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Dangerous Dreaming: BTC Fights Cost Shifts in Air DistributionApril 27, 2009 By: George Dooley
The sharpening debate over airline distribution policies and cost-shifting, acerbated by recent comments by Delta and American Airlines executives, took a new turn as the Business Travel Coalition (BTC) urged Southwest Airlines to review its policies. The BTC, like ASTA, is concerned with changes in airline distribution policies that could adversely impact travel agents.
In an open letter to Gary Kelly, CEO of Southwest, BTC Chairman Kevin Mitchell criticized Southwest’s efforts to move to an “agency-pays” model. “ I write to you with great concern on behalf of corporate travel managers regarding your airline’s misguided initiative to replace travel managers’ favored managed travel model with an undesirable “agency-pays” model.”
Mitchell believes that Southwest’s “scheme would virtually shift your entire cost of distribution to travel management companies (TMCs) and then in turn onto the backs of corporate customers who already pay for distribution in the price of Southwest Airlines’ tickets.”
“This scheme completely undermines the efficiency of the current distribution model, and as such, corporate travel managers will be diligent in ensuring it is not adopted more broadly. It would ultimately drive travelers out of managed travel programs and into the “walled gardens” of airline.com websites, places where comparison shopping and travel policy enforcement are virtually non-existent. This might be happy dreams for airlines, but it’s a nightmare for corporate customers, so they aren't going to enable it,” Mitchell said.
“While recently there has been much dangerous “dreaming” by airline executives about leading customers toward this self-serving future, I can assure you that this is not where travel buyers intend to go, and certainly not a path to success for an airline looking to grow in the corporate space. Companies will drive market share to those airlines that listen and are responsive to their preferences. Southwest has an opportunity to be among them, but only if it listens to its high-value corporate customers and moves quickly away from what appear to be surprisingly consumer-unfriendly practices from a typically consumer-friendly airline,” according to Mitchell.
“As we understand your version of the dream, in return for double-paying Southwest’s distribution costs, travel buyers would have the privilege of ensuring that their travelers’ frequent flyer numbers are processed through their preferred GDS/TMC channel, and that their TMCs are able to efficiently process reservations through GDSs with key ticket number information you would provide. You are essentially holding managed travel programs hostage by withholding pieces of critical data that are provided by the vast majority of airlines today at no additional cost,” Mitchell said.
“Where in recent years the familiar airline distribution cost-shifting lever has been access to full airfare content, your airline has decided to also leverage full functionality. This is a bad bargain and frankly, we would not expect Southwest to take the lead in such a heavy-handed approach. You are withholding critical functionality in the wrong-headed belief that we’ll either pay your ransom or settle to do business on your website. Corporate travel buyers want a better choice,” Mitchell said.
“High-value corporate customers will not accept picking up the tab twice for Southwest’s distribution costs and at the same time cross-subsidize your leisure fares. Southwest is endeavoring to further penetrate the corporate marketplace. While the corporate travel community welcomes you, and encourages you to continue to modify your product and approach to the market to capture more of our business, you should know our community will not be dictated to, especially when a wholesale replacement of a tried-and-true distribution model that serves our needs is concerned,” according to Mitchell.
“We will not support going outside preferred GDS/TCM channels to book Southwest. Instead, we strongly encourage you to reevaluate your distribution program and consult us on any potential changes that have consequences for managed travel programs. That’s the way to penetrate the corporate market and win our loyalty. There’s still plenty of time to turn this around, but please treat this as a wakeup call,” Mitchell said.
Southwest has been asked to respond and their reply will be carried in full.