CRS: New Trends, Future Tense

Anindita Chattopadhyay - New Delhi

Going by the international trend, one can say, in India, a zero commission regime is looming large as the network airlines are aggressively looking at cutting costs. If reducing agency commissions has been the first step, then reducing transaction fees for CRS will be the next. That is how it happened in USA and Europe where scheduled airlines are trying to survive against the onslaught of low-cost airline revolution.

As a ripple effect of that phenomenon, European carriers have fired the first salvo in India by slashing commission from seven to five per cent. Though agents won the first round, the battle is far from over. In the future, if agents are forced into compliance, a domino effect is imminent with other international airlines and domestic carriers following suit. And almost certainly, the next area that will be seriously tackled will be the GDS transaction fee.

GDS companies are anticipating the trend. More so, because airlines have long been concerned about ballooning distribution costs due to booking malpractices and abuse of the GDS system.

Airlines believe it is the razor-edge competition between CRS companies in India that is creating the gray areas. In India, GDS companies not only install the terminal free (in other countries a lease rent is charged), but back it up with productivity incentives to agents to ensure loyalty. Reason? A little swing can tilt the balance of market share heavily because there are very few players.

According to airlines, a Delhi agent who often features among the top three productive agents for GDS companies is not even among the first 100 in the BSP list. That means that the agent has not really done any serious transactions for the airlines but siphoned out the money from their pockets.

"GDS providers can find out what is a particular agent's genuine business from the payment made to the BSP. If they evaluate it with the corresponding bookings created on their system, they can identify erring agents," said Bernhard Baeck, country manager, Austrian Airlines.

The brewing discontent is bound to reflect in the form of slashing of booking fees. In such a scenario, agents will have to shell out money to access the content displayed by the CRS. "In the near future, there will be a cut-back on the segment fees that airlines pay to CRS companies as airlines try to reduce their distribution costs. In this scenario, the revenue model will change with agents being compelled to pay the airlines and CRSs for accessing the content on the CRS screen," confirms Seema Luthra, CEO and president, Galileo India.

Concedes Karun Budhraja, deputy general manager, marketing & corporate communications, Indian subcontinent, Amadeus and adds, "Given the state of affairs and content being the key, (especially LCC) the travel agents would ultimately be needed to pay for the system as is the case in the west."

However, no doubt, this will happen in a phased manner. First, certain content such as special fares will be blacked out. Then, gradually all content will be categorised as paid. Over and above, agencies will lose the productivity incentive that they have enjoyed for so long and will need to look at new revenue models to survive and compensate losses.

Reality byte

A look at the emerging trend in the West will clear the haze. The USA saw deregulation of the GDS environment as a fallout of the public debate last year between Worldspan and US Airways. Deregulation allows flexibility of pricing for the GDS and provides airlines the freedom to choose the GDS they want to use to display their products.

And now GDS deregulation is coming in Europe. In the UK, British Airways made the first concerted move to reduce their GDS costs in January this year by signing a contract with Sabre and Galileo. Reportedly, the carrier reduced their booking fees by an estimated 25 to 30 per cent in return for guaranteed access to all fares and a three- year commitment to participate in these GDSs. Later, BA threatened other GDS companies - namely Amadeus and Worldspan - to surcharge the fares processed by these systems by £3 each way in the UK if they did not sign a similar deal. And they both gave in.

Other airlines across Europe are expected to follow a similar strategy over the coming months. Naturally, the GDS companies will be looking to recover the extra costs from the travel agent community. Analysing the situation, David Scowsill, CEO of Opodo.com, in his keynote address at EyeforTravel's European Travel Distribution Summit said, "On the corporate travel side, the GDSs are also moving toward vertical integration and a 'direct to corporate model' - effectively competing with the big Travel Management Companies, who have traditionally aligned with multiple GDSs to provide the breadth of choice required by their clients. GDS companies also have ownership in and/or partnership with the online agencies, fuelling, even further, the growth of online booking."

"With deregulation, GDS companies will have to evaluate their part in the value chain and come up with creative pricing models and innovative value adds in a totally competitive environment," says Stuart Crighton, head- South & West Asia, Abacus International Pvt Ltd.

India: what's in store

In India, though Galileo, Amadeus, Abacus and Sabre all have corporate booking tools and solutions, a trend towards direct-to-corporate-model is not really imminent now. As Budhraja says, "Till the time that the tangible element of service delivery remains - that is, getting visas done etc - we will work with travel agents helping them offer seamless services to their clients."

The Western model may not be replicated so fast in India because of its sheer size, enormity and different market dynamics in different regions.

But the traditional distribution model is bound to change because agents will lose their cushy position with GDS incentives vanishing into the thin air. More so, because online booking, which is fast becoming a phenomenon globally, will catch up in India sooner than later as GenNext Indians are tech-savvy.

The European online travel market has witnessed continued growth over the last few months as consumers have moved away from purchasing through travel agents to online buying. Around 6 per cent of total travel is now booked online, with the largest markets being the UK (34 per cent), France (19 per cent) and Germany (19 per cent). A similar trend is anticipated here with the young generation's exposure to a virtual environment.

With ever-decreasing margins, leisure travel agencies will be forced to charge consumers resulting in the introduction of service fees.

The future business model looks like this: Airlines reduce CRS fees - CRS charges agent for accessing content - agents ask consumers for a service charge to compensate loss of revenue.

So what will be the strategies of CRS companies to woo loyalties of agencies? Incentivisation will definitely give way to product development. "The differentiating factor will be the quality of content (for eg. number of airlines on the e-ticketing platform) and the bouquet of the product and services backing it. For instance, Galileo's 360 degree fare is the most advanced fare management system," says Luthra.

"Each one has to take a position as GDS. It can either be technology offering, content perspective, or one's reach as an aggregator of content," comments Crighton.

According to Budhraja, "Firstly, it will be relationship marketing and secondly, product differenciation. Technology can be replicated instantly. But it is not just about advantages or benefits, but how customised your product is to suit the need of a particular agent." Software development is an ongoing process with all GDS providers. In the long run, it will be the product - that is, the technology that can be harnessed by anyone - that will determine loyalty. The GDS companies will have to understand the changing trends in the industry (management fee is one of them), identify the products that will help agents manage that change, assist wholeheartedly in educating them on the value of these products and how best to utilise the product to garner optimum benefit.