Airline Distribution: Will Change Finally Come in 2013?

The legal drama surrounding airline distribution for the last two years has wrought few, if any changes.

But it’s a New Year, and change may be on the horizon.

No agreement
In December, American Airlines and Travelport failed to reach an agreement to end their dispute. Instead they asked for another stay of their antitrust lawsuit “to allow the parties to continue settlement discussions and potentially resolve this litigation.”

They also extended their existing content agreement.

American and Sabre, meanwhile, dotted the I’s and crossed the T’s of their settlement, by asking the judge to dismiss all claims and counterclaims between them.

To what end?
After all that – a pitched battle that began over American’s desire to connect directly with travel management companies – what has changed?

Aside from filling the coffers of a few law firms with millions of dollars, the answer appears to be: Not much.

Here’s what did, or will, happen as a result of the distribution battles:

•    American won the right to openly promote AADC, its Direct Connect product. Its previous agreement with Sabre barred it from publicly marketing it at conferences and other events.

•    Sabre won an unspecified period of time in which to enter exclusive negotiations with American for the provision of its SabreSonic Customer Sales and Service system to the carrier.

•    American also will receive an unspecified amount of money from Sabre; that may be a sort of refund for the hikes in segment fees that Sabre imposed during their dispute.

Assuming Travelport and American come to a similar agreement, the long, strung-out drama has done little to change the distribution landscape.

But another development – IATA’s move to create a framework for what it calls a New Distribution Capability (NDC) – could move the industry closer to accomplishing American’s ultimate goal: the ability to sell products the way every other modern industry sells products.

Modern retailing
Anyone who bought holiday presents online experienced the kind of merchandising techniques that American Airline wants to adopt.

For instance, if you bought a new carry-on bag, eBags suggested some items you might buy to complement it. If you bought new towels at Overstock.com, you’ve probably received emails suggesting new bath accessories. If you are on Facebook, you’ve probably seen ads for products that do a pretty good job of appealing to your tastes and lifestyle.

The technique is based on “if this, then that” programming: The consumer’s behavior triggers a response from the retailer.

In general, consumers like these personalized offers, so long as they don’t take on the “creepiness factor” that arises when a company seems to know too much about you.

Airlines want to play too
American is not alone in wanting to use these techniques. Delta hired the former head of e-commerce at Target to help bring it into the modern merchandising world, and other airlines are jumping on the bandwagon.

IATA’s initiative aims to ensure that airlines can use these techniques in all channels.

IATA can’t get involved in commercial relationships, so it does not address the underlying friction that has existed between airlines and GDS companies over this issue since 2006.

That’s when Air Canada pulled its Tango fare – a stripped-down, seat-only fare – from the GDSs because their displays could not explain what consumers would be getting. (What’s past is prologue: Sabre retaliated against Air Canada by biasing its displays.)

In the years since, GDSs have made some advances in their ability to display some ancillary products and merchandising efforts, such as fare families and premium economy seating, but the progress has been somewhat piecemeal.

NDC: pivotal development?
Will IATA’s NDC be the catalyst for change? The airline trade group has invited GDS companies to participate in the development of the framework.

Change is not likely to come overnight, but it’s becoming increasingly clear that airlines are not likely to back off from their merchandising aspirations. And there are technology companies out there that are willing to help them.

As analyst Henry Harteveldt pointed out in his recent white paper titled “The Future of Airline Distribution,” GDS companies are ideally positioned to take the lead in developing new distribution modes: They have the relationships and they know how the industry works.