Channel Surfing

1
Channel Surfing

• An interactive discussion about the changing
  landscape of travel distribution
• ACTE Executive Forum
• March 2, 2005
• Moderator Tony DAstolfo
• Vice President, Travel Services, Rearden
  Commerce

2
Panelists

• Graham Atkinson
• Senior Vice President Worldwide Sales Alliances
• United Airlines
• David Cerino
• Vice President General Manager
• Orbitz for Business
• Ellen Lee
• Co-Founder Vice President, Business Development
• G2Switchworks
• Steve Soto
• Regional Vice President, Sales Customer Success
• GetThere

3
Perfect Storm of Distribution

• Severe pressure on airlines to reduce costs
• Changes in consumer buying habits grow
• Technology advances offer new alternatives
• Or is this a process that started long ago.

4
GDS history..a quick review

• Mid 1970s saw advent of what became GDS
• By 1983 88 of air was booked via GDS
• By 2002 that percentage dropped to 53
• 2005 and beyond.does the trend continue?

5
The Participants to this Drama

• Suppliers
• GDSs
• New Entrants
• Travel Management Companies
• Corporate Buyers
• End User Consumers

6
So whats really driving the shift?

• A deliberate plan on the part of the carriers?
• The growth of the Internet and technology in
  general?
• The growth of Low Cost Carriers?
• A combination of all of the above... .or
  something else?

7
Digging Deeper for the Cause

• Economic Forces
• Technological Forces
• Market Forces

8

• "The airlines, the corporations and the agency
  intermediaries--have a vested interest in
  striving for efficiency and having the cost borne
  fairly. Obviously, at the heart of the dispute is
  the flow of the money."
• "I have advised agencies and travel managers that
  I would not build my business getting hooked on
  inducements because it is just not sustainable."
• Tim Griffin, EVP Marketing Sales, Northwest
  Airlines
• Source BTN 1/21/05

9

• We might share up to 5 of our savings on a
  per-ticket basis to help offset other incentives
  they may receive."
• "We are not going to war with the GDSs but there
  is a value/price disconnect. We are simply
  fostering competition."
• Graham Atkinson, SVP Sales and Alliances, UA
• Source BTN 1/21/05

10
Currently how important is offering a rebate when
evaluating your company's GDS decision?

• Very important (deal breaker)
• Somewhat important
• Not important
• My company does not have a direct relationship
  with a GDS

11
Airlines claim that segment fees they pay to GDSs
are used as incentives for agencies and
corporations to use the systems.   Do you think
GDS incentives to agencies and corporations
should end?

• Yes
• No

12
Digging Deeper for the Cause

• Economic Forces
• Technological Forces
• Market Forces

13

• Every 30 or 40 years, you change
• technologythere are various advantages
• besides it being less expensive
• Its easier to write the whole thing from
  scratch,
• than having to stitch different databases such
• as TPF, frequent flyer, electronic ticket, Web
• site, etc. together
• Jeremy Wertheimer, CEO ITA Software
• Source ATWOnline 2/8/05

14

• I must say these are products looking for a
  market
• Corporations havent asked for them. Travel
  agencies havent asked for them. Consumers
  havent asked for them and I think that just
  makes for a very slow road.
• Sam Gilliland, Chief Executive Officer, Sabre
• Source Travel Weekly Online 2/4/05

15

• But GDSs already had been moving off legacy
  technology for years. The GDSs are not
  dinosaurs they still have more scalability to
  process more transactions at fantastic speed than
  anyone
• The only debate from the supplier side is how
  much to pay for that
• Mike Qualatone, VP Global Distribution Amex
• Source The Beat 1/27/05

16
Have you investigated any of the GDS alternative
systems?

• Yes
• No

17
What is your opinion about the recent
announcement by a major airline to incentives
agencies to book through GDS alternatives?

• They have to do what they can to reduce costs
• Reducing GDS fees is a tiny fraction, compared to
  other costs that airlines could reduce
• The alternative systems are not ready to handle
  business travel, this initiative is premature
• No opinion
• Other

18
Digging Deeper for the Cause

• Economic Forces
• Technological Forces
• Market Forces

19

• Theres an economic issue there, but there is
  clearly a value the GDSs provide that no one has
  replaced.
• Either you eliminate costs and everybody is
  happy, or you create value that justifies the
  costs and everybody is happy with that.
• But if you just try to pass costs on to somebody
  else, the industry cannot support that.
• Charles Petruccelli, President, AMEX Business
  Travel
• Source The Beat 2/10/05

20

• Hertz to Charge 2.50 Booking Fee
• February 14, 2005
• Hertz Cancels 2.50 Booking Fee
• February 15, 2005
• Hertz Corporation
• Source BTN Online 2/14-15/05

21
BTC Reform Principles

• 1. Reform initiatives should proceed from a
  thorough customer impact analysis on business
  travelers and those organizations that fund
  business travel -- the ultimate consumers of
  business travel services.
• 2. No reform initiative should lower the value of
  a corporation's supplier contracts.
• 3. Reform initiatives should result in true cost
  reductions as opposed to mere unbundling or
  shifting of costs to other parties.
• 4. No reform initiative should directly or
  indirectly add administrative costs or complexity
  to the distribution process for distributors or
  end-customers.
• 5. Reform initiatives should be presented in the
  form of inducements and should not penalize
  business travelers or the organizations that fund
  business travel for choosing reservations or
  fulfillment processes that best meet their needs.
• Source Business Travel Coalition - Published
  2/15/05

22
Travel Distribution Dilemma

• Fragmentation adds complexity for corporate
  buyers
• Finding all the Content keeps Buyers awake at
  night
• Online vendors are challenged to find content
• Complexity usually means higher costs
• Agency charge for managing off GDS purchases
• The problem of data aggregation must be solved
• How does the Travel Manager balance the needs of
  their suppliers with those of their end user
  customer, while still meeting their corporate
  objectives?

23
Is the decision of which GDS your company uses
primary a technological or economic one?

• It was selected based on the technological
  capabilities
• It was selected based on the economic benefit to
  my company
• It was based on both technology and economics
• I was not involved in the GDS decision and left
  it to my travel management company

24
How involved were you in the decision of which
GDS your company's business is booked on?

• Very involved, I drove the decision
• Somewhat involved, it was a mutual decision
  between me and my travel management company
• Not involved at all, I left the decision to my
  travel management company

25
Supplier Model vs. Buyer Model

• Travel has been a Supplier centric model
• Suppliers have had greater influence over how
  business was done
• Buyers react (mostly by moving their business),
  but have not had a tremendous influence over the
  model
• Should suppliers consider a shift to accommodate
  their buyers?

26

• Thank you!
• Check the ACTE website www.acte.org