Notable changes to the ‘Global Distribution System’ fees
It seems that the only guarantees in the travel industry are that everything changes, and often quicker than we would like. What we expect to happen suddenly alters course and causes a sensible business to review its future path.
2017 has certainly seen a few changes we could not have predicted. Just over a month ago, IAG in the guise of British Airways and Iberia announced that from 1st November 2017 any agent processing a booking through one of the usual GDS systems would be charged an additional £16 per return journey. The aim, said the airline, was to reduce the costs of distribution by moving agents towards ‘direct connect’ systems using NDC which would allow the airlines sell additional ancillary services to the passengers.
The majority of TMC’s and leisure agents see this as the use of BA’s dominant position in the UK as an abuse of power, fearing if they get away with it, all the smaller airlines may well follow suit. Complaints that the proposals are anti-competitive have been made to the competition authorities here and in Europe but worryingly, two major TMC’s have already announced they will move away from the GDS system for booking BA flights in due course.
What does this mean for other IATA agents? GDS depend on their income from sector fees paid by airlines and in turn offer incentives, often running into six figures, to agents based on the number of sectors booked. If IAG are successful in moving away from the old booking patterns, it seems certain that when your next GDS contract is up for renewal, the incentives offered will be considerably lower than in the past.
Next year a further blow to travel businesses may appear in May 2018 when the General Data Protection Regulation comes into force. A considerable value is often placed on a travel business’s mailing list but the new law will insist on a positive decision by a consumer to allow marketing rather the usual passive ‘tick here if you do not want to hear from us’ which was the usual way of developing a list in the past. Some commentators have warned that this could wipe out 90% of many businesses mailing lists and with it, a great deal of value in the business. You might think this would be a good time to contact all your customers to see if they would like to remain on your list but be warned, Flybe did exactly that and were fined £70,000 so be very careful.
Both these change may fundamentally change the way you can do business in the future and change the perceived value of your business and if you have considered the possibility of selling, now may be a very good time to look at the opportunities available.
Here at MHA Macintyre Hudson, we have a very strong Corporate Finance team who work closely with our Travel & Tourism sector team, if you have any questions about the above please get in touch with Robert Kidson, head of our Corprate Finance Group.