GDS Systems Overview

2. It started with a Lazy Susan! Reservation Employees at a Revolving Table (Lazy Susan) with Index Cards for each Flight!

3. Maturity of Markets (GCC = Golf Council Countries)

4. How it was….. • Travelers had to go to a Travel Agency for a ticket • Travel Agency then phoned the airline requesting a specific flight on a specific time and date • Fares were the same on each flight with each airline • Reservations staff retrieved an index-card for that flight/date from a Lazy Susan (revolving tray with index cards) (In 1946 American Airlines introduced the Reservisor, for internal use only, storing max. 1000 flights up to 10 days in the future) • Then the Travel Agency’s request could be answered! • Travel Agency issued the ticket, collected payment and received a commission from the airline

5. American Airlines Reservisor With the Reservisor an office could make 200 reservations more on any day, with 20 employees less!

6. Then on a day, back in 1953….. • In that year, on a certain day on a certain flight two persons met by chance: • Mr. Smith from American Airlines (AA) • Mr. Smith from International Business Machines (IBM) • Result: A plan to automate the AA reservation process with the help of IBM hard- and software • Result: In 1960 SABRE (Semi Automatic Business Research Environment) was introduced by American Airlines

7. Airline Reservations Department: Sabre was first used internally only. Travel Agencies still had to call!

8. Situation of Today • Now there are 4 major GDS: Amadeus – Sabre – Galileo - Worldspan • They can handle up to 17.000 messages per second!

9. Timeline GDS • 50’s: Airline Reservation Centers get first terminals • 60’s: First CRS Terminals in Travel Agencies • 70’s: Dumb Terminals become CRS • 80’s: CRS become GDS • 90’s: Ownership Change: Airlines divest their GDS • 90’s: Rise of direct sales through Internet • 00’s: GDS facing new entrants, Airlines reclaim the ownership of the channell, Low Cost Carriers, New business models, GDS loose market share, … So let's take a closer look at the history

10. Global Distribution Systems • Formerly known as CRS: Computer Reservation System • A passive system that only handled bookings • Now new Name: GDS - Global Distribution System • Name change because of function change: – Airline Reservations  All Travel Services – Distribution Channel in its own right (from passive to active)

11. Main Functions • Reservations: Creating a PNR (Passenger Name Record = booking file containing all relevant reservation data) • Back-office integration • Management Info: – Yield Management – Market Information Data Transfer (MITD)

12. Features of a GDS • Reservation starts with the request for a flight • System looks into database for flight availablility • Checks fare and rules • Creation of a PNR (Passenger Name Record): Itinerary – Passenger Name – Contact Details (Phone) – Date of Ticketing – Received from – Fare - SSR/OSI – Seat (In Red = Mandatory Parts) N.B. Each GDS adheres to these rules! • Issue of Tickets (Traditional or E-Ticket)

13. Development User Interface • Start: Dumb Terminals (Workstation) • Now: Intelligent Terminals (= PC) – Expert Mode (Like Focalpoint Galileo) – GUI (Like Viewpoint Galileo, Amadeus Vista)

14. GDS Display: Galileo Expert mode

15. GDS Display: Galileo GUI-Mode

16. GDS Display: Amadeus Vista (GUI-Mode)

17. Connectivity Several levels of connectivity (low to high): 1. Request from an agency is relayed via GDS to airlines, which sends a message back. Seat is confirmed after transaction is closed with a confirmation message from airline. 2. Request is chanelled through GDS direct into airline’s own system and seat is allocated at end of transaction 3. Request is chanelled through GDS direct into airline’s system and seat is allocated immediately, during transaction The higher the level, the more the supplier/vendor has to pay the GDS!

18. GDS: History (1) • Originally: Lazy Susans – Request and Report – and/or Sell and Report • 1950’s: Internal airline systems – Host: airline owner of a CRS – Co-hosting: Selling space on own system to other airlines • 1960’s: Entrance to travel agencies: CRS

19. Lazy Susans / Index Cards Sometimes they had to use binoculars!

20. GDS History (2) • End Eighties: Inclusion other services: ferries, cars, hotels, theatres, tours, trains, .....; • Name change into GDS • Four main systems: Amadeus – Galileo – Sabre – Worldspan • Regional Systems: • Abacus – Infini – Gemini - .... • 1990’s: Dehosting: Airlines sell their share in GDS

21. GDS History (3): Founding Airlines

22. GDS History (4) • Ownership now: • Amadeus: LH (11,57%), AF (23,14), IB (11,57%), Management (0,96%) and Private Equity Capital (52,76%) • Galileo: Travelport (Hotels, Car Rental, Real Estate, ICT) • Sabre: Publicly Owned • Worldspan: Travelport (Hotels, Car Rental, Real Estate, ICT)

23. Market shares (4 main systems) 2006 GDS Agencies Terminals Amadeus 26% 93.147 Galileo 24% 115.454 Sabre 23% 119.546 Worldspan 11% 45.104

24. Example Market Presence (Amadeus, 2008) • 35,6% of all airline bookings • 480 Million transactions daily • 95% of scheduled airline seats bookable • 56 LCC (Low Cost Carriers) • 101.000+ connected agencies • 380.000+ terminals • 80.000 hotels

25. GDS and Internet • Internet gave rise to alternative booking channels (Agencies  Direct): • 1983: 88% of all PNR’s through GDS • 2002: Only 53%! • Some reasons: – Costs (Internet instead of Dedicated Lines) – Ease of use (Graphical interface) – Acceptance of Internet by Consumers

26. Sources of GDS-Revenue: • Booking Fee from airlines: – Per segment appr. USD 4.50 – Per ticket average USD 12.-! – Also fees for cancellations (50% of bookings!) • Traffic Fee (each inquiry costs the airline money) • Subscriptions from agencies – However: “productivity bonusses” back to agancies • Sale of Management Data (MIDT) • Hosting inventory other airlines • Advertising and other additional services • Booking Fees most important!

27. Position Vendors (Airlines): • Vendors pay for both looking and booking • Huge commissions to pay to GDS • Looking for ways to bypass GDS by creating own internet channels: – USA: Orbitz – EUR: Opodo – Internet based systems, owned by airlines, that consumers can use from their own PC without having to use the GDS and/or agency • Agencies receive large kick-backs from GDS’s: Airlines claim why not lower the booking fees instead?

28. Prices charged by GDS to Airlines

29. More Traffic, Lesser Yield

30. Situation Airline Industry Crises: Iraq – Gulf – Oil Prices – 9/11 – Financial Crisis

31. So airlines want to get that share!

32. Alternatives

33. Airline Strategies • To increase airline direct distribution • Try to decrease GDS-fees • Abolish high cost/ low yield distribution channels • Establish alternative electronic channels • Switch the distribution costs to the user instead of the vendor • Discriminate between original GDS (not all fares available in all GDS)

34. Traditional Travel Distribution Chain VENDORS TOUROPERATORS TRAVEL AGENCIES TRAVELLERS (Leisure – Corporate)

35. New Travel Chain (@ = E Commerce) VENDORS TOUROPERATORS TRAVEL AGENCIES TRAVELLERS (Leisure – Corporate) @ @ @ @ @

36. New Business Models • Thanks to ICT new business models are possible • Reverse auctions: Hotwire • Customer names his price: Priceline • Virtual Agencies: Expedia • Multi channeling: Clicks, Bricks & Mortar and Calls: – Clicks (E-commerce) – Bricks and Mortar (Traditional agency) – Calls (Call-centers)

37. Hotwire: Inventory Regulation Founded by: American America West Continental Hawaiian Northwest United US Airways

38. GDS Regulation (1) • Before 1984: Systems not allowed to discriminate against each other, other airlines and agencies • Each airline and each fare had to be present in all systems • However: Biased display – Own airline was favoured (1st lines on 1st screen) – Reason: Out of habit and ease, agencies book almost always the first flight from the first screen

39. GDS Regulation (2) • 1992: New set of rules (both in US and EU): – Neutral Display based on departure time and connection (direct flights first) – No favours for hosts – Participation in systems open to all airlines on a non-discriminatory base (all flights, all fares in each system) – Free choice for travel agencies

40. GDS Deregulation 2003/2004 • Airlines and GDS can now deal with each other seperately • Possible Result: Airline ‘X’ only in system ‘B’ • Possible Result: Airline ‘X’ only part of inventory in system ‘B’ • Possible Result: Not all fares in the GDS • Discrimination with Opodo/ Orbitz: Only the best fares in those systems • Danger of bypassing GDS by both agencies and consumers • In favour of dominant carriers

41. Effects on GDS’s • Looking for new revenue models: Supplier of IT-services for Airlines, e-commerce technology for agencies, …. • De-list smaller vendors (because they do not generate enough revenue) • Third party agreements for additional services

42. Example: Amadeus as technology provider for airline • Amadeus as technology provider for airlines (through Altéa daughter): – Inventory Management – Reservations process – Departure control – E-commerce solutions

43. Effects on Airlines • To buy preferred position in systems • Downward price pressure on GDS by large airlines • Smaller and regional carriers possibly switch to internet • MIDT value will become less, because less traffic is handled through GDS

44. Effects on Agencies • Fragmented info will be an opportunity to become data aggregators • Need for tools for multiple GDS capability • Some GDS’s may leverage their unique ownership position: Travelport owns Galileo, Worldspan and other industry players like hotels, agencies, car-rentals etc. • Higher costs will be levied upon final customer • GDS booking rewards will likely disappear: loss of revenue

45. Reaction of GDS’s • Own Internet Booking Sites: – Travelocity, The Trip, Hotwire, ... • As Booking Engine behind other sites like Expedia • Additional Services: – Corporate Travel Booking Tools – Agency Booking tools, Web-presence

46. GDS New Entrants: GNE’s New companies claim they can replace GDS: • Farelogix • G2 Switchworks • ITA Software GNE’s are sometimes also called: • Alternative Content Access Platforms (ACAP)

47. G2 Switchworks

48. Costs GDS vs. GNE's

49. Barriers for GNE’s • Agencies rely heavy on GDS kick-backs since airlines capped/cut commissions • Switching costs for agencies (equipment, training, back-office integration) can remain a barrier for GNE’s • However: United Airlines (member Star Alliance) considers paying agencies a USD 5.- bonus for each booking made through a GNE! • No car and hotel at the moment • No worldwide coverage yet

50. Chances for GNE’s • Possibility to make distribution more competitive (breaking oligopoly of GDS’s) • Direct link to airline inventory • Need for airlines to cut costs (Distribution costs 20% of total costs and are the only costs that can be most easily controlled) • Star Alliance is investigating GNE’s/ACAP’s (they spend each year USD 2 Bln. on GDS fees) • Agencies get access to all fares (public and web-fares!) • Desktop not longer controlled by GDS’s

51. Preferred Booking Channels • Airlines have now the right to decide if they want to be present in a GDS and also have the option to decide the participation level (meaning making a selection of all available fares, schedules and inventory) • This is called Preferred- or Competitive Booking Channels • Through such a channel the airline pays less to a GDS • July 2006: Major US Airlines will start charging users (agencies and corporate clients) a booking fee of USD 3.50 per segment, which are booked through 'non preferred booking channels'

52. Reason for Preferred Channels • Airlines maintain control of the distribution model • Reduction of GDS fees • Shift of cost of GDS-distribution from supplier to subscriber: • Agencies have to pay the airline a surcharge when a ticket is booked through the GDS

53. Reaction GDS • Alle major GDS are now offering their clients (agencies and corporate clients) special 'Opt-in Programs' that protect them from paying a booking fee • Three types of subscriptions: – Opt-in 1: Full content, no segment fee – Opt-in 2: Full content, segment fee – No opt-in: Regulated content, service fee • Difference between those programs are the subscription costs • This situation will last until 2013: then new negotiations between GDS and airlines about new conditions

54. American Airlines imposes booking fees for agencies booking through Travelport • Recently (November 2010), American Airlines received notification from the Travelport GDS that booking fees will be dramatically increased in many international points of sale. • As a result, American is instituting a Booking Source Premium in several countries outside the U.S. and Caribbean for bookings made through the Travelport GDSs -- both Worldspan and Galileo -- beginning on December 20, 2010. • This premium is being applied to bring American's cost for bookings through the Travelport GDSs back in line with the costs of other GDSs in these countries.

55. New GDS arrangements without fees • Sabre Efficient Access Solution • Galileo Content Continuity Program • Worldspan Super Access Product • Amadeus (no name) • Two new entrants: • G2 Switchworks • Farelogix

56. American Airlines takes another step towards exclusion of GDS • In December 2010 AA excluded Orbitz (of which it was one of the founders!) from selling its tickets • AA tickets only available through an own system of AA: AA Direct Connect • If the US-courts approve of this, the exclusion of other GDS will probably follow and will be followed by other airlines as well!

57. GDS and the Low Cost Carriers (LCC) • Until recently GDS did not have the inventory and fares of the LCC • LCC sell almost exclusively (and successfully!) through their own websites • Reason: LCC felt they did not need the GDS • However, if they want to penetrate the corporate market, they have to!

58. GDS and LCC • Amadeus introduced in 2006 Amadeus Ticketless Access • This enables LCC (Low Cost Carriers) to participate in GDS

59. Example: Amadeus and Vueling • After introduction of Vueling flights in the Amadeus GDS: – Revenue per flight up 22,8% – 1/3 as a result of bookings via the Amadeus GDS

60. New applications New type of ICT application: Cross GDS content • Airline content via Direct Connect • Low-cost carrier content • Consolidator net fare content • Charter content • Web-fare content • XML interface

61. Solores

62. Questions

GDS Systems Overview

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GDS Systems Overview