LX In Or Out – A Harbinger?

Over the past few weeks, behind the scenes, a high stakes drama has been going on over the seemingly innocent issue of just one airline in a global distribution system. In this case the battle was over Lufthansa Group subsidiary Swiss Air Lines (LX)’s participation in Sabre. I am not going to comment on the actual nature of the dispute between the parties. That is for them to surface and share--far be it for me to address that issue.
Rather, I would like to look at the underlying issue: The case for a universal supply chain via the GDS, which is at the very heart of the concept of the GDS that we have known and loved for a very long time, is now under threat. And probably its current life cycle is reaching the end.
Sabre and LX were able to (very quietly) tell the world that they had come to an agreement, and that as a result LX would not be kicked out/asked to leave/disappear from (delete as you think appropriate) Sabre. That is the positive news.
However we are seeing these battles occur time and time again. Next year will see the first of the major airlines set up for a battle with the GDS over the cost of participation in the GDSs market. In my humble opinion, the battle lines have already been drawn and we are in for a long term and long drawn out fight.
The social contract that existed with the current round of contracts was largely blown, by the GDSs in my reading. The deal that was at the heart of the social contract was that the airlines would provide full content to the GDS players in exchange for lowered GDS costs of participation. As we have seen that GDSs learned a trick (funnily enough from the airlines) that unbundling the GDS products and services from the standardized fee could indeed result in a GDS gross revenue increase. The airlines in return feel that the GDSs have not played nice. So it is against this backdrop that the contracts will be reviewed.
Already a new model is out there. It's called the opt in model. Access to full content is no longer all encompassing. The airline can choose to opt out certain parts or prices of the product set. The famous Air Canada clause was the start of this trend.
No matter how the individual battles go for the airlines and the GDSs, there must now be the need for the travel intermediary community to have another way to secure their supply chain. There is a strong demand for a neutral but bilateral form of relationship tools between the parties to the distribution game. There are now many options. Most of the third party, travel agency-based technology companies now have the ability to provide for direct relationship management services. Indeed reading the announcements of the airlines who have chosen next-gen PSS systems, such as that recently announced by American in its move from Sabre (Airline Solutions), to HP/EDS, it becomes obvious that the focus is away from a transactional based infrastructure and model to a consumer/customer relationship model.
Smart agencies and intermediaries will be the ones who see the writing on the wall and develop independent solutions. Already we estimate that in excess of 80 percent of all U.S. GDS-generated PNRs have been touched by a third party system. Still, it will be hard to kick the segment override "drug" habit. Some have already done so and are many months sober. I firmly believe that this will spread over the coming years.
I will repeat an oft-followed theme in this blog. The universal “one size fits all” model is dead--long live that special relationship between individual market players and partners. This is a more natural act and one that now is possible in ways that the protagonists (happy and unhappy) could only have dreamed about as recently as six years ago.
Next few years will be interesting...
Cheers