It is a commonly held axiom that GDS bookings are higher-yielding than supplier.com bookings. Indeed, American finds this to be empirically true. The yield premium on GDS bookings can be as high as 30% in some international markets. While American and the GDSs find common ground in supporting data, we diverge on the phenomenon's cause. It is corporate customers, their preferred airlines, and their TMCs that drive the higher-yield bookings that are currently processed by GDSs.
It goes without saying that the buying behavior of corporate customers differs greatly from that of the typical online shopper. Corporate customers are more willing to purchase closer to the time of departure, value greater fare rule flexibility, pay a premium for nonstop and/or peak-timed flights, choose to fly out of more convenient airports, travel in premium classes of service, take advantage of airport lounges, and, when allowed by their corporate travel policy, favor the carriers that reward them best for their loyalty. To meet this high-yielding demand, airlines set aside last-minute inventory, offer fares with few or no restrictions, invest in their networks, pay top dollar landing fees and rent at the most convenient airports, refurbish aircraft interiors, expand and improve lounge facilities, and make their frequent flier programs as flexible and rewarding as possible.
Corporate customer needs that cannot be met by airlines or other suppliers can instead be met by their travel agency of record. Corporate travel managers get access to high-touch consulting, reporting, policy management, and post-ticketing services that would be difficult to insource or live without. Airlines also get access to unmanaged corporate business drummed up by TMCs. All of these activities earn the TMC a premium for the value they provide.
Before booking number one is processed, the buying behavior of corporate customers, the airlines' investment in their products, and the expertise provided by TMCs have already created an environment conducive to high yield bookings. The technical infrastructure interconnecting all of these parties makes transactions easier, but it is no more responsible for the generation of high yield revenue than the streets of Monaco are responsible for the sale of more Ferraris. While GDSs can be a valuable contributor to the process of procuring and managing travel, they are not airline marketing machines that prospect new business, grow relationships between airlines and their agency/corporate partners, and convince customers to upsell from the least expensive fare. These are the responsibilities of the other players in the chain.
We have instead seen recent evidence that GDSs can be an artificial constraint to the generation of revenue. American has been on the leading edge of making optional services available for display and sale through travel agencies, clearing the path toward better tracking and management of optional services spend by corporate travelers. Despite using technology that the GDSs can and do interoperate with today, no GDS has agreed to implement American's new capabilities. The GDSs have instead prioritized development of automation to facilitate "optimization" of airline incentives with TMCs--i.e. all else equal, maximizing commissions paid by airlines to agencies and thereby reducing net revenue to airlines.
Against this backdrop, it is difficult to accept that the argument that GDSs are intrinsically capable of generating high yield revenue. The evidence suggests that other players in the chain drive the purchase decisions that lead to higher yields. While GDSs are currently well-positioned to disrupt the relationships that lead to high yield bookings, we have not seen anything that would suggest that the use of a particular GDS to facilitate transactions causes higher yields or a richer mix of high yield bookings processed by a TMC.This post was republished with permission from American Airlines' Distribution blog.