Mastering the Travel Intermediaries: Origins and Future of Global Distribution Systems, Travel Management Companies, and Online (Summary by Chapter)

Foreword: Kathy Misunas

Foreword: Nawal Taneja

Preface

Chapter I: An Introduction to Travel Intermediaries

This book focuses on the role of intermediaries in the travel industry. Intermediaries play a critical role by facilitating transactions between travelers (buyers) and suppliers (such as airlines). These intermediaries act as middlemen, bridging the gap between travel suppliers and consumers and enabling various types of transactions. Utilizing intermediaries comes with additional costs for both the travel supplier and, in some cases, the customer. These costs are associated with the value-added services provided by intermediaries. Intermediaries thrive in the travel industry due to the inherent complexity involved in travel. They take on responsibilities that travel suppliers may not have the bandwidth to manage or outsource in a cost-effective manner. By leveraging technology and expertise, intermediaries offer valuable services to customers. The use of intermediaries brings advantages to both consumers and suppliers alike.

The travel sector has always relied on middlemen. The first chapter examines the different types of middlemen in the travel value chain. The book explores the beginnings and prospects of GDSs, TMCs, and OTAs, which are vital players in the travel value chain. It delves into the obstacles and the future they face as technology and the business environment keep changing.

Keywords: travel, Intermediaries, global distribution systems, online travel agencies, travel management companies

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Chapter II: ?Origins of the Global Distribution Systems (1925 – 1983)

?This chapter commences by discussing the origins of civil aviation and airline reservation systems, which ultimately led to the development of the first GDS in 1976. It examines the leading roles played by airlines such as American Airlines and later British Airways in launching both domestic and international versions of the IBM reservations system. Additionally, it explores the pioneering parallel efforts made by British European Airways and Scandinavian Airlines System with the UNIVAC reservations systems. The early years of the airline industry were marked by the significant contributions of organizations like the Civil Aeronautics Board, International Air Transport Association, International Civil Aviation Organization, American Society of Travel Agents, and several others.

The launch of GDSs in 1976 gave birth to the automated travel agency, serving as an extension of an airline's sales force. Several airline owned GDSs came into existence that gave them a competitive edge. Subsequently, airline deregulation occurred in 1978, followed by the introduction of airline frequent flyer programs in 1981 The regulatory period began in 1983 when smaller airlines filed complaints with the CAB, alleging that major airlines were leveraging their computer reservations systems (the GDSs) to gain an unfair competitive advantage.

Keywords: C.R. Smith, airline reservation system, Sabre, PARS, IBM, BOAC, global distribution systems, travel agency automation, JICRS, airline deregulation, frequent flyer program

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Chapter III: GDS: Platform Power (1984 – 1995)

From 1984 to 1995, Global Distribution Systems (GDS) and their affiliated airlines experienced a remarkable period of success. Beginning in 1984, a regulatory period was initiated by the Civil Aeronautics Board (CAB) that resulted in the establishment of the Code of Federal Regulations (CFR), which aimed to prevent anti-competitive practices.

This chapter delves into the various contractual agreements between airlines and GDSs, including key provisions such as full content and most favored nation clauses. Notably, American Airlines pioneered the development of a large-scale revenue management system in 1986, which sparked advancements in the connectivity between airline reservations systems and GDSs. The chapter provides a comprehensive review of EDIFACT and GDS connectivity to airlines. Additionally, it explores the traditional revenue streams for travel agents, as well as the governance, industry standards, and partnerships associated with GDSs.

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During this timeframe, the GDSs introduced air shopping, IATA introduced electronic tickets, and there were instances of airline divestiture from GDS ownership. In the pre-Internet era, American Airlines introduced eAAsySabre, a direct-to-consumer booking application for flights, hotels, and cars. Ultimately, this era witnessed transformative changes in the pioneer airline reservations systems, and the chapter concludes with a discussion on the influential power of the GDS platform.

Keywords: full content agreements, most favored nation, connectivity, teletype, EDIFACT, platform power, yield management, booking class, availability

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Chapter IV: GDS: The Internet, New Channels and Transparency (1996 – 2011)

The arrival of the Internet brought about significant changes in the distribution landscape, leading to the emergence of two new online channels: the supplier direct and indirect channels. The GDS was deregulated in 2004 and its impacts on suppliers, GDSs, and consumers are examined. During this period, there were several unsuccessful attempts to break into the GDS oligopoly. These attempts included the GDS New Entrants (GNEs) as well as various direct programs initiated by airlines, TMCs, and OTAs. The preferred channel model and the surcharge model are also examined in this context. In 2006, full-service carriers introduced branded fare families. Unbundling followed with the sale of à la carte ancillary products and services, which led to the first signs of strain in the full content agreements between airlines and GDSs since ancillaries were not part of the agreement. The role of regional GDSs is reviewed. The chapter concludes by discussing the IATA Board of Governors' initiative to establish the foundation for the New Distribution Capability (NDC).

Keywords: Internet, online travel agencies, new distribution capability, GDS deregulation, travel management agreements, ancillary products

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Chapter V: Scale Matters: GDS Air Shopping

Air shopping is a major product investment for Global Distribution Systems (GDS). Its purpose is to support the timely processing of high volumes of shopping transactions and provide quick responses to travel agent shopping requests, ensuring their productivity remains unaffected. A typical air shopping deployment involves hundreds of servers to handle the large number of requests from travel agents. Prior to the pandemic in 2020, air shopping volumes had been steadily increasing with an average year-over-year growth of 60% - 100%. The air shopping process consists of four main components: schedule generation, itinerary selection, booking class availability, and itinerary pricing. This chapter explores the complexities of the air shopping process, low fare efficacy, schedule-led and fare-led algorithms, itinerary pricing, performance measures for shopping, and its impact on adjacent systems such as airline reservations inventory control. The chapter concludes with a discussion on how NDC (New Distribution Capability) affects GDS air shopping.

As we delve into air shopping, this chapter also discusses in detail the fundamentals of airline pricing to price an itinerary.

Keywords: air shopping, dynamic schedules, itinerary selection, multi-itinerary pricing, schedule-lead, fare lead, low fare efficacy, itinerary diversity, context for travel, trip purpose segmentation

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Chapter VI: GDS: The Turbulent Years (2012 – Present)

This chapter examines the turbulent years for intermediaries - Global Distribution Systems (GDSs), Travel Management Companies (TMCs), and Online Travel Agencies (OTAs) following the adoption of IATA Resolution 787 on October 18-19, 2012. This resolution aimed to replace the existing legacy messaging exchange standard with a new XML standard, known as the New Distribution Capability (NDC), at the Passenger Services Conference. The NDC initiative gained approval from the Department of Transportation in 2014 and subsequently commenced.

In this chapter, the limitations of the current GDS infrastructure as perceived by airlines, as well as the fundamental changes in the booking workflow brought about by NDC are explored. These changes will be discussed in three stages: the traditional GDS workflow, the hybrid state, and the end state. Additionally, we will delve into the NDC certification process and the transition to the Airline Retailing Maturity (ARM) Index. Furthermore, we will examine the challenges and deployment scenarios of NDC for TMCs and OTAs. As a result of NDC, NDC aggregators came into existence to consolidate NDC content from airlines and facilitate its delivery to the point of sale. Various aspects of NDC will be explored, including GDS pricing power, GDS bypass, GDS pass through, the threat of disintermediation, the future of schedule aggregators, and fare aggregators. Lastly, the impact of airline reservations with offers and orders, as well as codeshare availability are reviewed.

Keywords: new distribution capability, certification, hybrid state, ARM index, pricing power, GDS pass-through, GDS bypass, disintermediation

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Chapter VII: The Impact of Evolving Business Models on Global Distribution Systems

The revenue model revolves around the flow of cash between the airlines (suppliers), GDS, TMC, and OTAs. This chapter explores the different significant moments in the history of GDSs and the journey towards disintermediation. Throughout this period, the revenue model has evolved in terms of how intermediaries are compensated by suppliers. We delve into the traditional GDS revenue model, which includes the GDS imposed full content access fee from participating carriers to travel agents, GDS surcharges first imposed by Lufthansa in 2015, preferred channels by the International Airline Group in 2017, and the wholesale model by SAS in 2022. In the hybrid era, where both traditional GDS bookings and NDC bookings exist, two revenue models will continue to coexist.

Keywords: new revenue models, surcharge model, preferred channel, wholesale model, GDS two-tier revenue model, NDC aggregators

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Chapter VIII: ?A Fast Response System: Airline Shopping in a NDC World

The introduction of NDC has initiated the shift from highly scalable GDS shopping to airline-specific shopping, enabling the creation of customized offers for each request. Airlines now face the challenging task of efficiently handling shopping requests and swiftly selecting priced itineraries with associated ancillary bundles. To ensure scalability, these responses must be generated within three seconds, including network latency. This calls for an integrated air shopping and offer management system that prioritizes speed and accuracy. With NDC, attribute-based shopping tailored to specific customer segments and the context of their trips has become the new norm. This chapter investigates techniques that can be adapted to optimize the speed of NDC-influenced shopping responses. Additionally, the significance of a seat map cache in facilitating seat-led shopping is explored. These enhancements in air shopping for the indirect channel also provide added support for unique features on the direct channel to accommodate NDC requests, such as inspirational shopping, budget shopping, and theme-based shopping.

Keywords: Scalability, air shopping, fast response system, new generation shopping algorithms, inspirational shopping, calendar shopping, budget shopping, theme-based shopping

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Chapter IX: Airline Dynamic Pricing, Offer and Order Management

The airline industry is transitioning its focus from revenue management to offer management. This chapter delves into the main benefits and capabilities required for dynamic pricing, offer creation, and order management. Dynamic pricing refers to real-time fares that are calculated based on reference fares and prevailing market conditions. These fares cannot be replicated outside of the airline enterprise environment by an intermediary. The chapter also explores recommendation engines that create personalized offers for different customer segments based on the context for travel. It discusses the use of reinforcement learning techniques to continuously refine these recommendations through test and learn experimentation. Additionally, the chapter examines how offers impact corporate travel and discusses the role of product normalization on the GDS storefront in determining screen display. Finally, the chapter concludes with a discussion on the transition from Passenger Name Record (PNR), E-Ticket, and Electronic Miscellaneous Document (EMD) to ONE Order.

Keywords: dynamic pricing, continuous pricing, offer management, context for travel, trip purpose segmentation, recommendation engine, personalized offers, order management

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Chapter X: Origins of Online Travel Agencies

The expansion of the Internet has had a major impact on bookings made through the online indirect channel and supplier direct websites. This chapter explores the key milestones in the evolution of online travel that led to the rise of online travel agencies (OTAs) and direct consumer channels. It delves into topics such as OTA air bookings, the relationship between OTAs and GDSs (Global Distribution Systems), and the various sources of revenue for the OTAs from an air perspective. Furthermore, it reviews the growth of OTAs through mergers and acquisitions. The chapter concludes by examining the infrastructure of OTAs and their role within the travel industry.

Keywords: Internet, TravelWeb, Travelocity, online travel agencies, GDS web services

Chapter XI: Hotel Bookings and the Dominance of the OTAs

Over the past two decades, the Oline Travel Agency (OTA) segment has grown to be the dominant channel for hotel bookings. Changes in full content agreements between hotels and OTAs, commonly called rate parity agreements, are reviewed. Is an OTA a friend or foe of hotels? Many small chains and independent hotels are dependent on the OTAs to deliver bookings. This chapter examines the fragmentation of the lodging industry that led to the negotiating power and dominance of the OTAs. The merchant model, pay at check-in (PAC) model, and the opaque model are reviewed. The chapter concludes with a discussion on the role of metasearch and Google in the lodging industry and the diminishing role of the billboard effect.

Keywords: hotels, merchant model, pay at checkout model, rate parity, billboard effect, full content,

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Chapter XII: Customer Trust and NDC

?Trust is fragile and requires a significant amount of time to establish. As the travel industry recovers from the impacts of the COVID-19 pandemic, it is critical for travel organizations to regain trust at every level of the value chain, from suppliers to intermediaries to customers, to ensure a robust and successful future. Trust is also an integral component of IATA's New Distribution Capability, to expedite adoption. In this chapter, we delve into the various aspects of trust in bilateral relationships within the travel value chain, involving airlines, intermediaries, and end consumers.

?Keywords: trust, new distribution capability, bilateral relationships, airlines, travel management companies, GDS, customer

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Chapter XIII: The Impact of Emerging Technologies on Intermediaries

The chapter outlines the role of some of the latest technologies such as artificial intelligence and blockchain that will have a profound impact on the travel industry. Artificial Intelligence is rapidly gaining acceptance and widely used in the travel industry. The role of the three main categories of AI applications: robotic process automation, cognitive insight, and cognitive engagement are examined. The role of transformative AI in automating travel agency workflows at the point of sale are reviewed. Another important evolving technology is blockchain which is in the very early stages of adoption. This chapter delves into the evolution of personal identity and its future role in personalization with decentralized digital identification. The evolution of blockchain, types of blockchains, and the promise of peer-to-peer transactions without an intermediary lie in the future of travel. Challenges such as scalability for processing high volume transactions and maturity of this nascent technology in travel are reviewed.

Keywords: artificial intelligence, operations research, machine learning, travel applications, blockchain, personal identity, peer-to-peer

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Chapter XIV: Future State?

The last chapter of this book examines the future of product distribution. It specifically delves into the future of travel intermediaries. It analyzes the recovery of GDS bookings, NDC aggregators, and the potential threat of disintermediation in terms of booking volumes, market share, and margins. Additionally, it evaluates the future roles of GDSs, TMCs, and OTAs, and the transformation they need to make to protect their revenue streams. Can GDSs muster the courage to adopt new business models that utilize their existing infrastructure? This transformation is exemplified through various examples. The reinvention of TMCs and OTAs is necessary to safeguard and expand their revenue streams. This chapter also presents new capabilities that TMCs and OTAs can develop to differentiate themselves from individual suppliers. This differentiation is mandatory for their long-term survival in a future where peer-to-peer transactions become the norm.

Keywords: NDC aggregators, blockchain, peer-to-peer, transformation, open marketplace, new business models, competitive advantage

Chapter XIV: Future State

The last chapter of this book examines the future of product distribution. It specifically delves into the future of travel intermediaries. It analyzes the recovery of GDS bookings, NDC aggregators, and the potential threat of disintermediation in terms of booking volumes, market share, and margins. Additionally, it evaluates the future roles of GDSs, TMCs, and OTAs, and the transformation they need to make to protect their revenue streams. Can GDSs muster the courage to adopt new business models that utilize their existing infrastructure? This transformation is exemplified through various examples. The reinvention of TMCs and OTAs is necessary to safeguard and expand their revenue streams. This chapter also presents new capabilities that TMCs and OTAs can develop to differentiate themselves from individual suppliers. This differentiation is mandatory for their long-term survival in a future where peer-to-peer transactions become the norm.

Keywords: NDC aggregators, blockchain, peer-to-peer, transformation, open marketplace, new business models, competitive advantage

Travel Industry Acronyms

Glossary

References

Published by Springer. See link below.

https://link.springer.com/book/10.1007/978-3-031-51524-8