Pestronk: Myths Concerning GDS-TMC Agreements

To unravel some of the mysteries surrounding global distribution systems and travel management company contract/agreements the American Society of Travel Agents (ASTA) and the Business Travel Coalition (BTC) sought the expertise of respected industry attorney Mark Pestronk to unravel some of the issues. Pestronk's views are an integral part of the newly released analysis of airline direct connect policies offered by Kevin Mitchell, chairman of the BTC.


"In U.S. federal antitrust lawsuits, in the press and before the U.S. Department of Transportation (DOT), some airlines have aggressively claimed that they as well as new-entrant travel technology firms, such as Farelogix, are frustrated in their efforts to offer or facilitate direct connections to travel management companies (TMCs) in competition with Global Distribution Systems (GDSs) because of highly restrictive agreements between GDSs and TMCs. Such claims, if true, would have serious implications for efficiency and innovation in the marketplace for travel distribution services that would generate negative outcomes for consumers," Mitchell said.

"There is not much publicly known about these GDS-TMC agreements to be able to verify such claims with any degree of certainty," Mitchell said, explaining why BTC turned to Pestronk for his views.

BTC's Mitchell said Pestronk has reviewed and consulted with travel agencies and TMCs on hundreds of such agreements. "Pestronk knows in great detail what these agreements contain and do not contain across decades of experience. "

The focus of Pestronk's analysis below is on the largest TMCs, which BTC says comprise some ninety percent of air sales.

Pestronk's Analysis:

"Claimed GDS – TMC Agreement Terms

Pure Myth

These alleged terms and conditions never existed in the travel industry:

1.     Agreements that apply productivity pricing to penalize agencies that begin using another channel for bookings.
2.     Agreements that require a shortfall-penalty for each non-GDS booking below a fixed percentage of total bookings.
3.     Agreements that impose systems of penalties and threats to deter agencies from trying to book through new or innovative channels.
4.     Agreements that effectively block innovative alternative distribution technologies from connecting to GDS-developed front-, mid- and back-office peripheral systems.

Existed At One Time

The first two highly restrictive terms and conditions listed below were made illegal by DOT in the early 1990s, a time in GDS history in which airlines owned and controlled the GDSs. When the GDS industry segment was deregulated in 2004, GDSs were free to but did not reintroduce such restrictive contractual elements prevalent under airline ownership of GDSs thus establishing that market forces were working as anticipated. The final two kinds of clauses listed below were present until several years ago but have now become extinct.

1.     Agreements that contain an express provision that requires the travel agent to use one GDS exclusively.
2.     Agreements that require a minimum number of monthly bookings in order to avoid being in breach of contract.
3.     Agreements that include a clause stating that if the travel agent does not meet minimum volumes, it must compensate the GDS for the shortfall in  bookings.
4.     Agreements that include provisions that prohibit travel agents from aggregating information obtained from a GDS with information obtained from any other source.

Prevalent Today

Versions of the terms and conditions below are common in agreements found in most industries, and in particular, in agreements between airlines and corporate purchasers of commercial air transportation services. They reflect adjustments due to changes in value received and pose no special problem in competitive markets. Moreover, the first one is not a significant deterrent to using non-GDS channels, and the second one is not affected at all by non-GDS bookings.

1.     Agreements that require a pro rata refund of the signing bonus if there is a shortfall in bookings.
2.     Agreements that impose penalties on travel agencies if they do not meet certain market share percentage thresholds for booking through a GDS  vis-à-vis another GDS competitor."

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