July 6, 2015
Amadeus last week fired a salvo in the war with Lufthansa Group over the DCC. Read my very lengthy review of the detailed points with a surprising recommendation at the end. I believe that Amadeus needs to come clean about its own practices before it starts flexing its muscle against its former founding airline.
On 2nd July 2015. (copy attached below) i received a letter sent from Amadeus North America President and CEO – Scott Gutz. I would like to address the points raised in the letter.
It’s a Holiday weekend in USA. Lots of food and celebrating. Cries of “Liberty” and “Let Freedom Ring” are everywhere as we celebrate the Independence of this great nation. As a recent citizen, I tend to take the hard fought freedoms and liberties offered by this country quite seriously.
If I may – I would like to challenge some of the assertions made in the letter. Clearly there is a major difference of opinion between Amadeus, its CEO Luis Maroto and Mr Gutz and Lufthansa. Amadeus has shared its opinion how it believes the Lufthansa Group (LHG) Distribution Cost Charge (DCC) programme “will mean higher prices for travelers and how this is not about technology, but about commercial strategy.”
Interestingly I would say that Amadeus as a GDS owning company that they are right but perhaps unwittingly so.
If this is purely a commercial issue – I have to ask why Amadeus is not coming out in favor of a truly open commercial system? The argument Amadeus appears to be making is perhaps disingenuous. The commercial strategy of Amadeus is world domination. Already the largest GDS, and in a short while (unless a regulator wakes up one morning and realizes what is going on) it will be by far the largest PSS company owning 3 businesses:
- Amadeus ALTEA
- Hitit (Turkey)
- Navitaire NewSkies
I would like to ask that Amadeus needs come clean and shows a standard contract for an airline with global distribution agreement (GDA) and the full content agreement (FCA) terms completely explained. This includes the pages and pages of commercial restrictions that are apparently one sided in favor of Amadeus. And these restrictions have nothing to do with technology. I doubt they will do that citing some “confidentiality” clause. However why not ask Lufthansa or another other airline, hosted or not, to disclose the non-financial terms of the contract. Despite quite a number of efforts for disclosure, Amadeus seems to show that the company actually has something worth concealing. What is it, I wonder?
It would seem that the company is playing a bit of a shell game. The letter from Mr Gutz claims that Lufthansa Group is raising the price to the public. Has any GDS come to the public in recent years and announced they are raising the cost of distribution either directly or via unbundling certain products that it now charges for? It would seem, through analyst reports and the press that we have formal evidence of price raising tactics since yield and profits on the GDS and PSS businesses show rises every year. Has Amadeus let the market know that the full content agreement actually prevents many airlines from offering lower prices via certain channels? A practice that has been found to be largely illegal in the hotel industry?
Within the content of the letter, the statements would seem to imply that Amadeus has no restrictions on how Lufthansa distributes its product. Is that correct? Let me ask explicitly – does Amadeus allow LHG to freely direct connect any user to its content hosted in ALTEA with no restrictions and without any commercial penalty? And another question: “Was there any part of the GDA (the now expired contract for distribution with Lufthansa) that prevents or restricts LHG from distributing its content?
Is the argument Amadeus is making that it truly wants to provide Lufthansa with a totally free and open agreement for the airline to distribute the airline’s product anywhere? This would seem to be the implication with the letter. Or did the GDA and FCA agreements actually restrict what the airline can distribute, where and to whom? Further does the contract set (since you unbundled them in 2011) place restrictions on an airline selling its product? Does the contract even go as far as has been rumored specifically naming companies that an airline cannot do business with? Are the contracts with other airlines similarly restrictive and against the interests of a free and open market?
Returning to Mr Gutz’s letter, it states “The market has also rigorously opposed LHG’s surcharge, with strong reactions from travel agencies, corporations, their respective associations and consumer protection associations.” Further you state that “Travel agencies have felt deceived by LHG and this has led many to question their relationship with LHG.” I would say that there are a lot of airlines who would disagree with that statement. Perhaps the deception really is from Amadeus.
I really liked the part where the letter says how “A number of industry participants have questioned the legality of LHG’s approach, and the impact on consumers’ and corporations’ ability to compare airline offerings in a transparent and neutral manner.” The bit I really like is the statement “Amadeus supports initiatives that protect consumers, and the principles of comparison, transparency, and neutrality, and we have been explaining our position to travel associations about the impact the surcharge will have on such principles.” I would like to see how you have clearly explained everything including how Amadeus proposes to demonstrate this commitment to transparency and consumer protection.
Continuing on the letter it states: “Meanwhile, the feasibility of LHG implementing the surcharge in such a short timeframe is still unclear given that LHG has yet to share the details of the surcharge with Amadeus. We have raised a number of questions to LHG as a result.” So let me ask – do you share the Amadeus travel agent contracts with Lufthansa or any other Participating airline who has signed a GDA? Does Amadeus share its airline agreements with the agencies? So what are those questions you seek answers to? Can Amadeus please be very specific about them? With regard to the time Amadeus has implemented major new programmes in the past in just as short a time. 3 months is not such a short period of time.
I find the section where Amadeus questions Lufthansa’s approach is very interesting: “In terms of LHG’s commercial approach, we have seen that not all markets or agents will be subject to the surcharge.” In the spirit of fair play and equality does Amadeus charge universally the same fee or impose the same fees on all airlines and all Travel agents in all markets equally? Perhaps LHG is saying that the fee will be charged only when it is legal to do so. So does this actually differ from Amadeus behavior?
On the subject of Direct Connect, the letter states: “LHG has also hinted that direct connect alternatives might exist, sometimes offering commercial benefits for their adoption. LHG has already engaged with some of you and you will have already experienced the increased workload this means for you and the airline. As discussions evolve, you may also be tackling new topics such as content and economic guarantees, readiness and ease of alternatives, integration and maintenance costs, or approach to data. All these are important elements of your decision making. You are right – there is a price for disruption and change. The alternative point must also be asked. Is there a price for staying with a system that demands so much effort to actually produce a PNR? Has Amadeus ever done a study that shows that on the average ticket that it is faster/cheaper/easier to produce one via an agent or via an automated service? It would be great for everyone to see the actual costs associated with each channel. Will Amadeus share this data that it would appear the company possesses.
It seems that Amadeus North America is none too fond of the idea of IATA’s NDC – New Distribution Capability. Although some of the comments coming from Amadeus airline IT teams’ side have been sounding super enthusiastic. Lufthansa’s own announcement made it clear that they are supporting the standard. Which is it, does Amadeus feel – as it appears the letter implies that – NDC is bad for agents?
I think it is benevolent that Amadeus is committing to its monopolistic position. “Amadeus continues to strongly believe in the GDS and the service offered by travel agents to consumers and corporations. It is an efficient and cost effective channel, providing very significant value to travel agencies, travel providers and consumers alike.” Can you show how this works with regard to a fair apple to apple comparison. Since you have all the data (owning both a GDS and a PSS) perhaps you can give us metrics that show if this is truly the case. Or is the system so complex that such an analysis is not possible?
I think it would fair for Amadeus to show that the following really is true. “As you know, Amadeus is also an airline IT provider, offering direct connect solutions as part of our Airline IT Solutions”. Actually surprisingly there are still many agency customers who have been led to believe that the hosting services of Amadeus gives superior content to those who are Amadeus subscribers, even though there is supposed not to be any differentiation via the GDS channel. While there is no GDS regulation within this country, there is in Europe where Amadeus is based.
The letter states “LHG has had this technology for a long time but never deployed it, presumably because agencies never had an economic justification until now to adopt it.” Allow me to posit an alternative answer or answers to this analysis. Perhaps either the commercial terms were not pleasant. Or perhaps the Amadeus Direct Connect solution is not so technologically advanced which is why so many other companies are keen to try and improve on it and develop products that are really innovative and customer valuable. Indeed some are now in the marketplace.
Regardless of the IT provider, this would be a LHG controlled channel commercialized, managed and supported under LHG’s full responsibility.” I struggle with this last statement. Is there something wrong with a product’s owner controlling how their product is commercially offered? Is it not actually quite arrogant of Amadeus to imply that they (and only they) should be the arbiter of what is commercially good or bad for the market? This part seems to be at direct odds with your opening statements that include: “…Luis has shared how the surcharge will mean higher prices for travelers and how this is not about technology, but about commercial strategy.”
Commercial issues will mean that there has to be a change in the commercial structure of the market – perhaps this is not a bad thing. “Some of the key concerns travel agencies have raised with direct connects are: the agency’s ability to seamlessly service their end customers’ needs (given that the PNR would be owned by LHG, for example); the agency’s ability to seamlessly integrate direct connects to enable true fare comparison; the very high costs of integrating customized solutions for airlines; and the higher cost of managing many diverse content definitions compared to today’s standardized world of full content.” In any case is this a fiction? What is the percentage of services worldwide offered by airlines that are available through Amadeus or any other GDS? Is there a truly seamless solution in the marketplace? Is there a right of anyone in any market to have unilateral and unencumbered access to another company’s property?
LHG has chosen an aggressive strategy, using an approach that is unilateral and dismissive of the needs of travel agencies. We can only hope that LHG will listen to the concerns of the market, and earn back the trust of the industry. While I cannot and will not speak for LHG, I can only surmise that this position has been deemed to be aggressive because Amadeus was not informed first and that the announcement caught Amadeus unaware. Has Amadeus too, been aggressive both in the marketplace and also in the direct dealings with the airlines and travel agencies alike? Basically the PCA (GDA) and associated contracts from my understanding can be described as one sided and quite commercially aggressive. The same can be said for the agency Subscriber agreements. Some might say oppressive. The concerns of the marketplace – if the marketplace is deemed to be the travel agents – are that they are in a difficult position – squeezed on all sides. Yes, this was initiated by the Airlines. However, there is no need to hide the behavior of the GDS behind the skirts of the Travel Agents. They are really quite capable of taking care of themselves I would surmise. Given the size of the larger players such as Expedia and Priceline – I don’t see this as an issue. As Intermediary ticket sales have fallen to less than one third of the total airline ticket production – perhaps there is a clear message to the GDS marketplace that restrictive practices are not driving a positive market environment. Would you agree or disagree with that statement?
The Amadeus letter says: “We are committed to work together with our partners to find a resolution. If you have any questions or comments, please do not hesitate to contact us.” I am contacting you with just this set of questions. Does this mean that Amadeus is willing to open up its contracts and commercial practices to an open and transparent view and verification that they without punitive restrictions to either the airlines or the Travel Agents? If so – and Amadeus provides the best technology and solution – then surely there would be no need for Amadeus to have restrictive clauses nor a need to pay incentives to use their system. Is that a fair statement?
So let’s talk further about transparency and neutrality. Is Amadeus really trying to imply that it is transparent and neutral? I believe that there are many discriminatory contract clauses (for both airlines and agents) but I cannot divulge them – nor should I. Amadeus why don’t you do this, if you wont show the contract why not come out and give a solid pledge to the marketplace. And put teeth into by allowing an independent body to verify these statements and contract terms.
Here is my challenge to Mr Gutz and his colleagues at Amadeus. Put your money where your mouth is (in German, Spanish, French or any other language you like). Come with a pledge and say the following:
(Please repeat after me)
I, Amadeus do solemnly swear that all my contracts are in the best interests of the consumer, my airline and travel agency customers and the betterment of the Travel Industry. I confirm that none of my contracts break any laws nor do any of my agreements place a burden on my customers that may cause them to break any laws. I further promise that I do not in any way harm competition and neither prevent nor restrict access to my customer’s content on any of my commercial facing systems. I promise that my employees act in the highest possible ethical standards and have not in the past nor are today nor in the future will be aggressively pursuing either airlines or travel agencies with threats or coercive tactics. Further I promise to show a neutral consumer advocacy group every year my contracts to ensure that there are no commercial consumer restrictions in any of my agreements. Finally I promise to work with my partners to find a resolution to the long term cost of airline distribution and to work on the development of new technologies that will benefit everyone.
Go on – I dare you.
Thanks for reading this.
Managing Partner VaultPAD Ventures.
For a copy of the letter from Mr Gutz to which i refer in this post please click on the link below.