Friday, September 2, 2011

A Distribution Prediction

Perhaps if you want to understand some of the practicalities of the airlines planned change over to direct connect you could look at the current hotel booking model and how it does (or does not) work. To me the hotel model is where the airline industry is heading. Let me explain.

Money and strategy matters aside the consolidated ‘one stop shop’ offering provided by the Global Distribution Systems (GDSs) is perfect for customers and intermediaries alike. You do not have to go to numerous different ‘shops’ to buy your airline product. Shops that have different languages, booking methods, rules and reporting. It is all there for you in one common language package with little diversity or complication.

Now hotels are totally different and far more difficult to package. Each location can be independent, owned by a chain, part of a consortium and sometimes a mixture. Each speak a slightly different version of the same language and they very rarely sell their inventory through a GDS because they are too expensive. Instead they do their own thing via many different outlets at many different tariffs. Frankly it is all a bit of a mess if you want a properly managed travel programme, particularly as they use differing technology.

So what is happening with hotels now and how does it compare with the current GDS system? In the main TMCs must have some kind of ‘connection’ (either direct or via third party) with key hotel establishments and chains. Some TMCs have created their own databases to hold inventory and information that then gets linked up to the GDS air booking screen. It ends up all looking like one source but contains numerous connection types that range from online links to manual entry.

The TMC has to create room allocation acquisition and management systems that doubtless include room close-out periods and price variations by customer and intermediary. These need constant adjustment and repopulation to remain current.
Ultimately they end up with their own mini GDS for hotels with numerous information flows coming from a similar number of independent sources.

OK, back to airlines. They are necessarily a selfish bunch. They don’t want to pay for the current excellent consolidated air booking system any more. They just want to sell their seats in a way that gives them more power/control and less cost. They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere.

Where might this end up? Some might call it industry evolution but I would call it going backwards. Instead of efficiency and commonality in air travel it will revert back to the hotel model of individual airlines operating at different speeds with different communication methods. They will deal through TMCs who also vary in skill and flexibility. There will be dual pricing and availability depending on which model you book through and which source you use. That is progress?

I am sure the GDS have explored all avenues to find a solution to being considered bad value for money by their airline customers. I have always thought that if they presented and justified their cost more intelligently, reduced prices strategically whilst building in new markets (such as hotels) they might do a lot better for all our sakes Either that or negotiate their wares with corporations/TMCs in a new and different way? After all people will pay if they see a value and surely it is better than the chaotic alternative illustrated by the hotel market?

The smart TMCs have seen this direct connect war coming. In fact you would have had to be blind not to. They have been building what they call ‘super platforms’ and the like in anticipation of it. I predict it is only a matter of time before the mega TMCs connect their ‘pipe’ to the main suppliers in the air and hotel world. In fact it is happening now. What happens then? Are the TMCs going to distribute inventory at no charge? I doubt it. They will most likely become the new GDS of the future but with broader product reach and more control on who the customer uses and at what price.

Perhaps the GDS and airlines need to get there heads together in more harmony or they may end up creating something that compares with Frankenstein’s monster. Built with various industry parts but likely to murder them!

Anonymous Comment:

Brilliant commentary. Mike has REALLY hit upon something important here.

Love the line about airlines wanting more control and less cost, "They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere."

Again, brilliant analysis

Anonymous Comment

As ever Mike hits the nail on the head whilst other so called industry experts have a tendancy to hit their thumb with an oversize hammer. What is being described as more than likely to happen within the industry is in fact already work in progress; and perhaps further down the line than many (on all sides of the equation) would care to admit.

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