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July/August 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Guest column: is the GDS facing extinction?

BACK IN THEIR HEYDAY, the global distribution systems (GDSs) were a revelation.

Long before the dawn of the internet, these tech dinosaurs roamed freely across the plains of travel, creating global networks to enable airlines to sell their tickets through agency desktops across the world. They were true innovators, pioneering a new era in travel retailing.

However, somewhere along the line that pioneering spirit ran out and now airlines are not only lamenting the cost of distributing via GDS, but they’re also voicing their growing frustration with the GDSs’ lack of innovation, and the consequent stifling of the airlines’ own ability to overhaul their business models in the face of fierce competition from modern carriers who aren’t weighed down by the ball-and-chain of a GDS. Fortunately for the GDSs, their position and prevalence within the industry has enabled them to weather the storm – flanked by hefty legal teams and protected by the power of their distribution, they’ve been able to fend off pesky airline disputes reasonably well... so far.

POWER BALANCE

Times are changing, though, and with IATA’s New Distribution Capability (NDC) finally becoming a reality, the boot appears to be firmly back on the airlines’ foot. In very simple terms, airlines pay the GDSs for distributing their content, and the GDSs then pay agencies for consuming that content. Currently, the airlines are not happy about the level of cost, hence their desire to introduce a more cost-effective and innovative route to market.

So, why don’t the GDSs reduce their costs to remain competitive and fend off the threat of a fragmenting market? Quite simply, they can’t – and that’s thanks to two critical flaws in their house of cards.

It’s a classic Catch 22: if the GDSs don’t do something dramatic to reduce their costs, airlines will continue to develop lower-cost routes to market and penalise the GDSs with limited content and distribution charges. However, if the GDSs decide to do something too dramatic they risk offending – or even bankrupting – their agency customers, without whom they don’t have a viable distribution channel.

It’s fair to say that, with all this in mind, the future of the GDS looks bleak. I predict that within three years all major airlines will have a direct-connect solution and so will not renew GDS contracts on a ‘full content’ basis. This will then lead to distribution charges being levied on GDS bookings to cover the inflated costs, and lower fares being made available exclusively via the direct-connect channel to encourage channel switch.

IT’S A GAS...

I would also go as far as to say that in the next decade all major GDSs will exit the distribution business entirely, and as such it would be wise for travel buyers to begin looking at where the content that’s made available to them through their TMC comes from. With more and more airlines developing a direct-connect solution, TMCs that rely solely on content provided by the GDSs will miss out more and more. And so the future, if you’re looking to retain both choice and cost effectiveness, lies in global aggregation systems (GAS).

EXPERIENCE AND INSIGHT

Looking ahead to these monumental changes is what has been the driving force behind the creation of Travel.cloud – our self-service online travel solution for teams of any size. It is based on our experience and insight, having built our own online booking tool in-house here at Click Travel, and pulls rich travel and accommodation content from online travel agencies, GDSs and, importantly, directly from travel suppliers themselves, allowing both buyers and suppliers to bypass the increasingly restrictive distribution channels of the GDS.

We wanted to make buying and selling business travel easier both for consumers and suppliers, and Travel.cloud aligns perfectly with the direction that I see the business travel industry moving towards over the next decade.

Now, I’ve made some bold statements and even bolder predictions here, but I believe the world of travel distribution is changing much faster than most industry participants care to acknowledge. Some of those participants will pivot and survive. Others will realise too late and die. And some have already bitten the bullet, but just haven’t realised it yet.

One thing’s for sure: we’ve got a fascinating decade ahead of us.

Simon McLean is the executive chair of Click Travel, which he co-founded in 2007. The company, which is headquartered in Birmingham, won Best Travel Management Company (£50-£200m UK sales) and Best Self-booking Tool at the 2016 Business Travel Awards.

Comments

There are more airlines in the GDSs than ever before. This publication has been writing about NDC for many years; it remains peripheral. Change is inevitable, but there is not yet any evidence to suggest that a better alternative to the status quo is on the way.

Martin F's picture
Martin F (not verified)

It seems to me this article is more about scaremongering and a free plug for Click Travel, yeah there is no doubt change is inevitable but the article would have been a lot more meaningful without the "Experience and Insight add on

Charles M's picture
Charles M (not verified)

Sorry but I've been hearing the GDS's are dying for so long it's becoming melodramatic. Until there is a realistic opportunity for organizations with large global transactions to enjoy alternative booking processes, the GDS's will remain in power...yes, it's a flawed system but I don't see any replacement on the horizon.

Would love to see a truly original and non-biased look at the topic...

...and yes, it was kind of a shameless advert...sorry...

Craig A Banikowski's picture
Craig A Banikowski (not verified)

Article read with interest - until I read the blatant, self promoting advertorial. Sort of took the wind out of the message.

Christina Drummond's picture
Christina Drummond (not verified)

The internet has provided the framework for a new era of distribution. The old, restricted channel models of doing business have passed in many industries and travel is no different. New models are emerging - where content is either available to all (and its not the content which differentiates providers but other services/brands) or closed/proprietary content (and this is their primary differentiator) - just look at the TV sector. Either way, what we are seeing in the business travel sector is disruption and a transparency which will ensure we all need to focus on the value we each provide. There are new distribution options emerging but I would suggest that you'd be foolish to underestimate the intelligence of the GDS owners to identify their next area of value and work towards it diligently. I refer you to Caroline Strachan's "The king is dead, long live the king" post a few weeks ago. https://www.linkedin.com/pulse/king-dead-long-live-caroline-strachan?trk...

Paul Tilstone's picture
Paul Tilstone (not verified)

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