Etihad exec slams "huge margins" of GDS sector

Etihad exec slams "huge margins" of GDS sector
Published: 18 October 2012 - 6:59 a.m.
By: Monika Canty

Airlines at the IATA World Passenger Symposium which is taking place in Abu Dhabi this week have slammed the GDS industry for its spiralling costs, lack of innovation and lack of competition.

Speaking on a panel session at the event, Jim Callaghan, general counsel, Etihad Airways argued that while GDS costs had "kept increasing" - "Service hasn't really kept in line with those costs."

IATA has used the conference to unveil its plan for a New Distribution Capability (NDC) which the airlines hope will break the monopoly of the three major GDS systems and allow new players into market.

Callaghan said the current model had allowed GDS systems to cream off huge profits at the airlines' expense.

"We can see the huge margins the GDSs are making - 25.9% - whereas the airlines are struggling to meet their costs. The huge size of the margin in this area should be glowing beacon that something is wrong here. Because in any other industry if you had those kind of margins you would not have the limited number of players that you have in this industry.

If there was a possibility for an alternative distribution models to make inroads into that market there wouldn't be the size of that margin."

He insisted that the NDC was not a plan to by-pass the travel agent; but was aimed at introducing some competition into the market which would lower costs for airlines as well as increasing innovation in travel distribution.

"For a network carrier where you have connections and baggage issues it is a very complicated product and one that benefits from the travel agent being an active sales force and we very much appreciate the work the travel agents do.

Airlines have been putting a lot of effort into going direct but are still heavily reliant on the travel agents and therefore the GDSs. The issue is the intermediary between the airline and the travel agent. Even if there has been a migration to as much an extent as possible to direct distribution - still to have these margins that is a big problem."

"This is one of the number of businesses that the airlines created and were forced to spin-off to pay for their operating losses and these businesses have come back to bite us."

Karl Isler, Head of revenue management strategy, Swiss International Airlines said the NDC plan was needed because the "current distribution system doesn't work anymore."

"What was once an innovative for airlines to distribute their product before the internet is now an obstacle."



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