The recent foray over airline Direct Connect, specifically American Airlines “AA Direct Connect,” has stirred the emotions of almost everyone in our industry – from pundits to industry lobby groups. This supposedly new airline Direct Connect distribution phenomenon (which is not really new since Orbitz actually utilized its version of its direct connect, called Supplier Link, well over 10 years ago) has been accused of promulgating a series of ills upon our industry, and more specifically upon the consumers wanting to buy air travel from brick and mortar travel agencies, such as American Express and Carlson Wagon-Lit or online travel sites such as Orbitz, Expedia, and Travelocity.

Some of the “alleged ills” caused by Direct Connect include:

1. Higher cost travel options for consumers
2. Lack of product and pricing transparency
3. Lack of travel comparison

As most have recently read, a large Online Travel Agency (for the purpose of this paper, let’s call them “Large OTA”), in a move to support pro-consumerism, actually changed its system to make booking American Airlines (AA) on its site initially more difficult for consumers and then impossible. Large OTA stated the reason it removed AA was because “American Airlines has shown it only intends to do business with travel agencies through a new model that is anti-consumer and anti-choice.” Large OTA went on to say, “We cannot support efforts that we believe are fundamentally bad for travelers.”   

According to Large OTA and various other “anti-direct connect” entities out there, the problem with the AA Direct Connect and general Direct Connect model is that it is anti-consumer and anti-choice. While a convenient battle cry in some respects (i.e. blaming the airlines is frankly easier than taking on the complexities of travel distribution), it is a dangerous position. In fact, the entire premise that the AA or Direct Connect model is anti-consumer could not be further from the truth.

But wait, if that’s the case, why accuse AA and other airlines following Direct Connect paths as anti-consumer? What’s really going on?

Follow the Money

As is often the case when seeking the real story, one must set aside the rhetoric and PR positioning and instead, simply Follow the Money. In this case, Follow the $7 Billion. 

For those that don’t understand the money flow in airline distribution, a brief and simple primer might be in order:

Today, airlines distribute and sell their products through two channels: their direct channel (airline.com website) and their indirect channel (travel agents and online travel sites).

Generally speaking, of the one billion or so airline tickets sold around the world each year, sixty plus percent of those tickets are sold through the airline indirect channel. Since there are only three companies in the world – Sabre, Amadeus, and Travelport (called Global Distribution Systems or GDS) – that control the airline product distribution for this indirect distribution channel, the airlines must agree to the terms put forth by the GDS for airlines to sell through this indirect channel. Here is where the $7 billion comes in. The GDS charge the airlines each time the airline sells a ticket through their system, with the average charge being in the $12 per ticket range. Multiply that $12 by 600,000,000 tickets per year and you get about $7 billion dollars.

For general comparison purposes, it costs airlines about $2 to $3 per ticket to sell through their own websites or to use the Direct Connect model. This is about an 80% savings over the cost of the GDS channel.

Now, taking all of the above into account, ask the question: If the airline is paying $10 more per ticket to sell through the GDS, who do you think is paying for that higher cost?

That’s right, the consumer!

For illustrative purposes only, let’s take the recent Large OTA versus AA tussle. Large OTA, who is rumored to be utilizing the Sabre GDS for its airline bookings, purports to be all about supporting the consumer and lower cost. Yet, the company is actually using a system (GDS) that represents higher costs to the consumer. Why is that? Well, as it turns out, this is where the story gets really interesting.

Keep in mind that we are still Following the Money – i.e. that $7 billion paid to the GDS by the airlines. The GDS don’t just get to keep that $7 billion dollars as profit. They have to pay their employees and all their other expenses. Interestingly enough, one of those expenses is actually a payment to the travel agency or online travel site as a “financial assistance incentive” (“FA” for short). This payment is essential, in the traditional travel supply chain model, for an agency to agree/continue to use a particular GDS.

Going back to our illustrative example of Large OTA, one can assume that Sabre pays Large OTA a financial incentive to encourage Large OTA to continue to use the Sabre system for its airline bookings, otherwise Large OTA may change to another GDS. This practice is the same for all the GDS, and the model has been around for decades (it is therefore not surprising that so many are fighting to protect it).

While the exact amounts paid by the GDS to the travel agencies or online sites are not public, the general consensus is that on average the GDS pay the larger travel agencies and online sites about $5 per ticket. If you Follow the Money and if, for example, an online travel site makes 10 million airline bookings per year, the corresponding GDS would theoretically pay that online travel site $5 for each airline ticket booked or 5 times 10,000,000 which equals $50,000,000 per year, just for the online travel site to keep using the particular GDS system. Given this situation, are the online travel sites really concerned about lowering costs and are they watching out for the consumer? Or could it be that they are concerned about protecting this financial windfall?

Let’s briefly summarize what we’ve learned so far: The airlines can realize significant savings by using their websites or new Direct Connect models that result in overall more efficient technology utilization and potential removal of billions of dollars of unnecessary costs from the travel supply chain, and lead to ultimate savings for the consumer. In other words, Direct Connect is, from a “Follow the Money” perspective, quite pro-consumer. Yet, a majority of status quo players – largely travel agencies and GDS companies – are vehemently opposed to this movement.

Let the Pictures Say It All

Another popular argument against direct connect is that it leads to “anti-choice and lack of transparency”. It is here where a few pictures really can shed light on the truth, better than any description or PR campaign for or against a particular distribution model.

In the sections below, we will look at a few examples of real-life screen shots of booking systems and airline content*. The goal with each exercise is to compare the Direct Connect** and see if it really is, in fact as bad as its detractors would have you believe.  

Ready for the picture exercise? Now keep in mind, according to the allegations, the examples that incorporate an airline direct connect should show less choice and less transparency and be really bad for the consumer. But you be the judge!

We invite to you to complete exercises 1-4 on the next few pages. The answers will be shared in the subsequent section.

Exercise #1:

This first set of screen shots (A&B) show a travel agency graphical user interface display for two separate Fare Search requests for service on Emirates Airlines between J.F. Kennedy (JFK) airport and Dubai (DXB) airport. One screen shows airline content from a GDS and the other shows airline content from an airline Direct Connect – in this case Emirates Direct Connect. Question #1: which graphic reflects the “anti-consumer” Direct Connect? A or B?

Exercise #2:

The next set of screen shots (C&D) show a traditional travel agency command screen display again for two separate Fare Search requests using the same Fare Search request example as above. Question #2: which graphic reflects the Direct Connect? C or D?

Exercise #3:

The next examples (E&F) show displays on Air Canada for Fare Search requests between Toronto and Montreal.  Question #3: which graphic reflects the Air Canada Direct Connect? E or F?

E
 

F


Exercise #4:

This last example (G) shows a Fare Search results screen for the Atlanta (ATL) – Dallas (DFW) city pair with a combination of airline Direct Connect and GDS on one screen (a typical pro-consumer requirement for effective comparison shopping). Question #4: can you tell the difference between the airline Direct Connect source and the GDS source?

G

 Answers:

Screens B, C, and E (Exercises 1, 2, 3 respectively) show the airline Direct Connect, and not the GDS. Note that screen C and E actually show more airline product content detail and transparency from the airline Direct Connect source than what is displayed from the traditional GDS source (C shows a free chauffeur service for certain customers and E shows a set of low fares (Tango) not even available through the GDS source.)

For screen G (exercise 4), we will never know which are from the airline Direct Connect versus from the GDS – you simply can’t tell the difference.

As these and countless other examples will show, claims that the Direct Connect model is lacking transparency and choice are entirely false. In fact, one can argue that the Direct Connect is actually more pro-consumer in that it shows additional information not even available in the GDS.

Summary

So what have we learned in our quest to uncover the real story behind airline distribution, travel supply chain, and consumer value?

First, we learned that no one really knows who originally said “A Picture is Worth 1000 Words”.

Next, by letting the pictures tell the truth, we saw that the real issues and criticisms about the airline Direct Connect model have nothing to do with being anti-consumer or anti-choice. In fact, Direct Connect can actually result in lower cost distribution for the airlines and greater transparency and choice for the consumer. The facts are right there, in black and white (well actually color).

We have also learned that the issues surrounding airline Direct Connect put forth by the distracters, lobbyists and naysayers are not real issues at all, but rather part of well-funded and carefully crafted PR campaigns designed to secure the status quo’s position within the travel supply chain. Sure, there are some real costs and required investments associated with change, updating and modernizing, but there always is when we innovate and improve things. The real issue surrounding the resistance against the airline Direct Connect model is only found when one Follows the Money.

The real story is that adoption of the airline Direct Connect model for the indirect distribution channel has the opportunity to take out billions of dollars of unnecessary cost to airlines and ultimately to consumers. But at the same time, adoption of the airline Direct Connect model significantly disrupts a money flow that has been long-established and long-depended on by a number of intermediaries, including the GDS, travel agencies and online travel sites. Adoption of the airline Direct Connect is a painful change for some of these established intermediaries. As such, some will resist, fight and challenge change to the bitter end because, just like in most cases, following the path of the money leads to the real issues and truths….and opportunities for those willing to see things as they really are.

Happy New Year! It’s going to be a fun one!

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Related Links
For more information about Direct Connect Distribution and the Travel Supply Chain, please see:
What Is Going On With Airlines & Online Travel Sites – http://www.youtube.com/watch?v=sZc9ZVQQIpY
The Case of the New Cookie – http://www.openaxisgroup.org/cookie/
Distribution 2.0 –  http://www.openaxisgroup.org/distribution2-0.html
Open AXIS Sets Facts Straight – http://www.openaxisgroup.org/news-industry-dialogue.html  

Notes:

* The travel agency booking screens shown below have been modified to hide the identity of the booking product, travel agency, airline content source [i.e. GDS or Airline Direct Connect], and traveler.

** All direct connect airlines presented here, and more, utilize the Open AXIS Group XML standard for airline connectivity, meaning a single development effort can be used to technically access multiple airlines (in contrast to frequent misrepresentation of Direct Connect as purely “single supplier”). See www.openaxisgroup.org.