ACTA warns: spread of AA-GDS dispute risks agency, consumer turmoil

American Airlines drew attention for its dispute with GDS provider Travelport in November and that argument is fast becoming an all-out confrontation between travel agencies worldwide and AA – and possibly IATA. This is a contest among a growing number of players that, unless checked, could spread over a large part of the global travel industry with dire effects on travelers and the travel distribution system at large.

American Airlines says it will begin issuing surcharge invoices in February for AA flights booked on Travelport systems as of Monday, December 20. The actions by AA threaten to begin forcing travel agencies to institute more service fees, face mounting costs and radically change the ways they book tickets for clients while agents and consumers will face mounting difficulties in comparison shopping for travel.

This is the opinion of the Association of Canadian Travel Agencies which is deeply involved with leading travel agency associations in a number of countries rallying resistance to the actions of American Airlines and potentially IATA, the international trade body that represents 230 airlines comprising 93 per cent of scheduled international air traffic.

If AA wins the campaigns it is now waging on several fronts, Canadian travel agencies that book passengers on AA flights through Travelport’s Apollo Global Distribution System (or Travelport’s Galileo or Worldspan in other countries) will be forced to pay a per segment surcharge to AA. For agencies that must use Travelport GDSs because of contractual obligations or lack of alternatives, such a hike could push cheaper fares up by double-digit percentages and multiple segment flights by considerable dollar amounts. Some agencies could stop using Travelport to book AA flights and switch to AA’s Direct Connect booking engine and other systems for these flights.

The surcharge for Travelport’s Apollo used by many agencies in Canada has been set at $10 with different amounts for other Travelport systems and in other countries. American Airlines does not have a Direct Connect site serving Canadian travel agencies and only ‘hopes’ to have such a site in 2011.

While Canada might not be hit badly because of relatively small American Airlines market share, surcharges around the world could add considerably to costs for passengers flying almost anywhere. What are more serious possibilities, in ACTA’s view, are the precedents that could be set by American Airlines actions against a major GDS provider, enabled in part by IATA.

Scenario

Here is just one possible scenario that could result from the American Airlines confrontation with Travelport, posed by David McCaig, President and COO of ACTA:

• American Airlines (AA) surcharges travel agencies that book AA flights through Apollo, Galileo or Worldspan.

• IATA enables AA to bill surcharges to agencies through Agent Debit Memos (ADMs) via the Billing and Settlement Plan (BSP).

• Agencies use other GDSs or AA’s Direct Connect and do not use the Travelport GDSs to book AA flights.

• Other airlines follow AA’s lead and institute surcharges on use of Travelport GDSs. Surcharges are expanded to other major GDSs as airlines offset one of their major expenses.

• Major airlines emphasize their own direct booking engines in competition to the GDSs.

• Without the competition provided by the GDSs exhibiting all fares and ancillary charges, airlines are emboldened to tailor packages for greatest profitability at the expense of customer needs or desires.

• Travel agencies are increasingly forced to use direct airline connections as surcharges levied through the BSP become too expensive to maintain.

• Agencies pass on surcharges or their costs in managing a number of individual airline connections to passengers in service fees. Consumer resistance increases when they realize GDS booking may cost more and the services of the travel agent are devalued as the agent loses the ability to efficiently comparison shop for the client.

• Agencies become unable to optimize their GDS contractual levels.

• Direct connection booking returns to the dominance it had in the earliest days of commercial aviation causing a radical decline in competitiveness.

• Without competition enabled by GDSs, prices increase and ancillary packages make travelling more expensive, less convenient and less comfortable for passengers.

Mr. McCaig adds, “It’s easy to see that an AA victory would entice the rest of the carriers to adopt similar models returning air bookings to complete control by each airline and removing the competitive landscape displayed on a GDS. We would be thrown back in time when passengers were denied choice, convenience and comfort.”

Mr. McCaig says these questions must be answered: “Is the long-term goal to move more business away from agencies? GDS booking fees are just part of the cost of selling tickets through agencies. The more expensive it is for agencies to do business, the harder it is to serve customers and the less valuable the services of the agencies become. Will fewer travelers choose to use an agency if competition vanishes from GDS screens and airlines are free to artificially raise prices? Is this issue a lot bigger than AA versus Travelport or AA’s Direct Connect against GDSs?”

Legal fight leads to February fee

The issues became known in the travel industry when American Airlines notified non-U.S. travel agents that it will charge a booking fee to users of Travelport reservations systems (Apollo, Galileo and Worldspan), starting in February. The reason given by AA was to bring the net cost of Travelport GDS transactions made outside the U.S. in line with the cost of other GDSs and distribution platforms. Originally, this surcharge was set for Canada at US$2 per segment but that has risen in AA documents to the current US$10 per segment for Apollo with fees rising to about US$22 per segment for agencies in other countries.

“We would like to see the numbers,” said Mr. McCaig, “that prove that fees added by Travelport are more than the surcharges being invoiced to agencies by American Airlines. At this point, we are skeptical.”

ACTA believes the real intention behind American Airline’s surcharge plan is, first, to punish Travelport for launching a lawsuit against American when the airlines tried to deny its flight information to the Online Travel Agency Orbitz, Travelport’s largest customer and partly owned by Travelport. ACTA believes the short term goal is to push travel agencies away of use of Travelport GDSs, and into use of American’s Direct Connect booking system. There is a growing suspicion throughout the industry that the long-term goal could be to impose similar surcharges on all GDSs to detour many travel agencies to Direct Connect.

Direct Connect controls passenger package

He also says this scenario could run hand-in-glove with the sale of ancillary services like baggage, meal, first-in-line and other charges that now may be providing airlines with large profits. “The airlines want to sell the customer the package that has the highest margin ancillary services whether the passenger wants the package or not. Once the airline has control of the booking platform, it controls what the passenger can buy and the price of that package,” says Mr. McCaig.

He adds that competition could erode or even disappear if travel agents and passengers become unable to see and compare all fares and ancillary services on global distribution systems.

AA to use BSP without consultation

American Airlines has taken another step in the escalation of the issues by telling IATA it would use the BSP, the worldwide system by which airlines settle their charges for air travel, to issue Agent Debit Memos (ADMs) and collect surcharges from agencies each time they use Travelport to book AA tickets.

Most travel agency associations oppose this demand by American Airlines and what Mr. McCaig calls ‘the disappointing decision’ by IATA to agree to allow AA to use the BSP in this way.

IATA had written to agency associations with this message: “American Airlines issued a communication to their travel agents on 17 November, over one month prior to a change taking effect. We also understand American has already been consulting with agents and different agency associations on the various aspects of the change, including providing alternative options. Taking this into account, IATA believes that American Airlines has fulfilled its consultancy obligations as outlined in Resolution 850m.”

The European Travel Agents’ and Tour Operators’ Associations wrote to IATA challenging American’s intention to charge Travelport users through the BSP. Now associations around the world including ACTA are joining in strengthening the objection to IATA and AA’s double-teaming of the agencies.

ACTA sits on a key IATA committee, the Canada/Bermuda Agency Programme Joint Council. “A key IATA resolution states that the BSP can be used to levy charges against agencies only when agencies have been consulted and should only be used in reference to actual ticketing process,” explains Mr. McCaig.

While IATA claims that AA did inform agencies of the pending surcharge, Mr. McCaig and allies in Europe and among the World Travel Agents Associations Alliance (WTAAA), counter that AA did not consult with agency groups but dictated to them. “No major, affected agency group would agree with this surcharge,” says Mr. McCaig. “There was no meaningful consultation,” he adds.

Other associations representing a majority of travel agencies in the countries where AA flies, call the claims by IATA and AA that agencies were consulted “insulting” and are telling IATA that its obeisance to AA’s demands are unacceptable.

The IATA letter prompted a typically irate travel veteran to call it a ‘cop-out’ by IATA and to accuse the body of playing politics with the decision favouring American Airlines, one of its largest members. There also are charges by agency representatives that IATA has a history of ‘beating up’ on the global distribution systems and airports because these are major cost centres for airlines.

Travelport’s Solution

Travelport issued a letter to agents December 16 proposing a solution for agencies. The Travelport letter complains about the AA action and says it is “penalizing the very people who deliver valuable revenue to AA.”

Travelport says it “supports the industry in its contention that the use of ADMs (to invoice travel agencies via ADMs through the BSP) is not within the bounds of IATA Resolution 850m.”

Travelport has developed processes so the surcharge will be added to the fare display and quotations that incur the AA surcharge so agents can provide to customers the total cost of the AA ticket booked through Travelport. Travelport explains, “In most of these cases, the surcharge fee can be automatically remitted to AA without the ADM process.” In fact, says Travelport, display of the total fare with the surcharge added is a legal requirement in Europe.

Surcharges will be included in the price of the AA plated ticket only, says Travelport, and will be generated as a miscellaneous tax. Then AA will receive full payment for the total ticket price through the BSP.

Mr. McCaig says the Travelport solution is “probably the best that can be offered in the circumstances. It moves a lot of the billing away from the BSP but, of course, it is not ideal.”

Travelport says its solution regarding AA plated tickets “minimizes the need for your agency to create exception processes (and) your agency efficiency levels remain intact with no need for work-around processes, special agent training, etc.”

However, the situation gets cloudy when a flight is plated on another carrier but contains one or more AA segments. In these cases, the surcharge fee will be displayed in the price but will not be included in the ticket generated by Travelport. AA will issue an ADM for its segments and agencies must recognize that YY surcharge fees are not included. Agencies will need to recoup the surcharge by charging additional service fees to clients.

Even Travelport throws up its hands when it comes to code share situations. While Travelport believes the surcharge will not apply to code shares – where the carrier is other than AA but the flights are operated by AA – but in an issued statement, Travelport adds “it is not clear to us at this stage how AA plans to handle its code share arrangements.”

Travelport says in its letter to agencies that it wants to support a pro-competitive and pro-consumer marketplace where travelers and travel professionals can shop, compare, and buy travel in whichever channel they choose.”

Agency associations must speak out: McCaig

What Mr. McCaig says is important now is for legitimate travel agency representatives worldwide to speak out publicly against American Airlines’ attempts to direct agencies away from the booking systems that serve consumers better than any other. He predicts AA’s activities regarding GDS surcharges linked to ancillary charges for passengers could push up the cost of air travel considerably.

Mr. McCaig says ACTA will strongly support any agency group that moves to legally challenge the use of IATA’s BSP to issue ADMs for American Airlines. He adds that all agencies should dispute any charges levied by AA or through the BSP for use of Travelport for AA travel on the basis that no credible agency group has been consulted by AA on the use of the BSP contrary to IATA’s resolution 850m.

ACTA warns: Agencies, consumers will suffer

“This is the tip of the iceberg as far as the consumer is concerned,” predicts Mr. McCaig. “If AA gets its way, consumers will pay a great deal more for air travel beginning this February and lasting forever.” He adds American is the leader but many other airlines could follow to create direct connections for booking while they force agencies to leave the GDSs through financial persuasion.

“If we roll over now, travel agencies around the world and their clients could suffer greatly,” says Mr. McCaig.