How do you purchase your flights? By going directly to your favorite airline
and grabbing the first flights you see for the dates you need? Or maybe you
research prices on Skyscanner, Travelocity, Kayak, or any other
aggregator to compare fares and book the cheapest flight for the dates that
work. Maybe you don't trust your computer and call a travel agent.
How do users get all these options and exactly how do airlines distribute their tickets?
Back in the 60s, making a flight reservation took multiple people and
a mainframe computer to process. American Airlines and IBM pioneered automated
flight distribution using the IBM 7090 computer. It was situated in Briarcliff
Manor, New York, and housed all flight reservation data. That computer was
connected to 1500 American Airlines remote terminals across the country.
To make a reservation you contacted a travel agent who then reached the
airline by phone to reserve a seat. That system could process up to eighty four
thousand telephone transactions per day. Its full name Semi-automatic Business
Research Environment was simplified to Sabre. Later similar computers were
adopted by most carriers, while Sabre became the leading flight distribution
provider in the world. In the 70s, terminals were extended to travel agents
offices to free up manpower at airlines. This was the beginning of the era of
global distribution systems known as GDSs.
Today GDS, large flight aggregators, collect flights from about 400 Airlines and distribute them across
travel agencies using their own application programming interfaces or
APIs. APIs are the main connectivity channels used for linking different
software systems in the modern world. There are three major GDSs: Sabre which
became an independent business in 2000.
Amadeus, established in 1987 by four
European airlines, and Travelport, a UK-based GDS formed through a merger of
smaller providers. Besides air travel, GDSs now support
hotel room distribution, train travel, cruises, car rentals, and even airport transfers.
So, how exactly does GDS-centered distribution work?
GDSs are normally connected directly to the heart of airline sales technologies -
central reservation systems or CRSs. A CRS is a software program that manages seat
reservations on the airline side once a GDS requests a seat.
But this connection channel doesn't cover scheduling information and pricing.
To set time tables and prices Airlines must connect with two additional third
parties. Airlines publish their prices on so called ATPCo or airline tariff
publishing company. It's the main global source of fare information that further
distributes prices across GDSs online travel agencies or OTAs and price
aggregators like Skyscanner. On top of that, airlines connect to scheduling
providers such as a Innovata and OAG. These technology companies supply the travel
market with flight schedule, routing connection, and flight code info.
Powerful middlemen, GDSs have become close to a monopoly on the air travel distribution market.
For many years they've been the main point of contact for both airlines
and agents, including online travel agencies. Most travelers today research
prices at OTAs and about a third of travelers worldwide purchase tickets there.
What's wrong with GDS-centered distribution?
First problem is the lack of valuable customer data. As GDSs process bookings, most of the
information remains in the hands of middlemen and doesn't allow airlines to
track their customers and eventually adapt to their preferences.
Second, limited ancillary support. Airlines receive very thin margins in
the sale of their core services: carrying people from point A to point B. The main
source of profit for many airlines is allowing you to choose seats, upgrade a
class, take more luggage, get priority boarding, or order a better meal.
While global distribution systems' APIs transmit key booking information to
online travel agencies, ancillary support is usually limited. And perhaps the main
problem is that airlines don't have full control over their inventory and the
choice of a distribution channel. Some airlines, like Lufthansa, for instance,
decided to combat GDS dominance and encourage people to buy tickets directly
from their sites. Lufthansa even introduced an additional 16 euro or
approximate $18.00 fee for each booking through GDS. Some low-costers like
Ryanair tend to avoid GDS distribution entirely opting for direct bookings from
their websites. For instance, Ryanair, the major European carrier, discontinued its
contract with Amadeus in December 2017.
In 2015, IATA or International Air Transport Association introduced a new
API standard for Airlines called NDC, or new distribution capability.
NDC allows Airlines to build their own APIs and suggest them to GDSs
or entirely bypass this layer by connecting to online travel agencies
directly. NDC standards support rich content wide ancillary offers an even
personalization for every customer. Despite the opportunity airlines are
slow to change. Today only 65 airlines have adopted NDC one
way or another and GDSs are also trying to keep up with technologies pace
investing hundreds of millions in innovation. Curiously enough,
all three are already incorporating NDC support in their products as they try to
maintain their positions.
Even though airlines, hotels, and other local service providers strive to avoid third parties and distribute their
products directly, each year's growing number of travelers will be looking for
reliable, comprehensive travel booking platforms, services that allow you to
plan your entire trip from flights and accommodations to snacking at local
eateries will gain in popularity. But we don't know yet which path the industry
will choose.