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Tuesday, July 26, 2011

"Making Nice" - What does it look like?

I have two children -- a girl age 13 and a boy age 11.  In our house, we have a firm rule.  No tattling.

We force them to "make nice" with each other, finding middle ground that works for both of them.  It is our hope that they are building lifelong negotiating skills.  We expect that this will have a positive ripple effect on our family and on their families once they are grown and on their own with kids.

Image: Paul Brentnall / FreeDigitalPhotos.net
We are witnessing two historic conflicts right now, both with a significant ripple effect beyond the base issues.

The first and most important one is with our Federal government that can't figure out how to "make nice" about our multi-trillion dollar debt.   Last night the President and the Speaker of the House tattled on each other to the American public on national TV.

As a business owner and unfortunately knowing first hand what default looks like from a failed business endeavor, I related to the harsh, almost parental words of the Speaker, who spoke not only as politician, but as an entrepreneur.

But as important as resolution of that issue is, since the stakes are so very high, I will trust [and pray] that resolution comes soon.  Too much is on the line and neither side will suffer the consequences alone.  If we default, our nation would suffer and it would be like throwing in a very large stone into a lake at dawn - we would clearly see the ripples for a very long time.  More importantly, if the country's credit rating falls, like the pundits on ABC said last night, things may adjust to the new normal, but they will never be the same.

My issue today is between the founding fathers of an era in our industry.   It involves parent (AA) and child (Sabre), among others.  

And we have just over 35 days before the ripple effect of this particular debate would be felt around the globe.  And if it isn't resolved and this dangerous game of chicken ends with a firery crash, we may adjust to the new normal, but things will never again be the same.

And no, I am not being melodramatic.

I am a realist at heart and as a published author on the topic and a consultant to the investment community for the last 10 years, trust me, I am well versed on the issues at hand.

Yesterday I posted about Gerard Arpey's statement about the seriousness of the situation with Sabre and Travelport, poking fun at him for the obviousness of the statement.

Like arguments between children that typically raise in volume before they are resolved, this one is at a fevered pitch right now.  TNooz reported last Friday that Sabre had raised booking fees, again.  I maintain that this is but one more step to demonstrate that they finally understand their value in the distribution chain.

Both parties have spent what I can only assume is now millions on legal counsel (if you count the internal salaries of those supporting the litigation and the consultants and expert witnesses working on the background information).

American maintains in the tattling to the DOJ that Sabre and Travelport have a monopoly.  I maintain that signing agency contracts for the provision of services to them is what they were created to do over three decades ago -- by the airlines themselves.   I fail to see how it is any different than American signing gate and departure slot deals at DFW, St. Louis, Nashville and other hub airports, which for many years has made them the dominant carrier there.  It is what they do.  They fly airplanes and they concentrate on hubs, because the hub and spoke system works.

I won't recount the details of the yield issue here again today, as I've written many times over the past few months about this.  But if you look at the real issues and if I were the parent stepping in to resolve the fight between children, I would be saying this about "making nice":

To the GDS:

  • Agree to connect to AA and others through Farelogix.  It simplifies the IT side of things for them, just as Pegasus did for the hotel community back in the late 80s and early 90s. You can get all the ancillary services content through them and if you actually stop to talk to them about what they've built, you'll see that you can add some significant value back to the travel agency channel by taking advantage of their merchandising.  
  • This also keeps the agency community from having to shell out money that they do not have to modify all their supporting systems to connect to multiple platforms.  
  • Revise your contracts with the agency community and pay incentives for the high-yield bookings for your airline (and other) supplier customers and do not pay incentives for bookings that fall beneath an agreed upon threshhold.  After all, the suppliers have been your true customers for nearly three decades and having higher yields makes them healthier, which is good for you.  
To the Airlines:
  • Agree to pay the GDS their booking fee for high yield domestic bookings that exceed a certain fare threshhold (you decide together what that is) and for high value international bookings, agree on the value of those transactions.  If you must, segregate out Mega Agency bookings from the balance of the subscriber base, as they have a much different value to you than the balance of the agency bookings.  For those that are truly not profitable for you to sell through that channel, pay a smaller fee that covers the GDS' costs.  It is called compromise, but this one is a win-win-win.
  • Think about reinstating a commission to the agency community for high yield bookings.   While this may seem anathema to your cost cutting goals, I think you would find quite the opposite would happen.  Remember, this is a completely variable cost channel to you and for as many years as I've been tracking it, it has produced more than enough in incremental revenues to pay the distribution costs AND the commission.  
  • Continue to look at your relationship with the OTAs and pull out if you must, but recognize that attracting customers to your own website is NOT free.  
  • As Google moves forward in integration of the ITA asset into their core search business, sleep with one eye open.  They control more eyeballs than the travel agency community ever has and right now they are the very definition of monopoly in search.
I rest my case.

Stay tuned.


Chicke Fitzgerald
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