Can Lufthansa Break the GDS Model??


Earlier this week the Lufthansa Group announced a new fee for bookings made through 3rd party Global Distribution Systems, a “Distribution Cost Charge” of 16 euro per ticket. The company cited ongoing cost concerns with GDS-issued trips and, not surprisingly, the GDSen are less amused. Amadeus has communicated to its agents, disputing the cost differences between GDS and direct sales channels and generally calls into question the commercial model Lufthansa is pursuing.

lufthansa-group-amadeus-playing-chicken
The hard part about playing chicken is knowin’ when to flinch. Or maybe this is for real.

Among the juicier bits of that statement:

The €2 direct distribution cost seems to be significantly understated. We do not know how LHG has reached this number but we believe the technology and internal costs to LHG alone for direct distribution are above €2. Furthermore, this figure seems to omit the substantial cost of online traffic acquisition, commonly understood in the industry to be €15-€20 per ticket. Therefore, it seems LHG is driven by reasons other than cost.

As such, LHG’s true intentions with its surcharge program are unclear.

Amadeus also suggests that it has been negotiating for over a year in efforts to integrate Lufthansa’s “Full Content” feed into its systems. This is the arrangement which allows the GDS to include various ancillary products in the purchase cycle, the very thing which Lufthansa Group is seeking, as are many other airlines. Further, the memo suggests that the negotiations may have been in bad faith:

Amadeus has engaged in good faith with LHG for over a year with the objective of renewing an agreement with LHG to make all of its content available to the travel agency community. Having this content in the indirect channel would provide travelers with the consistency, transparency and choice that they demand, giving them the liberty to shop where they want.

We were led to believe that LHG was engaged throughout the process. It seems this was not the case and LHG’s true intentions were not shared with us.

That is a biting statement.

And yet the Lufthansa Group seems set with the decision. The project to implement this new plan is not one which was dreamt up overnight. And, while I’ve yet to find someone willing to speak on the record, all accounts so far suggest that the company has decided to bite the bullet and weather the storm. Feel free to add your own idioms as necessary; either way this is not a capricious decision.

Read More: Lufthansa attacks the GDS channel

The Lufthansa Group is not the first to wage such a battle, though it may be the first major one to use passenger fees as part of the fight. American Airlines fought with lawsuits and eventually settled with both Sabre and Travelport. Those settlements included the GDS platforms distributing American’s ancillary products through their systems. Of course, such a distribution model was under negotiation between Amadeus and the Lufthansa Group so it is possible; it seems that the issue comes down to who is willing to pay what.

And, at least for now, the Lufthansa Group is willing to press the issue further than any other major airline has in the past. If others join them then it could break down the GDS model in a significant way. If others don’t it could impact future revenues as the carrier will appear to be more expensive to passengers given the same fare thanks to the 16 euro fee. There are still 12 weeks left for someone to blink.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.

4 Comments

    1. Every now and then I get bored with generic photos. Plus, can you think of a better set of graphics to connote “playing chicken” than these?? 😉

  1. Thanks for reporting on this story – very, VERY interesting stuff from the business side of aviation that I may have missed otherwise!

    And I fully support the use of Footloose references whenever possible.

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