Date: March 23rd 2010

March 23, 2010

Dear Industry Colleagues,

In February, Business Travel Coalition provided an information package for your input regarding reports that American Airlines was considering a “direct-connect” distribution strategy that would add significant new complexities and costs to corporate managed travel programs. Importantly, a “user-pays” model, which this represents, would result in high-value unbundled and repackaged content being available - for no channel fee - only through American’s direct-connect pipeline and for the airline to otherwise charge for the merchandizing and sale of its content through alternative channels. In other words, virtually all merchandising and distribution costs would be shifted to TMCs, and ultimately onto the backs of the airline’s best customers. Managed travel efficiencies would be substantially degraded.

Of course, in recent years numerous airlines have attempted to shift costs and other distribution burdens to the customer, but a unified supply chain has repeatedly and successfully pushed back by reminding airlines that it is the agency corporate customer who keeps the lights on at airlines’ headquarters and that their managed travel needs must be respected. Unfortunately, we are faced with another one of these challenges to the investments of significant time and money in technologies that enable TMCs and corporate travel departments to shop for, purchase and report on airline products and services efficiently..

I invite you to consider joining your industry colleagues below in sending a signatory letter to all major U.S. airline CEOs encouraging them to work cooperatively and in good faith with GDSs, TMCs and corporate travel buyers on the rapid development of industry standards that safeguard all participants’ interests. If after reviewing the letter below you can support this initiative please authorize us to list you and your organization as a signatory to this most important letter. I would appreciate if you could do this by the close of business on Wednesday, March 24. Together, we can create a more hopeful future for travel procurement. 

Please feel free to contact me with any questions, concerns or ideas.

Kind regards,

Kevin Mitchell
Chairman, Business Travel Coalition
mitchell@BusinessTravelCoalition.com
610.999.9247

+++++
 
AIRLINE SIGNATORY LETTER

[name]
Chief Executive Officer
(AA, CO, DL, UA, US, WN, B6, AS) (NOTE: The AA letter will be only slightly modified.)
[Address]

Re: Flight Path to Continued Success with Corporate Managed Travel

Dear Mr. [                ]:

We write you as corporate travel departments and the ticket agents that service us on a matter of utmost importance. We ask for your commitment to roll out your unbundling strategies in a manner that works optimally with our existing travel procurement systems and practices.

Your airline has shown that it respects the needs of corporate customers and the requirements of modern procurement programs. You appreciate that your best customers rely on the services of ticket agents and travel management companies (TMCs) that have invested, along with their corporate clients, significant time and money in technologies to implement tools that enable efficient shopping, purchasing and reporting on airline products and services. The prime objectives of corporate managed travel programs have been to enable companies to control expenses and fulfill agreements with airlines through enforceable travel policies.  

The success of these efforts going forward is absolutely dependent upon TMCs having efficient access to the full range of airline options for any particular trip and, crucially, being able to monitor and track the final “all-in” price of the air travel and related services purchased. The well-established and proven workflow processes of TMCs that feed corporate technologies and systems rely almost exclusively upon the airline booking and servicing capabilities of GDSs.

Examples of unbundled airline products that are proving to be difficult for corporate travel managers and ticket agents to manage are fees for special seating and for checked baggage. TMCs booking air travel must have the ability to deliver such fees transparently in the shopping/booking process, to efficiently transact those services (i.e. booking and collection) and, especially for corporate travel managers, to report on those services purchased. 

Only if merchandizing capabilities are developed and deployed in ways that respect and accommodate the technology solutions and procurement practices of your corporate customers can both you and we win. This is the only path to rapid and broad availability of your airline’s unbundled products that ensures they are conveniently accessible by travelers most likely to buy them. It is very clear that one-off, untested models for airline merchandizing, adopted one airline at a time, would create a crazy-quilt procurement model that would hurt corporate purchasers and the TMCs that support them by introducing major new costs and enormous inefficiencies. 

We are requesting that you help us help you by publicly committing that your airline will work cooperatively, diligently and in good faith with TMCs, GDSs and corporate travel buyers on the rapid development of industry technical standards to ensure that your unbundled products are easily consumable by TMC customers via any GDS in which you participate. An unequivocal show of support by your airline for its corporate customers on this important issue would be the best flight path for your continued and long-term success with travel agents and corporate travel buyers. We are asking you to publicly support the attached Principles and Standards that were developed by your business partners and corporate customers.

We look forward to hearing from you at your earliest opportunity. 

Sincerely,

CSC    
Dollar Tree       
Eaton Corporation
Fujitsu America, Inc.     
HealthCare California    
MulvannyG2 Architecture          
Oracle  
Wells Fargo & Company N.A.
Business Travel Coalition

*** Authorize your participation here. ***

 

Attachment

Airline Product Unbundling Principles & Standards

PRINCIPLE #1
Airline product unbundling initiatives should assure full consumer awareness and choice.

Standard: Airlines should ensure that all airfares, along with unbundled products and their associated costs, as well as any new types of bundled offerings with included components, be made available through industry distribution providers in which the airline participates in a manner that enables transparent, easy-to-understand and comparative displays along with offerings from other airlines, so as not to prevent consumers from having complete and accurate information at an early stage of the shopping and booking process. 

PRINCIPLE #2
Airline unbundling initiatives should reinforce and not undercut the value of TMCs’ or corporations’ contracts with those airlines

Standard: Airlines should not alter mutually agreed contractual principles in terms of discounts, commissions or other negotiated benefits based on the TMC’s or corporation’s use of any particular distribution channel so long as that industry distribution provider is one in which an airline participates to sell its products and services.  

PRINCIPLE #3
Airline should make available their unbundling initiatives in a manner that does not discriminate against a TMC or corporation based on a TMC’s or corporation’s choice of reservations or fulfillment processes that best meet its needs.

Standard: Airlines should not withhold content or otherwise discriminate against TMCs or corporations with respect to access to airfares or discounts, including unbundled products and services or new types of bundles offerings, based upon the TMC’s or corporation’s choice to obtain such access through any industry  distribution provider in which the airline participates.

PRINCIPLE #4
Airline unbundling initiatives should be made available in a manner that increases or at least maintains the efficiencies of the prevailing travel procurement processes utilized by TMCs or corporations.

Standard: Airlines should commit at the CEO level to work cooperatively, diligently and in good faith with distribution system providers, travel management companies and corporate travel managers to develop solutions to address existing and potential new challenges related to efficient procurement (from shopping to booking to consumption to reporting) of airline ancillary items and product bundles - including cooperation in development of and adherence to industry-wide technical solutions.

PRINCIPLE #5
Airline unbundling initiatives should avoid economic models that create a classic “free-rider(1)” problem wherein an airline has no incentive to use merchandizing and distribution services efficiently or economically because corporations shoulder the cost.  

Standard: Airlines that choose to introduce new merchandizing initiatives in order to increase revenue should be responsible for the costs of making those offerings available to corporations that buy those services, and to the TMCs upon whose services those corporations rely - and upon whom airlines rely to sell and service their products. 

(1) <<MORE ABOUT FREE RIDER>>
If airlines get GDS services for free, then economists will tell you that you have created a classic free-rider problem in which the user of the services has no incentive to do so efficiently or economically because someone else bears the freight.  The concept is simple.  Anyone who consumes a service that is paid for by someone else has the inherent incentive to over-indulge.  Airlines themselves recognize this in their business model, which is why they assess a hefty service fee every time consumers using all but the highest priced tickets make a change.

Examples of how an airline might “over-indulge” in GDS services if the tab is paid for by corporations could be helpful.  Two examples:

a. Today, airlines have a disincentive to make very frequent schedule changes because each time they do, they generate a cancel and a rebook in the GDS, both of which result in an added charge to the airline as both transactions drive added DP costs in the GDS – as well as added costs for the travel agency who must notify the client.  If GDS participation is free to the airline, why would airlines not engage in more schedule change churn to respond to “maximize” fleet utilization?

b. More globally, an airline that knows the corporation pays the GDS bill will have no disincentive to demand from the GDS added functionality the carrier may want – like more ability to merchandise and sell unbundled products to corporations, like pre-reserved or special seating for a fee, often in an ad hoc non-standardized way, because for the airline, “price is no object.”