GDS Will Evolve Into ‘Value Creation Hubs,’ Harteveldt Says
by Michèle McDonaldAirline distribution will migrate from global distribution systems to “value creation hubs” over the next five years, according to airline and travel industry analyst Henry Harteveldt.
Value creation hubs, or VCHs, will be aggregators that enable extensive airfare and product transparency, dynamic pricing, and rich merchandising and retailing, Harteveldt predicted in a white paper on “The Future of Airline Distribution.” The paper was underwritten by IATA.
“The GDSs have served airlines well for many decades,” Harteveldt wrote. “GDSs’ security, reliability, speed and accuracy are among the best in any transactionally based industry. “
But airline marketing, sales, distribution and e-commerce executives are looking for more, he said.
What airlines want
“Airlines want more flexible, robust commerce platforms built on contemporary software and architecture,” Harteveldt wrote.
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“Airlines want commerce platforms that can support extensive fare and product transparency, dynamic pricing, rich basic and ancillary product merchandising and retailing and the ability to reliably and securely process the massive volume of shopping sessions.”
The airlines also believe that new providers who enter the airline distribution and commerce space will generate more competition and better selling solutions, he said.
Evolutionary pivot
Value creation hubs will represent an evolutionary “pivot” from the current GDS approach, Harteveldt said.
They will use the new-generation commerce technology infrastructure that powers airline CRS/PSS host systems and e-commerce solutions, thus reducing the need for lengthy, costly disruption in a conversion to a new passenger services system.
Like GDSs, value creation hubs will be designed to support high-frequency, high-volume shopping.
However, value creation hubs will be developed with the database-commerce operating and business environment in mind and will be designed to provide extensive fare and product transparency, support dynamic pricing and enable rich merchandising and retailing.
Operated for airline alliances
A key difference between GDSs and VCHs will be the business level at which they operate. Unlike GDSs, which work with individual airlines, VCHs will be developed for each major alliance – Oneworld, SkyTeam and Star Alliance.
As low-cost carriers continue to grow and operate more long-haul flying, Harteveldt believes a critical mass of LCCs will choose to collectively develop a VCH to serve their unique needs and help strengthen their competitive positions.
Because the VCHs will operate at a “group” level, rather than at a single-airline level, the VCHs will house a “community link,” similar to the common platform operated by Amadeus, which will function as the “hub of the hub,” he said.
This will connect to various airline CRS and PSS hosts, virtual hosts, and other systems, and serve as the gateway from and between the airlines that participate in a given VCH.
GDSs will take the lead
An important distinction between the GDS and VCH models will be the commercial relationship with subscribers, including agencies and other intermediaries.
Does this mean GDS companies will disappear? No, Harteveldt said.
GDSs are the most likely candidates to take the lead in developing VCHs, he said. Amadeus, Sabre and Travelport “already have extensive airline IT services business units, and VCHs will operate off existing airline services IT components.”
“GDS firms are also pragmatic businesses, and they will accept the need to cannibalize a part of their business – and perhaps even exit some areas – to achieve greater future success.”
Harteveldt wrote the white paper as his last project for Atmosphere Research Group, the company he co-founded. He has since joined Hudson Crossing, a consultancy that advises airlines, GDSs, online travel agencies and other companies.
