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Lufthansa Move to Charge GDS Booking Fees is a Must Watch


Posted by Kevin Iwamoto on 06/09/2015

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Lufthansa’s bold announcement — that they and their airline partners will start charging $16 for every booking coming through the GDS channel — is not only a bold move that will disrupt the industry, but also for Lufthansa, it’s clearly a move to say that “enough is enough.”  

With distribution costs skyrocketing, it was only a matter of time before a major supplier made a move to shift their business channel to more of a direct one, in order to stop paying GDS fees. A move like this — if it sticks — is worth millions of Euros in bottom-line savings.  

Not every airline could make such a disruptive move such as this — but Lufthansa, with its near monopolistic market share of the German marketplace, also hedged their bet by partnering with other marketplace-dominant companies like Brussels Airlines, Germanwings, Swiss and Austrian Airlines!  

Frankly, if I were a large, multinational European-headquartered company based in Belgium, Germany, Switzerland and Austria, I’d be very concerned. This action by Lufthansa will not only increase their travel and meeting costs exponentially, but it will also impact their costs for having TMCs (Travel Management Companies) and MMCs (Meetings Management Companies) managing their travel and meeting programs.  

There’s no way that these TMCs and MMCs will absorb these new GDS fees — and the old “I’ll just book other competitors” strategy won’t work either, due to the overwhelming market share dominance of this group of Lufthansa carriers and partners. The intermediaries will have no choice but to pass through this new cost to their corporate clients. I’ve always said publicly — and it keeps happening over and over — but at the end of the day, the corporate clients always end up footing the bill.

If Lufthansa doesn’t back down on this initiative and proves successful in this endeavor, I predict other airlines will follow suit —just like they did with the ancillary fees for bags, food, seat assignments, etc. If the airlines can reduce their cost of doing business and increase their revenues, they’ll do it.  

So what does that mean for the hotel industry? They have the same cost of doing business challenges as the airlines do. Their GDS booking fees are also through the roof. I’ve been predicting for several years now that all of the main suppliers are looking to change their distribution and booking channel models — because the traditional costs for doing business keep escalating to the point where their bottom-line profits are negatively impacted. Their clients don’t want to pay extra, nor do they want their travel program booking transaction fees to rise. The GDS companies keep raising their fees, and true to my prediction, we’re at a historic tipping point.

I recommend everyone especially the corporate buyers watch this situation closely — because if Lufthansa, Swiss, Austrian, Germanwings and Brussels Airlines are successful, there’s no doubt in my mind that other airlines and even hotel companies will be emboldened to follow suit with their own GDS by-pass direct distribution models. And that will lead to an ultimate industry disruption that will have long-lasting effects for all parties.  

The fun is just starting now, so keep watching this space to whether this latest disruption has legs. As Bette Davis’ character said in the movie “All About Eve”: “Fasten your seat belts, it’s going to be a bumpy ride…”

 
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