When Lufthansa imposed a €16 Distribution Cost Charge (DCC) on GDS bookings last September, it claimed the fee represented the difference between the GDS cost to the airline and the “pure distribution cost”, which it put at €2.
Amadeus’s Champa Magesh disputes that. The GDS’s UK and Ireland managing director told Travolution’s sister title Travel Weekly: “Lufthansa is not taking into account the full cost [of direct sales]. Search costs far outweigh the costs of distribution through a GDS.”
Magesh said: “A massive amount of ‘direct’ traffic comes indirectly through search or metasearch and those costs are going up. In our opinion, it costs €15-€16 per booking to attract business to a site. Lufthansa is not taking into account search costs.”
She added: “By contrast, third‑party distribution is very cost‑efficient. The cost per booking is nowhere near what Lufthansa says. Bookings through the third-party channel also give Lufthansa access to markets where it’s not a well-known brand, where it’s not a primary carrier.”
Ahead of bringing in its DCC, Lufthansa chief executive Carsten Spohr told airline association Iata: “We’re using 30-year-old technology on these [GDS] sales channels.”
Magesh also disputes that. She said: “We can accommodate everything they [Lufthansa] make available.” She points out Lufthansa’s differential ‘fare families’ prices, also introduced last autumn, are available on Amadeus, saying: “We’re open to what any airline wants to make available. We have direct-connect capability with Lufthansa, [so] it is not a question of capability.”
Yet there appears no end to the stand-off since the DCC was imposed, with some leading travel management companies, including the Advantage Focus Group and ATPI, following a policy of non-cooperation with the carrier – albeit still making bookings when clients require.
Magesh said: “We hear [booking] volumes are affected, but I can’t comment on what we see. We would love to talk to Lufthansa, but how long this continues is really for them [to decide]. The only resolution will come from sitting around a table.”
She insisted: “The end consumer has a choice. The traveller can go online and they can go to the airline. But in many markets they choose to go to an agent or OTA. There is value in third-party distribution, whichis why they make that choice.”
Magesh dismissed the idea that new technology providers could easily displace GDSs – part of the thinking behind Iata’s New Distribution Capability trials. She said: “It’s easy to build an API [connection to a website]. Kids all over the world are building apps. But a GDS is not just a graphic-user interface and some content. A lot of expertise goes into it and new IT providers are going to struggle to replicate that. It’s not about the next great widget.
“You can’t see the rule engine, the algorithms built from years of experience and scale. Why does everyone use Google? It’s the algorithms and scale, and the two driving each other. I don’t think it’s possible to replicate what we do unless you can replicate our business model and experience.”