Corporate Travel Execs Call Lufthansa Plan Disruptive

The Association of Corporate Executives (ACTE) weighed in on Lufthansa’s plan to slap a surcharge on GDS bookings, saying its members have expressed “frustration and resignation” over the move.

The Lufthansa Group on June 2 said it will impose a €16/$18 “Distribution Cost Charge” (DCC) on all bookings that are processed by a GDS, including those made via on- and offline travel agencies and online booking tools

The group, which includes Lufthansa, Austrian, Swiss, and Brussels airlines, said the surcharge is meant to recover the high costs of GDS segment fees. The surcharge is slated to go into effect Sept. 1.

‘Disbelief and shock’
Greeley Koch, ACTE’s executive director, said the initial response to the announcement was “disbelief and shock, particularly over the abruptness of the announcement.” Travel managers regard distribution costs as the price of a carrier doing business with a corporate client, he said.

Most travel agents and travel managers view the surcharge as a price increase, pure and simple.

It also is likely to be painfully disruptive, they say.

“At a time when TMCs [travel management companies] in the U.K. are continually being challenged by the corporate travel buying community as to what value we add to their travel program and buying capabilities, this move by Lufthansa is a kick in the teeth,” Mike Jones, head of strategic bid management at CTI Corporate Travel International in Manchester, said.

“Equally, travel buyers may see more of their travelers falling out of policy and booking direct with the airline.”

The Global Business Travel Association (GBTA) said it “recognizes that change in the marketplace, even disruption, can lead to positive outcomes for the business traveler and the corporation, but in this case the cost of disruption far outweighs the benefit.”

GBTA said it reached this conclusion after discussion with Lufthansa and industry partners.

The position was carefully considered by our committees and leadership after discussions with Lufthansa representatives and our industry partners, GBTA added.

New surcharges to follow?
ACTE members said they also are concerned that every future cost, such as labor costs, will provoke a new surcharge, and they fear that other carriers will follow the Lufthansa Group’s lead.

That fear is not unfounded.

At the recent IATA annual general meeting, an electronic poll revealed that 96 out of 120 airline chiefs were weighing a similar action.

But so far, no airline has matched Lufthansa’s move and that may be a matter of timing.

Most major carriers have full-content contracts with GDS companies that prohibit surcharges like the one Lufthansa plans.

Lufthansa is one of the few that no longer has a full-content agreement which is one reason its segment fees are higher than most carriers’.

If the Lufthansa Group airlines stick to its guns, it could prove costly for travel management company clients.

BCD Travel estimates that the DCC “will result in approximately €28 million ($31.4 million) in additional fees for our clients collectively. Online booking tools access their Lufthansa content via the GDS, therefore the €16 fee will be applicable on all online bookings.”

Booking on airline sites
Lufthansa has said agencies can avoid the surcharges by booking on Lufthansa’s agent portal.

But BCD noted that booking on airline sites “reduces agent efficiency and has a significant impact on our productivity compared to booking via the GDS. Those inefficiencies drive up costs for customers.”

Lufthansa is not oblivious to the noise in the marketplace over the DCC.

In an op-ed piece written for Tnooz, a U.K.-based online publication, Christian Schindler, regional director in the U.K., Ireland and Iceland for Lufthansa, took a conciliatory tone.

“Travel agents are and will continue to be an important pillar in our channel mix,” he said. “Two-thirds of our tickets are sold through this channel. We would be foolish to put this at risk so will jointly find new ways of collaboration. “

“We don’t want to demonize the GDSs either,” he added.

But Schindler’s words should not be interpreted as a backing away from the DCC plan, a Lufthansa spokeswoman said.

“We are not planning on delaying the DCC plan” she said, despite the urging of some organizations.

“The goal is to broaden our distribution via third-party channels and other travel industry partners by eventually enabling them to market more products and features that we are currently investing in as compared to what the GDS standard technology currently allows.”