several dollars per segment to airlines. Although Sabre would not disclose the new agency payment terms?Sabre CEO Sam Gilliland said they would be "opaque," as they have been with the airlines?Sabre Travel Network senior vice president of North America Chris Kroeger told BTN that travel management companies in effect will pay Sabre to leverage full content, but still receive incentives, albeit shrinking ones, from the GDS. "Sabre-connected agencies that elect not to participate will not have assurance of access to full content," Kroeger said. "It does not put an end to incentives," Kroeger said. "We've been very open as we've talked about this balanced approach that there is a role for incentives." Gilliland has said incentives are coming down and Kroeger concurred. Gilliland last week told the Bear Stearns Technology Conference in New York, "We've been very forthright in our view for quite some time in our private meetings with large and small travel agencies that we were working to acquire full content through negotiations with the airlines, but as we did that we'd need to be coming to them, asking for incentive reductions and new financial agreements." Amid buyer concerns of content fragmentation and airlines' professed need for deeper discounts, Sabre is attempting to strike a balance among those in the distribution chain through its Efficient Access Solution, Kroeger said. "None of our competitors have really announced programs like our Efficient Access program so far," Gilliland said. "We're imagining that other such programs will be announced over time. There's not a lot of insight as of yet as to what our competitors will do. We felt like this is the right thing to do." Cendant-owned Galileo disputed the wisdom of Sabre's move, indicating it would shy away from following the GDS in charging travel management clients for full airline content and labeling the rival GDS's announcement "disappointing." "We continue to believe that cost-shifting is not an ideal outcome for our industry," Cendant said in a statement. "If there is a structural change in the market, we will ensure?as we always have?that our customers have full access to content and all related advantages in the market." Galileo would not disclose specific plans for its approach to the agency market. "We are monitoring this and other industry developments with great interest, and watching both competitive and industry reactions to these announcements," Amadeus said. The GDS, which has yet to sign a major U.S. carrier following GDS deregulation, said it remains in discussions with carriers for full-content deals. "Our objective continues to be to ensure long-term outcomes that would be amenable for the airlines, for us and for our travel agency customers." Although Worldspan would not weigh in on Sabre's opt-in model, sources said the company likely would employ a model similar to Sabre's when it launches two new optional products later this summer. In conjunction with each of its major U.S. airline deals, Worldspan noted that it "has developed two new optional products to introduce into the marketplace." Worldspan has been mum on details except that it plans to launch them Aug. 1. Bill Tech, president of Travel & Transport, said his company has contracts with both Sabre and Cendant-owned Apollo. Its contract with Sabre has clauses that allow the GDS to change its fee structure. As a result, "We're going to look at shifting the business to Apollo," he said. John Smith, president of Chicago-based travel management firm Tower Travel Management, said, "Obviously, we need to have the content available to our customers, but to the extent that access detracts from our revenue stream, we have incentive to further reduce our costs, increase fees to customers or locate distribution sources that don't have those limitations. It may be an incentive to find or buy a better mousetrap." "Each of the GDSs has different marketshare considerations," said executive vice president of Carlson Wagonlit Travel North America Mike Koetting. "Cendant also has the consideration of being for sale. Each of the GDSs has different motivations that may guide their behavior in altering distribution channel economics." "If Galileo follows Sabre, it maintains its position," said Andy Menkes, president of HRG Consulting North America. "If not it gets a shot at winning marketshare. Converting a mega or a few regionals would make it worthwhile." Kroeger said the new model has been in the works for some time and weighed into discussions with major U.S. airlines as they entered into new full-content arrangements with GDSs. Sabre so far has signed five of the six legacy carriers?Continental, Delta, Northwest, United and US Airways?as well as AirTran Airways, and said the terms of the new agency model apply to all of the carriers' content. Gilliland last week noted that the definition of full content has broadened in the past few years ago. "Three years ago, we entered into the DCA three-year agreements and they were in essence what we would call full-content agreements," Gilliland said. "There were cases where the definition wasn't as strong as we'd like in terms of what full content meant. This time around, if we're striking up new relationships we want a crisp definition of full content in those agreements." Kroeger noted, "As part of those agreements with those airlines, we have agreed to provide discounts on their booking fees and in return those airlines have agreed to provide certain benefits and protections to travel agencies that participate in our Efficient Access Solution program." Regarding what the fees airlines might charge for those who opt out of the Sabre program, Kroeger said, "We have no idea what the airlines may do as it relates to service charges, but you only have to take a step back to realize that historically there have been airlines that have put service charges into the marketplace. Not only here in the U.S., but other parts of the world. Recently, there have been several airlines that have been vocal to the industry, highlighting that they are considering putting service charges into the marketplace on top of certain types of bookings." Gilliland said the program applies only to U.S.-based carriers, but similar programs could pop up in other regions. Gilliland noted that Asia has not put much pressure on booking fees, hence is not ripe for such a program. "Probably, we'll see something along these lines in Europe," he said. Sabre already has begun reaching out to agency customers, but Kroeger said it would spend much of the next several weeks getting TMCs prepared for a shift in GDS relationships. "While it's probably not a favorite topic of discussion to talk about changing the economic model with them, they also see there is a benefit to them to have all this content in one place," Gilliland said. "It is an efficient way to conduct business and I think they recognize that. We'll see over the next couple of months what our competitors will do." "In the past, when there have been economic model changes, sometimes those have happened overnight," Kroeger said. "We wanted to make sure that all the constituents in what the new model looks like have some time to prepare." American Express last week came out in favor of the Sabre program, but when asked if the largest corporate travel agency will be "opting in," Andrew Winterton, senior vice president of global supplier relations for American Express Business Travel said, "We don't see the need to." "We don't see that it's a service that we need because we have our own TravelBahn model," he continued. "We had 3 million transactions going through that last year and it's a fairly sizable model." Winterton said he could not disclose which percentage of transactions runs through GDSs. Winterton also said that through direct relationships with airlines, American Express is insulated to a degree from any new booking fees. "We don't view it as either opt-in or opt-out; we don't view it as a service that at this stage we need to use," he said. In essence, Winterton said, the American Express-Sabre relationship will not be altered, suggesting that American Express clients will not be asked to pay fees that other TMCs are likely to assess their clients. Jack O'Neill, COO of CWT North America, said that many travel management company GDS contracts expire after the start date and those that opt in may not employ the new model until later this year or next. "Most of the major TMCs have different terms and timing of when the agreements expire," O'Neill said. "Most of them were reworked as three- to five-year deals after the DCA3 agreements between airlines and GDSs. The next wave after the GDSs and the airlines?for those participating in GDS agreements?will be the travel management community." Whether agencies opt in or not, buyers can expect to pay more. "Corporate travel managers are smart enough to know no matter how it's positioned and how many channels it has to work through, this is ultimately a price increase for corporations and their travelers," said Koetting. Added O'Neill, "This announcement is probably the first significant step in terms of what's going to play out over the next several months in distribution economics." --------------------------------- How low will we go? Check out Yahoo! Messenger?s low PC-to-Phone call rates.