The slow end of Expedia et al? Lufthansa introduces €16 GDS fee

Lufthansa made a very surprising announcement yesterday which I don’t think anyone saw coming.  They (ie Lufthansa, Swiss, Austrian and Brussels Airlines) have decided to attack Expedia and the other online travel agencies.

You have probably heard of Amadeus and Sabre even if you don’t know much about how they work.  These two companies control the two main airline booking systems, called the Global Distribution Systems.  Almost all legacy airlines and a few low cost carriers use a GDS.

It is a GDS which powers any airline ticketing system which is not exclusive to one airline.  As a consumer, the ones you will see most often are Expedia, Opodo, Travelocity etc.  There are also corporate versions used to book business travel.

It is not impossible to exist outside a GDS.  Ryanair does it, for example.  easyJet, on the other hand, started paying fees to be included in the GDS systems a couple of years ago because it wanted to do more with the corporate market.  Many PA’s will only book flights shown on the screen by their corporate booking tool and won’t bother searching individual airline websites to see who else may fly a route.

From September 1st, Lufthansa is planning to charge €16 for all tickets booked via a GDS.

Lufthansa

As Lufthansa explains it:

Until now, these costs have been passed on across-the-board to all passengers as part of the ticket price. The costs of using a Global Distribution System, in particular, far exceed those of the other booking channels and this year these have again increased significantly. In future a part of these costs for GDS bookings will be passed on in the form of a new charge in the interests of a fairer allocation based on the cost-causation principle. As with the introduction of the new Economy Class European fare, with this new charge the Lufthansa Group airlines are enabling their customers to pay only for those benefits and services that they actually use.

What this means is that tickets booked on lufthansa.com should be €16 cheaper than tickets booked elsewhere.  The airline call centres and ticket desks will also be exempt.

Travel agents will be able to use a new trade-only booking website.  Business customers with special rates will be given the equivalent of a ‘corporate rate code’ to use on lufthansa.com – codes which, if the hotel industry is anything to go by, will soon be appearing online for everyone to use ….

It will be very interesting to see if this charge sticks.  The risk to Lufthansa is that people continue to focus on the GDS route and, because their tickets are now €16 more expensive, gravitate to another airline.  I assume that Lufthansa is hoping that all of the other major European airlines swiftly follow them.  They could be very lonely otherwise ….

If it goes well, Lufthansa may consider another step – following the major hotel companies and refusing to award miles for tickets which are not booked on their own website.

The full announcement can be found here (PDF).

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Comments

  1. czechoslovakia says:

    This will either turn out to be a stroke o genius for LH group if everyone jumps on the bandwagon, or a swift U-turn if not.
    Can`t see the point of booking flights on the likes of expedia, as it is so much hassle to make adjustments because of schedule changes etc, anyway.
    Doesn’t bode well for the “middlemen” as they are getting squeezed from all sides. More and more, if you want the best deal – go direct.

    • erico1875 says:

      Ryanair are now on GDS.last year they signed up.
      This is a strange move by LH. It is going to make tjem more expensive on comparison sites. They may not even show on some

      • Aeronaut says:

        Re comparison sites – I don’t think that’s how it will work, rather the comparison sites will show booking direct with LH to be €16 or so cheaper than booking elsewhere.

    • The main benefit is that sometimes they’re able to advertise routes you cannot get on the airliners own websites, and those routes are significantly cheaper than the comparison. For example, an extra layover on a long-haul flight, which only adds an extra hour to your journey, could save an F ticket over £2k.

      • czechoslovakia says:

        Certainly they have their advantages, but all the same, I seem to get differing offers from Expedia, Kayak, Skyscanner and the matrix, in the same way Swiss and LH.com offer differing options, and even differing prices. Even if it means calling the airline, I`d always book direct to get the flights I want. Had too many headaches with Expedias call centre, plus don’t agree with their additional cancellation/change charges.

  2. Phillip says:

    I don’t see how the charge will make any difference to the Expedias of this world. They make pretty much zero commission on selling published fares, unless they attach a service charge. They make money out of packaged IT fares (which Expedia has been known to sell as flight only when they should be selling them with ground products as a package) and of course hotels, usually upwards of 15% of what the consumer pays! Very few airlines can compete on packages with the online agents, mostly due to the immense scope of ground product options available by the Expedias, although this is one aspect of ba.com where I think BA have done a very good job (BA Holidays) and have very keen pricing!

    • I agree, BA packages on city breaks and holidays can sometimes seem too good to be true. But we have always been pleasantly surprised. Often paying just a few £ extra to get to a 5star property. But I think this is a strange move by LH in the current competitive market.

  3. Danksy says:

    Interesting… I’m not sure how much difference it will make, With Expedia being such a strong brand I suspect many consumers will go there first, see that Lufthansa are more expensive and book a flight with another airline.

  4. There was a related Economist article a few years ago:

    http://www.economist.com/node/21560866

    The issue is two-fold: that airlines pay $7b in GDS fees per year; and that many of the legacy carriers sold their stakes when the Internet went mainstream because they assumed the middleman would be cut out (in fact the reverse proved true).

  5. Metatone says:

    It is an interesting one, because there are sites like hipmunk which find prices but then seem to send you to the airline site to book. I don’t know if they use Sabre or not.

    If they do, it’s hard to see how LH makes this stick.
    As an example, there is a business route that my wife flies and it’s clear that there are only 2 airlines worth checking for that route. No-one else puts on enough flights to be worth checking. So – she goes to those to airline sites and has a look.

    However, for lots of other business travel – and indeed, just about all of mine, it’s a trip to a city I haven’t been to for a while. I don’t know who flies there and how often. Hence, first stop is expedia or hipmunk to find out what the possibilities are. Would I then remember that LH is cheaper if you go to their site, or just continue with some other airline on the aggregator site? I can’t imagine that I’d make a special effort for LH (unless they seriously improve their miles program… 😉 )

  6. Purely for intrigue – what do skyscanner do? Because they include Ryanair. Guessing they don’t go through one of these Global Distribution Systems?

    Also, what have Government Digital Services ever done to Lufthansa to warrant the fee?!

    • Lionel says:

      No idea if Skyscanner tap into GDS. But you can certainly have a comparison service using proprietary technology. MSE have got one for the cheapies http://flightchecker.moneysavingexpert.com/

      It’s pretty good (when it works! & it’s often a bit out of date!), covers Ryanair and most European cheapos – and doesn’t earn MSE any income from what I can see. Therefore they are not paying for access to GDS.

      • Sounds like the places the average consumer looks won’t be subject to the extra cost but the corps will. Soft-core socialism!

    • Calchas says:

      FR is on Galileo and Sabre

  7. insider says:

    Working for an airline, I can see exactly why they have done this and it’s a very brave move. I suspect there will be legal battles (see American Airlines vs. Sabre) and most legacy airlines have full content agreements with GDS’s, meaning that charging a surcharge should not really be allowed. Interesting to see how Lufthansa got round this (if they even have).

    Like others have said, this could be very risky, typically c.60% or ticket sales are done through GDS’s and they are the higher value transactions (think corporates going through TMCs).

    Just an aside, the GDSs are effectively monopoly players in the regions they operate. Adding to the fact they control 60% of ticket sales for most of the legacy carriers, that leaves them in a very strong negotiating position. Annoyingly for airlines, they also charge per sector flown, so a ticket like CDG-LHR-JFK-LHR-CDG will incur the GDS fee 4 times, and the fee is not inconsiderable (LH stating €16 a booking).

  8. I presume you are aware that BA were the first airline to introduce a charge? Upto £3 per segment and a lot of brinkmanship when it came to sealing the deal.

    The E16 charge will just be a negotiating tool, and will end up being nothing close to that.

    Of course low cost carriers are going in the opposite direction with Ryanair, Easyjet, Air Asia appearing on some GDS’s (but not full content – i.e.not all fares inc. their cheapos appearing).

  9. I think the key question here is how many consumers use a GDS to find a price and then book on the airlines website with clicking on a link versus those who just go straight to the airlines website.

    I struggle to see how Lufthansa would know whether a customer has checked the price in this way first (maybe they have some good online research). I for one will always use a comparison site, will then go directly to the airline (usually AA or BA) to make the actual booking.

    So have Lufthansa wrongly assumed that customers directly coming to their website haven’t used a GDS minutes before?

    • Aeronaut says:

      Expedia et al are not GDSs. Consumers don’t have direct access to GDSs.

  10. Is EUR16 enough to change people’s behaviour though? I can see that it’s a noteable increase on cheap domestic tickets, but is it really going to stop people using Lufthansa for other flights? My main criteria when booking a flight is convenience along with cost – I generally book the most convenient flight as long as I don’t think the price is unreasonable. For example, LH to Berlin from LHR at say 8pm on a Friday night is ideal for me, so if that flight was say £100 I’d book it. I’d also book it at £110. I might go for an earlier/later flight if that earler/later flight was say £40, but that is the case whether or not the ideal flight was £100 or £110. I can’t see anybody changing their flights from LH for long-haul, for example. A few quid is hardly going to stop you booking the most appropriate flights.

    • Eur16 might seem like nothing but if you’re a party of 5, or sending dozens of people to FRA every week, this could bite.

      I wonder if it’s a bargaining chip by lh group to cut fees. After all they’ve gone to great pains to highlight the number of airlines involved. And sent this direct to some consumers….

    • Calchas says:

      Absolutely yes. People sort by price and pick the cheapest.

      • I’m not really sure that’s true though. I take Tony’s point as regards groups – I only ever book for me and the wife, but I can see how it would be a more material cost to a bigger family.

        But as regards people just booking the cheapest flight: if someone wants a flight at 10am and it costs £116, surely they are not going to book a 7am or 1pm flight because it is £16 cheaper?

  11. @alastairtravel says:

    Working at a TMC this is a big call from Lufthansa.

    It will be interesting to see how the display of these fares is negotiated with the GDS. Will it be included at the fare quote stage, or tucked in at the end? With the recent changing laws about displaying the final fare I’d be inclined to the former, which will make them uncompetitive (especially on short-haul)

    GDS bookings also tend to be corporate bookings (and generally with a much higher yield to the airline) so it’s a fair argument that you get a better quality of booking through this channel, one which Lufthansa are conveniently ignoring)

    Overall this is going to lead to fragmentation of the booking process at a time when technology is moving it towards a smoother booking experience for travellers and consumers.

    I’m not sure whether the position is sustainable without other airlines adopting similar positions en masse. How many other companies do you know that charge extra to distribute their products through their largest and most lucrative channel?