Lufthansa Says GDS Surcharge Is Step One Toward Disrupting the System

by Michele McDonald

In the latest public discussion of Lufthansa’s GDS surcharge, a carrier executive made clear what the end goal is: the disruption of the current distribution system.

“We are aware that it is very disruptive,” said Lufthansa chief commercial officer Jens Bischof. “Now is the right time for new technology.”

The Distribution Cost Charge, a €16 surcharge on every booking made through a GDS, is “only one initial step,” he said.

Bischof laid out the Lufthansa Group’s case during a second webinar co-presented with the Association of Corporate Travel Executives. The first focused on the mechanics of the DCC; the second on the philosophical decision to impose.

“We wanted to move the distribution landscape forward,” Bischof said.

Airlines have for decades bristled over their relationships with GDS companies.

In 2004, Northwest attempted to impose a “shared GDS fee” of $3.75 one-way/$7.50 roundtrip for domestic tickets issued through GDSs, but it backed down after just a few lonely days during which no other carrier followed suit.

Other attempts to shift the costs also failed.

In 2006, the conversation over GDSs moved from costs to technology, when Air Canada pulled its Tango fares from the GDSs because the systems were unable to display the fare’s attributes.

One GDS company took Air Canada’s complaint to heart: Galileo, Travelport’s predecessor company, developed a desktop for Canadian agents that provided access to the carrier’s fare families and a la carte offerings.

Over the next nine years, some progress was made to facilitate airline merchandising, but some airlines, including Lufthansa, believe too little has been done.

So the carrier is taking the bull by the horns.

By refusing to sign new “full-content agreements” with the GDSs, Lufthansa has “gained back its distribution freedom,” Bischof said. “But freedom does not come without a price.”

The timing of its move was set by the expiration of its previous full-content agreement; waiting for more viable alternatives was not an option.

Lufthansa knew going in that other carriers’ agreements were still in place, so it would be weathering the storm on its own.

The carrier is hoping that the disruption will provide travel agencies with “the incentive to seek direct connections with the Lufthansa group,” Bischof said.

Meanwhile, Lufthansa has “taken an active role and invested a lot recently” in development of alternative booking solutions, he said. “We are in very advanced talks” and expect to make an announcement “very shortly.”

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