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Issue 2001-5 - Wesnesday, March 28, 2001

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enewsletter sign up free we must put an end to the existing monopoly of the GDSs  

Orbitz recently asked the Global Aviation Associates company and Aaron Gellman, professor at Northwestern university, to write a laudatory report about its website.

From these 89 pages that relate "The History and Outlook for Travel Distribution in the PC-Based Internet Environment", it appears obvious that travel agent trade groups, GDSs as well as the two biggest eTourism websites, Travelocity and Expedia, mounted a concerted and totally unjustified push against Orbitz.

The report mainly blames these three different types of actors for the negative effects they have on customers who are no longer free of their choices.

Every last thing is mentioned: not only the fact that the ASTA (American Society of Travel Agents) is no longer allowed to give its opinion about online and offline free competition, since it mainly defends travel agents, but also the fact that Travelocity and Expedia joined forces against Orbitz in order to try and retain the monopoly in the eTourism sector and that GDSs are to blame for the fees' increase in the airline sector.

Luckily, Orbitz should arrive soon, thus restoring customers' freedom by offering them an unbiased system at the best possible price and without having to resort to GDSs (Global Reservation Systems).

For some strange reason, this harsh criticism only seems to concern Sabre, Galileo and Amadeus. On the contrary, the study treats Worldspan kindly (Worldspan is wholly-owned by Delta Airlines, Northwest and TWA).

According to this study, the GDSs took advantage of their monopoly in the eTourism sector and raised booking fees by 7% per annum over the past ten years. But let's not forget that it was only last year or the year before that the GDSs Sabre, Amadeus and Galileo really set themselves free of their airline shareholders…. But then, who were those who used to benefit from those regular booking fee rises before that time? Was it the airline companies that were part of the Orbitz's group?

What's more, it would be totally unjustified for the GDSs to get global net margins as high as 13 or 14% when airline companies only get much smaller margins.

Let's precise that in the section dedicated to net margins, the study mixes extraordinary income and operating income in order to "increase" the final percentage.

I will not discuss the conclusions of this study any longer, please note that you can download the whole study on Orbitz's website through the link you'll find at the end of this article. Please also note that Expedia and Asta both considered this study as a fraud. The ASTA President Richard Copland, the manager of Asta, classified it as a report that was part of a massive and very expensive public relation campaign to bamboozle people into thinking that Orbitz is just another start-up company.

I wholly agree with Expedia and Asta and can't help but notice that even though the study contains many interesting figures, it systematically uses them against Sabre and Travelocity, and such attitude quickly annoys readers.



I also notice that only one page out of the 88 pages of the study mentions, in a rather vague way, the Orbitz solution.

And the miracle "solution" that was meant to put an end to the supremacy of the GDSs seems rather worrying as it happens to be about free competition itself, whether it is on or offline.

First of all, Orbitz will display information about all carriers and will sell tickets on all carriers that participate in the GDS… Worldspan.

Airlines that agree to be on both Worldspan and Orbitz's website will then get a rebate on fees made on the site that will correspond to part (60%) of the rebate Orbitz will get from Worldspan, according to the heavy traffic created to the benefit of the GDS.

What is more, Orbitz, as well as all the airline companies that will deal with this site, plan to bypass the GDSs altogether, Worldspan included, thus allowing Orbitz to communicate directly with each airline's internal reservation computer.

Orbitz contemplates a two-steps plan:

1) All those who want their offer displayed on Orbitz must also participate in Worldspan. In return, they will get a rebate from Worldspan through Orbitz.
2) In the future, Orbitz will communicate directly with each airline's internal reservation computer without the intermediary of any GDS.

What this means is that Orbitz, which is owned by the biggest airline companies in the world, will get approximately 2.7% of the average ticket price more than travel agencies and other eTourism websites when its system communicates directly with airlines' internal reservation computer.

In plain language, despite Orbitz's claim that tickets available on its site will also be available on any of its online competitors, it will still benefit from a cost price that will prove 2.7% cheaper that its competitors for the whole airline offer.

Margins are extremely low in the eTourism sector, and as a result these 2.7% do represent a very high figure, that should be compared to the present negative margins obtained by Travelocity (-32%) or Expedia (-87%).

This is the reason why, as Orbitz is no more than a servile tool held by airline companies, online competition might well become totally distorted in the coming years.

I do not even dare thinking about the consequences this plan might have, not only for traditional travel agencies but also for eTourism websites that happen to be smaller than Travelocity and Expedia.

This is why I feel that the Orbitz project, that was originally designed to protect customers from the monopoly of the GDSs, but also from the two biggest online travel agencies, might well end up strengthening the position of Expedia and Travelocity even more.

Indeed, when Northwest Airlines (who founded Orbitz but also owns 34% of Worldspan capital) cut down commissions paid to American and Canadian online travel agencies, the decision proved worse for small sites than for leading websites that are able to diversify their source of income.

As far as Travelocity and Expedia are concerned, only 25% of their revenues come from airline tickets. But what is going to happen to smaller sites? Will they be bought out? Will they go bankrupt?

I feel that all decisions taken by Orbitz and some of its shareholders will only manage to strengthen the eTourism market even more as the weakest elements will have no choice but disappear.

I am not quite sure that Travelocity or Expedia will manage to convince airline companies to let them do the same as Orbitz and connect themselves directly on their internal reservation computer, bypassing this way the GDSs altogether, but there is no doubt that none of the smaller eTourism actors will have the opportunity to do so.

It will then be easy for Orbitz to explain that Travelocity and Expedia have the monopoly on the Internet, after it did its best to kill their competitors...

This is why I fear this drifting might well prove very dangerous for the future of the eTourism industry and I feel it would be a real shame if the Internet potential happened to be wasted that way.

Source : Orbitz/Global Aviation Associates


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