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© copyright 2005 - AMADEUS Travel Technology G
roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbidden
GDSs – facing new challenges
Grach Muradyan Airline Business Group / Moscow
22 November 2005
© copyright 2005 - AMADEUS Travel Technology G
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Agenda
GDS creation – The “Golden era”
Low Cost Carriers – changing business model
Deregulation & MIDT – changing distribution terms
Internet – changing distribution environment
GDS business - changes for survival
What the future could bring
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GDSs – the airlines babies…
GDSs were created by the airlines for joint distribution
1962 - Sabre / first real-time inventory system implementation ( AA / IBM )
1987 - creation of Galileo (Covia / UA, BA, KL, SR…) 1987 - creation of Amadeus (AF, LH, IB, SK) 1990 - creation of Worldspan (DL, TW, NW)
* All trademarks respected
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GDSs – the golden days…GDSs net margins significantly exceeded those of airlines
4.7%
13.6% 14.3%
12.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Airlines Sabre Galileo Amadeus
Net margins of GDS & Airlines / US (1999).
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Nothing lasts forever…
GDSs – facing new century challenges
Low Cost Carriers (LCC) use alternative distribution channels / business models and technologies
Traditional carriers ( “GDS Godfathers” and main feeders) loose significant business segment to LCC
Marginal situation in civil aviation in general – the 3rd structural / industrial crisis
End-users learned to book on the airlines sites worldwide
CRS deregulation by DoT & EEC Traditional revenue sources under question
(MIDT issues)
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LCC – Southwest Airlines, the classical sample ?
“We weren’t just airborne yesterday…”
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LCC – Southwest Airlines, the classical sample ?
“ If you get your passengers to their destinations
when they want to get there, on time, at the lowest possible fares, making sure they have a good time doing it,
then people will fly your airline.”
( Rollin King & Herbert D. Kelleher, Southwest establishers, 1971 )
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LCC – Southwest Airlines, the classical sample ?
Southwest - “… being busy these past 33 years…”
Began service June 18, 1971 with head office in Dallas, TX
32 consecutive years of profitability Exceeded billion-dollar revenue mark since 1989 Largest US airline in terms of domestic volume Year 2004 results
Nearly 3,000 flights per day More then 31,000+ employees in the airline Total 70.9m pax 2,287 pax per employee ( SU / 2004: 466 ) Total operating revenue: $ 6.5 billion Net income: $ 313 million
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LCC – Southwest Airlines, the classical sample ?
Passenger load factor 69.5% Number of destinations: 60 airports Average trip length: 758 miles; 7 daily flights per aircraft 12.5h average daily aircraft flights length 1.45h average flight length Fleet unification - 429 Boeing 737 (average age - 9 years ):
TYPE NUMBER SEATS
B737 – 300 194 137
B737 – 500 25 122
B737 – 700 210 137
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LCC – Southwest Airlines, the classical sample ?
Southwest was the first airline to establish a home page in the internet
$91.15 average one-way airfare (for average 758 miles)
59% revenue generated by southwest.com southwest.com is the number one airline website for
online revenue ( “ PhoCusWright “ / 2004 ) less then $1 cost per booking via internet less then $4 cost per booking via airline reservation
agent less then $6 cost per booking via travel agent 60 full-time employees interactive marketing team
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LCC – Southwest Airlines, the booking engine
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LCC – Southwest Airlines, the classical sample ?
“Traditional” carriers have to follow Southwest fares
© copyright 2005 - AMADEUS Travel Technology G
roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenRegulations for GDS – some
historyAt the time regulations started all the GDSs belonged
to airlines - as a result, everybody was complaining:
Airlines complained on competitors, e.g. CO stated its discounted fares never shown in Sabre (initially owned by AA). Later a former senior AA staff stated under the oath a feature was programmed into the Sabre that allowed these fares to be suppressed, for the AA management to investigate the viability of matching these fares*
Travel agencies were frustrated at the comparatively laborious & time-consuming of booking on non-owner airline, as well as contracts clauses
* “The History and Outlook for Travel Distribution in the PC-Based Internet Environment”, “Global Aviation Associates Ltd.”, 2001
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenRegulations for CRS – history / USA case
June 1983 the Civil Aeronautics Board (CAB) developed a report (upon Congress request), investigating the charges of anti-competitive behavior in four major arias: display, booking fares, booking data & contract terms.
11 November 1984 CAB adopted regulations for CRS: neutral primary display (Part 255.4, Code of Federal
Regulations, CFR), secondary displays could remain biased; display criteria's to be disclosed upon the request;
all the CRS enhancements to be offered to all participant airlines on the equal level (CFR 255.5);
airline-owners to participate on equal level in the other CRS thus not making an advantage re own CRS (CFR 255.8);
commissions to TA for using particular CRS prohibited, max contract length to be 5 years (CFR 255.6).
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenRegulations for CRS – history / EU case
European Union regulations (“Code of Conduct for CRS”)
24 July 1989 “Council Regulations (EEC) No 2299/89 “ was introduced (amended in 1993 and 1999):
Ranking on the flight options in the principal display …must be in the following order (Annex 1.1)
all non-stop direct flight between the city-pairs concerns all other direct flights, not involving a change of aircraft connecting flights
If a system vendor has decided to add any improvement, … it shell offer these improvements to all the participating carries… with equal timelines and same terms … (Article 3.4)
Loading facilities shell be offered to all parent and participating carriers without discrimination … (Article 4a.1)
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Regulations for CRS – “ back to the future ? ”
Major changes had happened since the last DoT revision
for CRS rules (1992): the airlines’ growing use of Internet has weakened their
dependence on the (GDS) systems Sabre (wholly publicly owned since 1999) and Galileo (acquired
by Cendant in October 2001) are not controlled by the airlines anymore (as well as the Worldspan, which was purchased by Citigroup & Teachers‘ Merchant Bank 4.04.2003 )
Thus, from four GDS, three are not airline owned anymore
Based on this & in order to force competition between GDSs, 12.11.2002 US DoT issued Notice of Proposed Rule Making (NPRM) ( http://www.dot.gov/affairs/CRSrule.htm )
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Regulations for CRS – “ back to the future ? ”
Key NPRM proposed changes include:
Eliminating the requirement that each airline with an ownership interest in a CRS should participate in a competing system at the same level at which it participates in its own
Eliminating the rules prohibiting discriminatory booking fees Keeping the ranking criteria maintained Keeping internet out of regulation Consideration of shorter contract terms for travel agencies Prohibiting agency cash inducements tied to segments.
The general question - Should the CRS rules be maintained?
( Mr. Bill Mosley, DoT / +1 202 366 5571 / May 5, 2003)
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenRegulations for CRS –
“ back to the future ? ”
American Airlines filed comments to Dot (25 March 2003):
Welcomed eliminating of mandatory participation rules & of prohibition for discriminatory booking fees
Appreciated recognition of CRS contracts “parity clauses” as anticompetitive, thus forcing CRS price competition, “which should drive down distribution costs”
Appreciated non-regulations for Internet sales Urged DoT to maintain its ban on display bias Proposed three-year sunset date on CRS regulations
American claimed net booking fees rate growth was 5.3% to 6.3% yearly (1995 – 2000), while Consumer Price Index growth was just 2.4% yearly
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Regulations for CRS – Europe Union Commission
Revision objectives : reduce the obligations under the Code of Conduct (under consideration
now)
Obligations vis-à-vis participating carriers Obligations to end the non-discriminatory policy:
For fees & parent carrier clauses For existing and newly developed services Fees no longer have to be reasonably structured & related to
costs Obligations on neutral display to remain
Obligations vis-à-vis subscribers Obligations to end the non-discriminatory policy:
both for fees and for existing and newly developed services
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Internet – a new battlefield ?
Compared with the traditional distribution channels (e.g. travel agency terminals, airline call centers,
ATO/CTOs), Internet has the following specifics:
Widest geography & client base, unlimited access channel No need for end-user tool distribution, support & education Requirement for user-friendly, multilingual & intuitive interface Requirement for advertising of particular site / services No booking / availability checking / abusing responsibility Requirement for payment procedure provision (e.g. credit cards) Requirement for some ticketing solution (e.g. ET, a/p ticket),
etc…
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Internet – a new battlefield ?
Compared with the traditional distribution channels
Internet has the following specifics:
The costs for a booking is not fixed, as in case of GDSs The look to book ratio is very low (2% to 5%) Unlike the GDSs terminals, Internet is not targeted for
a specific service request, while providing the general information space
Unless supported (by some consolidator / CRS / GDS in the background ) needs the scope of related services / providers to be created (e.g. interline connections), making end-user to combine these himself
Has a huge permanently growing potential…
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Internet – a new battlefield ?LCCs use Internet as their primary distribution channel
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Internet – a new battlefield ? Traditional carriers are also increasing direct channel sales
(Qantas site, based on Amadeus FlexPricer )
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GDS business: facts and figures -net bookings per year
0
50
100
150
200
250
300
350
400
450
500
2003
2004
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenGDS business: changes for
survival…GDS are adapting to the changing business environment in order to survive (…remember
dinosaurs… :-)
The major survival policy is business diversification, which in particular include:
Finding reasonable / balanced solution for LCC implementation while keeping the “traditional airlines”
E-commerce development for airlines & travel community
IT services development - within a long-term strategy
Non-air revenue increase (hotels, cars…)
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Amadeus welcomes LCCs
Some of 30+ LCCs, which are now participating…
Airline name Code Country
AirTran Airways FL USA
Virgin Express TV Belgium
Sterling NB Denmark
Germanwings 4U Germany
Hapag-Lloyd Express
X3 Germany
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Amadeus welcomes LCCs
Amadeus participating LCCs are:
Hosted mostly in “Open Skies” inventory system (Navitair, Salt Lake City, USA - like most of LCCs worldwide)
Implemented in Standard Access (AIRIMP) level only
Tending increasing their fares via GDS versus the ones shown on their proprietary websites, thus covering the GDS booking fee
Using GDS as an complementary distribution channel
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Amadeus welcomes LCCs
April 1st, 2003 – germanwings were implemented in Amadeus
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Amadeus welcomes LCC germanwings.com
© copyright 2005 - AMADEUS Travel Technology G
roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenAmadeus welcomes LCC
germanwings – participating, but on the lowest level
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Internet – a new battlefield
The two principal ways GDSs use internet
Involving internet as a media to establish the terminal-to-host (or host-to-host) link as a cheap “last mile” (e.g. Amadeus “Proweb” & “Vista” Front office products)
Involving internet as a marketing environment for airline & travel agency web sites to reach the end user for promoting, bookings creating and tracking with graphical intuitive interface (including WAP usage)
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Internet – a new battlefield
Portals with GDS behind allow to use the already existing GDS functionality (as well as links with the providers - airlines, hotels, car companies), while ensuring widest internet audience.
Some GDS-powered portals include e.g.:
Travelocity (Sabre) Opodo (Amadeus) Orbitz.com (Galileo / Cendant)
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenInternet – a new battlefield
( Amadeus Opodo )
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Internet – a new battlefield…
The global online travel sector is expected to triple in growth over the next few years.
In order to consolidate all kind of internet-related developments and within the business diversification Amadeus dedicated E-travel division was created in March 2002
Amadeus strategic investment resulted in owning of 37.67% in Opodo* (which has more then 20% of European online air bookings).
Amadeus online ventures around the world include shareholdings in travel.com.au (Australia), Rumbo (Spain & Latin America), 1travel.com (US), eviaggi (Italy), Travellink (Scandinavia) and Vivacances (France).
( * Opodo was established & owned by 9 European airlines: Aer Lingus, Air France, Alitalia, Austrian Airlines, British Airways, Finnair, Iberia, KLM and Lufthansa).
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No. 1 supplier of e-commerce technology for airlines powering more than 140 websites for over 60 airlines 880+ travel agency sites 255 corporate sites 20+ hotel sites
Growing faster then the online market in general during the year 2004
Worldwide growth in Internet bookings : 30% Amadeus growth in Internet bookings : 72%
42 (of total 454) million online segments in 2004
Internet – a new battlefield…
Amadeus E-Travel division - facts and figures (Sep 2005):
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(VV / Amadeus API)…
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by NMC)
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Business diversification – IT services
Hosting market worldwide: 30 % Unisys (USAS based) and 70 % IBM (PARS/TPF based) solutions – “traditional” airlines
Hosting in “OpenSkies” / HP (25+ airlines) - mostly LCCs
Current hosting systems, including SITA Gabriel (“Second Generation”) are based on 30 years old solutions, a lot of patches, not modifiable anymore, not fitting good to revenue management systems
Airlines are demanding the New Generation Inventory, Departure Control, E-ticketing and other IT systems
The IT services are a long-term businesses !
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Business diversification – IT services
GDS business diversification includes emphasizing hosting and other IT services: Internet is mainly influencing distribution while there is always demand for hosting solutions
GDS IT / hosting services are providing background
for the GDS distribution services, e.g. Sabre entering in Russian market within / due to SU migration
At least two new truly third generation inventory solution offers on the market for full service airlines (not TPF/PARS or USAS based): Amadeus Altea new generation inventory solution UNISYS “AirCore” platform
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenBusiness diversification – IT
services
In 5 years most of the airlines plan to have retired their legacy systems
14%
29%
23%
18%
16%Within the next year
1-2 years
3-5 years
5+ years
No Answer
Average expected time to retire legacy systems:
3.9 years
Expected time to retire legacy systems
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenBusiness diversification – IT
services
Most airlines are now ready to outsource their PSS
59%
58%
31%
26%
15%
15%
11%
11%
9%
22%
18%
9%
5%
10%
18%
21%
28%
37%
56%
56%
56%
12%
12%
19%
19%
20%
24%
23%
Already moved to Plan to move Keep in house No answer
IT functions already moved/planning to move to ASP mode
Source: Airline IT trend survey 2005 – SITA / Airline BusinessSample: 90 airlines from all regions and sizes
Reservation
Departure control
Cargo Reservation
Frequent Flyer Application
Revenue Management
Airline Operation Planning
Financial Systems
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenBusiness diversification – IT
services
But they can’t handle any more significant IT projects
on their own Main airlines’ obstacles to achieving their IT strategy
Source: Airline IT trend survey – SITA / Airline BusinessSample: 109 airlines from all regions and sizes
Lack of investment / Reduced budget
Lack of IT people with airline experience
Too much resources on tactical projects
Lack of skilled IT people
Resources focused on maintaining legacy systems
Internal dev. too long/too expensive
Lack of top managt/board level support
Technology is not yet ready
39%
11%
14%
13%
8%
4%
10%
3%
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Business diversification – IT services
Amadeus product development power
A team of 2,000 experts Skilled in new technologies
Continuous investment on new projects and new solutions
€300 M investment on Altéa Cumulated 2000 - 2004
Allocation of resources
Airline IT35%
Central System21%
E-Commerce12%
Point of Sale22%
Fare Quote10%
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenBusiness diversification – IT
services
Amadeus Altéa Plan inventory solution – implementation status
Customer base Implemented in 2004: Qantas Implemented in 2005: BA, dba, Finnair Implementation plan for 2006: SAA, Pulkovo Signed: LH, UA, common platform for Star Alliance
Delighted first customers
“I am writing to all of you to thank you very much for your half of the very excellent team work which has allowed ‘New Generation Inventory’ to be such a success. I have the most delighted customers here at Qantas. Our Inventory Management business areas are very impressed.”
Fiona Balfour, CIO Qantas
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roup S.A. / all rights reserved / unauthorized use and disclosure strictly forbiddenBusiness diversification – IT
services
Amadeus Altea airlines community is already impressive References in all major alliances
oneworld: BA, QF, Finnair, IB Star: LH-LX, UA, SAA SkyTeam: AF-KL
References in each airline segment Major: UA, AF-KL, LH-
LX Network: SAA Medium: Pulkovo
Leading E Ticketing community 35 ETS users (206 M
Pax) 2 Gateway users (48 M Pax) 23 other airlines connected (650 M
Pax)
Altea Sell / Plan
Community:
• 155 FSCs (1/3)• 400 M Pax (23%)
Altea Sell / Plan
Community:
• 155 FSCs (1/3)• 400 M Pax (23%)
E Ticketing Community:
• 60 FSCs (1/3)• 900 M Pax (1/2)
E Ticketing Community:
• 60 FSCs (1/3)• 900 M Pax (1/2)
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Witnessing the Future – would you still call this “GDS “ ?
Internet sites are acting as “consolidation / distribution” tool, directly reaching the end-users
Portals using GDSs in background
Portals (same time) where possible trying to bypass GDSs, thus establishing direct link from the web site to an airline inventory systems
(“Orbitz “ “Supplier Link” project )
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Witnessing the Future – would you still call this “GDS “ ?
Distribution model evolution - every option is available now !
GDS
Airline X
Airline Y
TA X TA Y
TA X TA Y TA X TA Y
Internet
Internet
Web Portal Web Portal
Airline X
Airline Y
GDS GDS
Airline Y
Airline Y
Client
Client Client
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Witnessing the Future – would you still call this “GDS “ ?
A future scenario – distribution channels more diversification
Web portals and airline websites (with / without GDS behind):
Simple journeys & fare structure, no connections No discounts / services on board End-user oriented LCCs as providers (short-haul flights mainly)
Traditional GDSs distribution: Complex journeys & fares, online / interline connections Full onboard services Travel agencies & corporate oriented Traditional airlines as providers (long-haul flights mainly)
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Witnessing the Future – would you still call this “GDS “ ?
Are GDS and Portals moving towards each other ?…
Where are we finally going ?
There would still be a place for every distribution channel !
GDS WEB PORTAL
?
E-commerce developments “Supplier Link” developments
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