Transport Canada Deregulates GDSs in Canada: Why Should You Care

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Transport Canada Deregulates GDSs in Canada Why
Should You Care?

• ACTE PowerTalk
• May 19, 2004
• Sponsored by

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Transport Canada Deregulates GDSs in Canada Why
Should You Care?

• Lori Huff
• Travel Procurement Specialist
• Canadian Pacific Railway

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DistributionDoes it Matter?
Michael Richardson CEO President BTI Canada
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Agenda

• Distribution What is it?
• Elements of the business model what is all the
  fuss?
  
• Who are the stakeholders?
• The last 6 9 months in Canada
• Impact of recent changes
• The future
• Being proactive

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Distribution What is it?

• Could be described as a series of steps in a
  process for a traveller to secure an airline
  ticket, hotel, car or rail ticket
  
• What has changed?
• Role of the Internet search and book
  capability
  
• Role of Global Distribution System (GDS)
• Array of low cost carriers focus on low cost
  models
  
• Range of booking options web, e-mail, fax,
  telephony, SSR tools
  
• Knowledge of traveller
• Should you care?
• What do you think?

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ACTE PowerTalk Survey

• Should there be a continuation of the regulation
  that requires CRSs to display unbiased airline
  availability?
  
• Yes70 No30
• Should there be a regulation that requires
  non-airline owned Internet sites to display
  unbiased airline availability?
  
• Yes74 No26
• Is it best left to market forces to determine the
  participation of airlines in the CRSs, or should
  this be a regulated area?
  
• Market forces50 Regulated50
• If airlines and CRS are no longer hampered by
  regulations related to segment fees and CRS
  participation, is it likely that a carrier might
  choose to provide full inventory to a single CRS
  in exchange for a lower segment fee cost?
• Unlikely25 Likely35 Very Likely40

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ACTE PowerTalk Survey

• If the regulation requiring equal segment fees
  for airlines participating in the CRS is
  repealed, should the CRS continue to be obligated
  to provide the same functionality, service
  enhancements and/or technology advancements to
  all participating airlines?
• CRSs should continue to be obligated47
• CRSs should not continue to be obligated53
• Should regulations continue that govern the
  selling of sales and marketing data (MIDT) by CRS
  vendors to airlines?
  
• Regulations should continue90
• Regulations should be repealed10

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Whats all the Fuss About Distribution?

• Financial
• Battle between GDS and airline to drive out costs
  and to reset the economics of distribution 900
  ATP - 600 ATP - 20 fee
  
• The airlines now have other legitimate routes for
  distribution
  
• Perception that ATP / fare savings can be
  significant online noise inside companies
  Internet cheaper
  
• Impact to supplier agreements
• Online can be Destina, Expedia, Travelocity or
  direct to supplier

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CCTA Study in August 2003 TOPAZ Audit
Comparing the online players vs. using the TMC
and all sources of fares

• Domestic bookings
• 67.3 of bookings through agency were cheaper
  than the Internet
  
• Results somewhat skewed by long haul business
  class travel booked through agency
  
• Overall ATP 7.8 (49) lower through TMC than
  online

• Transborder bookings
• 74 of bookings through agency were cheaper than
  the Internet
  
• Overall ATP was 26.5 (354) lower through TMC
  than online

• International bookings
• All bookings were lower, or equivalent, through
  agency
  
• Overall ATP 17.9 (498) lower through TMC than
  online

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Whats all the Fuss About Distribution?

• Technical Considerations
• Solutions to legacy application changes are
  expensive and slow
  
• Time to market is long6 9 months
• Think of a major infill home reno while living
  in the house both agency Point of Sale (POS)
  issue and SSR tool issue

• Control
• GDS is worried about precedent setting and their
  relevance in the long term
  
• Used to be agency that talked disintermediation
  now GDS too
  
• Airlines have made this fundamental change a
  matter of principle
  
• Airlines want to be closer to the customer sell
  brand, loyalty

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The Stakeholders Priorities, Concerns

• Customer
• Travel Manager
• Supplier relationships
• Airline contracts
• Direct deal alternatives
• Traveller pressure re price
• MIS data availability / integrity
• Traveller security / location
• Tool limitations ie. self service tools access
  to inventory and complete booking process

• Traveller
• Wants best value first time
• Options confusing
• Interface inconsistent
• Company
• Cost savings AC web savings can be significant
• Traveller safety / security exposure /
  convenience vs. cost

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The Stakeholders Priorities, Concerns

• Partner / supplier
• ie. airlines, hotels, cars, consolidators, new
  entrants
  
• Trying to drive market share
• Wants to own the client / traveller relationship
• Leverage the brand
• Provide options to traveller
• Less margin less to go around
• Trying to sell value and at same time drive out
  cost mixed message

• GDS
• Agency
• Online players
• Destina
• Expedia.ca
• Travelocity.ca
• Orbitz
• SSR providers

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The Marketplace

• Is Canada different?
• Yes and No
• Similar to Australia and Nordic but different
  from U.S.
  
• Geography is relevant long haul, triangle
• Single dominant carrier with low cost
  non-traditional competitor(s)
  
• What about the U.S.?
• Only national market with competition at all
  levels
  
• DOT change July 31, 2004 full deregulation
• DCA3

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The Last 6 9 Months

• Air Canada announced simplified fares last May
• Outside the GDS
• Suggested fare margins did not support GDS
  segment fees
  
• Good for traveller big savings
• Strategically an issue impact to booking process
  and SSR tool deployment
  
• Transport Canada
• Hearings ongoing last 12 18 months
• Last major checkpoint February 9, 2004
• GDS (Sabre, Galileo, Amadeus, Worldspan)
• Trying to find new economic models for Canada
• Concerned over establishing precedent in Canada
  different from U.S.
  
• Some GDSs more creative than others
• Agencies
• Trying to build solutions that provide value
• Focus on relationships
• Aggregation one of the new roles for TMCs

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Recent Changes

• Transport Canada announced changes to Aeronautics
  Act May 7, 2004
  
• Fundamentally moved to a fully deregulated
  environment effective April 27, 2004 major
  change
  
• Airline and agency Internet site not subject to
  regulations
  
• System participant rules being repealed
  obligated carrier
  
• GDS and airlines free to negotiate commercial
  terms
  
• Ranking flight availability displays by elapsed
  flight time repealed
  
• Regulation of MIDT data has been removed.
  Complaints over possible misuse will be managed
  by the Competition Bureau
  
• All regulations regarding personal information
  are being replaced with PIPEDA, new privacy
  legislation with a staggered introduction from
  Jan 1, 2001

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The Future

• Direct connect?
• Full content on GDS?
• Online players?
• SSR tools?
• Alternate booking interface ABIs
• Economics
• Less money to fund current distribution
• Therefore focus on reduced costs or finding the
  value that stakeholders will pay for

If there is value either function or price or
both and it is well articulated, then there
will continue to be choices for distribution.
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Evolution of Distribution Where Next?
Traveller

• Perceived low price
• Lots of choice
• Self service

• High touch/special service
• Great POS service
• Relationship driven

• Full range of services booking to reporting
  program management

Value Proposition
Integration Engine?
Enhanced GDS
Airline Direct Content
The Future??
Base GDS
Consolidator
Internet
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What Can Travel Managers Do to be More Proactive?

• Get educated on the issues
• Understand where distribution options are
  specifically relevant to your company
  
• Traveller convenience?
• Deal with traveller perception of costs?
• Overall cost savings?
• Availability of data to manage programs and
  traveller locations?
  
• What are the primary drivers in your managed
  travel program?
  
• Engage your Travel Management Company to lead you
  through the options and establish a strategy
  need to be flexible allowing for change but
  consistent in how you execute in the eyes of your
  traveller communication is vital

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What is the Commitment of the CCTA?

• Communicate to all stakeholders the importance of
  Corporate Canada and a need to deliver solutions
  that are balanced
  
• Function
• Convenience
• Costs
• Advocate the most efficient and effective methods
  of product distribution for you
  
• Communicate, communicate

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Transport Canada Deregulates GDSs in Canada Why
Should You Care?

• ACTE PowerTalk
• May 19, 2004

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GDS Regulations An LCCs View
Duncan Bureau Director of Sales and Business Deve
lopment
WestJet
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Agenda

• What have those Americans done now?
• LCCs and how they Distribute
• What has Ottawa done now ?
• WSs view on GDS Legislation
• What does all of this mean to the buyer
• Innovators and Change Agents
• Future of Airline Seat Acquisition

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What have those Americans done now?

• A Quick Look South
• US DOT Rules initially imposed in 1984 changed
  Jan, 31st 04 for POS USA.
  
• Re-imposed restrictions on display bias, parity
  clauses, and web fare access until July 31st, 04
  
• Committed to monitor industry developments
• Will not adopt rules governing the use of the
  internet in airline distribution
  
• Continues to allow MIDT data to be sold.

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GDS Regulations What has happened

• Ottawa followed in the footsteps of the US by
  recognizing that GDS regulation is not required
  and is in fact punitive to the industry
  
• What are the changes
• Airline sites not subject to regulations -
  unlikely AC would promote WS
  
• Internet sites not subject to regulations
• Obligated Carrier requirements repealed
• Relationships will be at the discretion of the
  Carrier GDS
  
• Ranking flight availability displays by elapsed
  flight time repealed
  
• MIDT data still can be used by those carriers
  that can afford it
  
• Data privacy will be governed by Privacy
  legislation launched in 2004
  

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LCCs around the World and how they distribute

• The most profitable airlines in the world today
  are the LCCs
  
• Ryan Air Direct to consumer
• JetBlue Direct to consumer
• WestJet Hybrid direct to consumer and
  traditional distribution
  
• Some of these carriers will argue that part of
  their profitability is due to their ability to
  manage their COS via owning the relationship with
  the consumer.
• No need to pay intermediary to distribute
  product
  

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GDS Regulations A Low Cost Airlines View

• Legislated Business Relationships Do Not Work
• They are not in the best interests of the
  consumer
  
• They are not in the best interests of an
  effective Distribution Model
  
• They do not encourage flexibility, nor
  innovation
  
• They are costly and punitive
• You cant make an Elephant Dance

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What could all of this Mean to the Travel Manager

• Corp Canada
• What is the net impact to the Travel Manager ?
  
  
• Can Corp Canada still purchase airline inventory
  YES
  
• Can Corp Canada still negotiate airline
  relationships YES
  
• Is Corp Canada still in a position of power as
  the buyer
  
• of a commodity YES
• Can Corp Canada find inventory over one or two
  GDSs YES
  
• Major airlines MAY stop participating in all
  GDSs
  
• No one stops doing business that demonstrates or
  contributes value
  
• LCCs have understood that managing your business
  from all aspects is critical to success
  
• If the GDSs can demonstrate value and
  flexibility then airlines will want to continue
  relationship

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Here they Come The Innovators and Change
Agents

• Growth in On Line Transactions have caused GDSs
  to Rethink Model
  
• A move from Bricks and Morter to Clicks
• Small and mid-market companies are agile and
  looking for ways to improve the distribution
  process and methodology
  
• These guys are well capitalized, focused and have
  invested heavily in intellectual capital
  
• What Could happen to Corps Acquisition of Flight
  
  
• Lower cost of acquisition for airline inventory
• Increased access to better rates and fares full
  content available ?
  
• Higher adoption levels within their own houses
  highly educated and tend to be Early Adopters
  
• Solid and proven technology

Online Distribution Innovators will continue to
challenge the traditional distribution
structure
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Future of Airline Seat Acquisition

• Growing use of Internet as a channel of
  acquisition.
  
• The low cost model needs to find its way to the
  historical method of airline seat distribution
  no one is willing to pay for legacy systems that
  are burdened with overhead and inefficiency.
• Distribution channels that deliver value and
  transparency to the consumer as well as the
  suppliers will win.
  
• Evidence suggests that online tools to acquire
  flight will have strong user acceptance, i.e. WS
  now at 75 of commerce over INET

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Future of Airline Seat Acquisition

• WestJet believes Corporate Canadas Travel
  Managers want the following items
  
• Good Schedule
• Good Network
• Strong On Time Performance and please arrive
  with my Bag
  
• Flexibility
• Dont overbook my flight
• Dont add punitive conditions to the tickets
  that you sell me
  
• Sell me a seat at a reasonable PRICE
• Make transactions simple and cost effective
• How will this be done?
• Ensure that the supply chain contributes to the
  value that can be passed on to Corporate Canada

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Transport Canada Deregulates GDSs in Canada Why
Should You Care?

• Garth Jopling
• President
• ACTE

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Thanks to the Calgary PowerTalk Sponsors