Since resigning as president and CEO of Air Canada in 2009, Montie Brewer has led what appears to be a quiet and contented retirement, keeping busy with board memberships and his consultancy in Boston. But one anachronism peculiar to his old industry still really gets his goat. According to Brewer, 60% of the world’s airline tickets continue to be sold through what’s known as the global distribution system (GDS). The 40-year-old system is an impediment to airline innovation, he insists. And he wants to change it.
At the recent annual meeting of the International Air Transport Association (IATA) in Beijing, Brewer made the case to an audience of senior executives representing 85% of the world’s airlines that their sales model is broken. “I buy tickets now, because I’m retired,” he quipped to the mostly free flying crowd. “I go to Expedia, to Kayak, and I go to all these different sites. I want to fly business class, and I have no idea what that business class seat’s going to be.”
He said that in order to find out such basic information as how wide a seat is, how much privacy he’ll have, and whether he’ll have an electrical outlet or Wi-Fi, he has to go to outside resources like seatguru.com. “I should be able to have the context of all the different values that you create as airlines that you think I appreciate and I have no chance of ever seeing. I think we can do a lot better.” The problem, he said, is the GDS, a worldwide network that serves both traditional and online travel agencies. It’s dominated by five companies and has not changed significantly since the 1970s. As Gillian Gibson, a GDS executive on the panel, admitted, many travel agents still work on the sort of green screens that wouldn’t look out of place on the set of the movie War Games.
A more rational business model—one that, say, linked suppliers and customers—might have succumbed or evolved by this time. But GDS is different. The GDS companies, with names like Amadeus and Travelport, pay travel agents fees, sometimes well into the seven figures, to use what they call their data aggregation services. This means the basic relationship is between the GDS and the travel agent, and it’s not one that the well-rewarded travel agents, especially in these tumultuous times, have any motivation to go changing.
It’s the GDS that assigns seats their single-letter fare codes—those mysterious Ys and Js and Qs that you need sites with names like Air Fare Watch Dog to decipher. There was a time, when computers worked on 64 kilobytes of RAM and every character counted, that simple codes like this made sense. But these days, in an industry that IATA predicts will have an average profit margin of 0.5% in 2012 and whose members are doing everything they can to differentiate themselves in the market to stay competitive, not so much.
According to fellow panelist Rob Fyfe, outgoing CEO of Air New Zealand, almost all the sales of the carrier’s new Skycouch, a recent innovation that lets economy passengers travelling in couples to buy the middle seat at a discount and turn the whole row into a sort of futon, have been made directly through the airline’s website because the GDS is unable to handle such complexity.
According to Brewer, innovation like Fyfe’s is almost unheard of in the industry for precisely this reason. If airlines are unable to sell new things through what remains their largest gateway, why bother? He uses Air Canada’s own On My Way weather-protection upgrade as another example of undersold innovation.
“Remember last winter you got stuck in Toronto when the storm came through and you couldn’t get back to St. John’s for a couple of days?” Brewer imagines a properly enabled travel agent saying. “Why don’t you buy protection this year, because you’ll feel more comfortable about your experience and you’ll be better taken care of if, God forbid, a snowstorm actually happens in the winter in Toronto.”
According to Gibson, the GDS is slowly changing the way it does business, and has been for the past several years. But another panelist, Google’s travel vice president Jeremy Wertheimer, told a little story that seemed to justify Brewer’s frustration.
“We did a bit of an experiment eight years ago when a number of airlines came to us back during a GDS negotiation, and they said, ‘You do our shopping for us. Could you also do our distribution?’ They said, ‘We’re paying $4 a segment, could we pay less?’ and I said sure. ‘Could we pay a lot less?’ I said sure. I quoted a price of 40¢ a segment….I think I put six engineers on it for six months and we had a system.” But familiar and (for agencies) lucrative technical standards have a lot of staying power. The airlines re-upped with the GDS, and Wertheimer’s fix got shelved.