Posts tagged ‘innovation’
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.
December 28, 2013
2013 has seen some clear indications that we are reaching a level of maturity in many parts of the Travel Startup ecosystem.
For startups things are humming along nicely. The world of the sharing economy seems to have pushed new life into the moribund world of truly different and innovative. Many people are taking a run at Tours and Activities again. And of course inspiration and planning seem to have been on a lot of people’s minds. And what is my take on this state.
In my view 3 things defined 2012:
- The blockbuster acquisition of Kayak announced
- The settlement of the Sabre vs AA lawsuit
- The launch of NDC
For 2013 – there was not as much going on. We had no real blockbuster events. Yes there was still a fair old amount of money pouring into the world of startup and innovation. Not a lot of it smart. I was singularly unimpressed with the crop at PCW’s First Philip-less Innovation Summit. (I suspect I am not alone there).
Hopper finally launched and I am rather unimpressed. This could be so much better. I think much of the world has moved on. In my view – Social Sign-ins should be OPTIONAL not compulsory. This really annoys me?
I don’t want to give Hopper or ANYONE ELSE my friend list. It is not my right to share other people’s data. Nor should it be anyone else’s. I am also getting tired of the minimalist interface that already frustrates me. I think I am REALLY tired of seeing a one box entry with a pretty background.
Let’s get into the sharing economy – actually let’s not. AirBnB is an amazing phenomena it has unleashed a way for the consumer to search shop and buy a stay that is reasonable and affordable. It is also illegal in most cases and multiple instances in the same transaction. However that illegality is not stopping the consumer. I just hope someone asks me to right the Risk statement in their IPO document. Sometime in 2014 AirBnB will likely be the source of the most room nights booked by a single brand. I firmly believe that AirBnB must be held accountable for the actions of its efforts. So far few people are considering the impact of the macro economic change that AirBnB is bringing to both short term and long rental accommodation markets.
So my final note is on the consolidation of power across the board in the travel supply chain.
Cars and Airlines have now migrated into a scarce supply. I have watched as the supply of the traditional (aka legacy) airline product supply has slowly concentrated. And boy has it concentrated. In the USA we have gone from large number of players to just – 4 yes FOUR AIRLINES. And for car rental that has now come down to a much smaller number. Hertz, Avis, Enterprise. Pretty much that’s it.
There is now a new reality – the days of neutrality are dead. We are dealing with the Dealership model and we need to get used to it. The consumer has less choice than perhaps he has had to deal with in a very long time.
In conclusion – i believe that the “old” new economy is fading and we are facing a more stable and somewhat boring world. 2013 has been a maturing of what we saw as the brave new world. The year of transition from the hyper-euphoria to more mundane things belies the need to fix a large number of under the covers infrastructure changes. (More on that in my follow up article for 2014).
As a postscript for 2013 – perhaps as a tantalizing look at how we can imagine the future – check out these new UX possibilities here:
Thanks for reading and here’s to a great 2014. Lunar year 2013 was the year of the Snake. As one – I welcomed the year with a bit of trepidation as it marked a major milestone in my life. Now I have had the chance to reflect – it wasn’t too bad. I wish all the best for your loved ones. May you find the true path and of course may peace come to all of us!
November 26, 2012
Much is discussed over the fragmentation of media. In this day and age – Media is no longer a clean and clear concept. For example embedded in Apple’s iOS is an advertising platform since version iO4. Understanding the parameters and scope of Media is no longer simple or clear. The pressure to reach the consumer via just about any vehicle has blurred all lines. Editorial vs Advertising is so confused. What about product placement in entertainment?
OK now I have your attention on this topic is Fragmentation a good or bad thing for innovation?
I urge you to read the following piece in eMarketer Trends for 2013: What Fragmentation Means for ‘Critical Mass’. This lays out neatly some of the issues confronting media and our consumption of it. Stir in a mix of RTB (Real time bidding) for advertising which is a dynamic price for adds and you are in for some real fun I think.
In general innovation comes from opportunities and seen gaps. It is more usually these days derived rather than completely new as we have had such an explosion of innovation and new ideas emerge in the past 15 years. It is amazing sometimes how well we are able to cope with this amount of change.
But change is here and its a permanent state. Fragmentation is a natural state of affairs now. Innovation can seize the opportunity posed in this situation. Let me give an example where I believe innovation is lacking and the opportunity exists.
Today our ability to cope with the amount of data we consumer is increasingly limited. Consider some skills we have lost due to this information overload. Maps! We are now largely dependent on GPS (satnav) devices. Our ability to map read or even look for natural signs for orientation has severely diminished over the past few years. What about writing a letter. I don’t mean just the ink to paper issue, I mean the skills necessary to write a comprehensive instrument of communication. Not so easy these days.
So here is some advice. Look carefully at the plethora of media activity. Decide if there is an opportunity. Look not just at the immediate conclusion of your your observations but look more carefully at the long term impact. From the new ways the consumer is consuming media – consider how you can provide a measure of consistency and constancy across channels so that the consumer is aware of you even though you might not have the opportunity to be front an centre with the consumer’s interaction with media. How can you do this in the different media vehicles. Not just physical (e.g. Television vs Web) but also down to the platform of user interaction and the associated proprietary content channels
And yes in my view there is a significant opportunity to innovate and provide value. But the tasks are getting harder and harder. Innovation cannot be maintained – it has to be sustained with constant pushing and refreshing.
Think about it… then give us a ping at VaultPAD
November 20, 2012
Several thoughts came to me as I wandered around the Westin Kierland in Scottsdale.
The usual buzz was there but also a sense that this was the last version of the event that Philip (Wolf) created. Next year’s event in Florida will be a different affair as the lock down on the team will be up. I suspect many of the PCW staffers will be off seeking pastures new. I am sure that Philip will be back to run his monologue and stoke the audience. He certainly does it well.
As for this year’s presentation – there was a lot of worship at the alter of Hafner. Congrats to the team that sold the deal and the team that bought it. I have a sense that the price was a bit too rich for my thinking. It could be justified but its a bit of a stretch. I don’t doubt that the sellers were very happy. (Despite the usual lawsuit to muddy the waters). Hafner’s irreverence after what was probably a tough night before, allowed him to openly dish some of his competitors. He was not charming about Hipmunk.
The Google team – now unencumbered by conflicting agendas – were out in force trying to make sure that the Travel Industry thinks of them as warm nice and cuddly. Google makes Microsoft look like a 90 pound weakling in the bigger is better stakes. Jeremy Wertheimer mentioned GFS – Google Flight Search almost en passant. His baby got one mention during the entire presentation. On the other hand Google Now got a centre stage billing but the one that probably should strike fear in every person trying to crack Social Travel is WDYL.com or What Do You Love? If that doesn’t scare you nothing will!
The GDSs put on a brave face as usual struggling to remain relevant seems to be part of the challenge they face. Perhaps the biggest threat doesn’t come from the usual places. But there on stage in the Innovation Summit – Concur’s Open Booking should send chills down the spines of folks in Madrid, Langley and Southlake. The first time that someone is aiming an arrow right at the heart of the GDS – the TMC players. Belt tightening next year in corporate travel will have an impact with more and more people demanding to take control of their budget and making their Travel dollars go further.
Very few seem to have paid much attention to something that will have a major impact on Travel in the years ahead. IE IATA’s NDC – New Distribution Capability. Arguably with the potential to be a true gamechanger for the whole Travel market. Perhaps most people are dismissing IATA’s efforts as slow and ineffective as previous outings of distribution change. I am keeping a close eye on it because this is a game changing moment IF the powers that be don’t mess up.
The investment community was definitely abuzz with where the next Kayak or great idea would come from. The $250K award to Tourwrist in the form of a note from General Catalyst was interesting. In the traditional world there is now clear water between the top two OTA players – Expedia and Priceline and the second players – Travelocity and Orbitz. In the smokey back rooms suites and hallways, general concern about the diminished supply of air doesn’t seem to have concerned too many people. However the hotel market is just starting to wake up and wonder where those AirBnB et al room nights are coming from. Yup they are coming from somewhere.
Perhaps one of the most telling statistics I heard was that corporate policy compliance was continuing to decline. The cost of the heavy overhead from TMCs, GDSs and the GBTA is starting to weigh on real Travel budgets. The new generation of corporate travelers are not standing for the obstacles put in their way. At next year’s TIS – I predict that there will be some true innovation occuring in Corporate Travel. And about time too.
So till next year chaps. Enjoy the discussion and the intrigue, the fun and games. I almost got the impression that the Travel Industry has matured and is ripe for a big change.
November 19, 2012
The annual shindig that is the PhocusWright conference produced a bumper crop of new innovators vying for a spot in the sun. Interestingly the number of successful players who have graduated from TIS – Travel Innovation Summit – may not be that great. It is about par for the course of startups who succeed (not great either). However the categories are important to understand the likely success or failure. To say that Amadeus is a success is like saying Hostess is a failure. But they won in several categories over the past few years.
So what of the innovators? Go to http://www.phocuswright.com and then you can see these. But registration is required. I hope you signed up for the streams before hand. I have eliminated from review people who have been here before (e.g. Ostrovok).
So who do I think were winners?
Here are my picks and the likely exit.
I liked WeHostels (with apologies to VP for whom I initially said I didn’t like the idea). I am warming to it but not fully there yet. Exit is likely to be Priceline.
Triometric – REALLY great – a true data geek business that probably wont need to see the light of day again in public and will probably get acquired by IBM.
Tagman – I think its overrated. Organizing Tags is good but there are no standards and as long as Google keeps moving the goalposts then it will be hard. However this is a reasonable chance for success with exit being sold to Microsoft who desperately need a foot in this door.
TourWrist. I cant think why – but well Joel Cutler is investing so follow the smart money I suppose. Exist? Probably Google.
Deal Angel an OTA masquerading as a Deal site. The stuff under the covers is worth more than the site itself. Should be acquired for its technology not the consumer business. Thanks Groupon for messing up this market.
Rome2Rio – as I put in my prior post – I love maps. So where will this end up? I will go out on a limb and say that Amazon could really use this as a way to power many businesses. Alternatively if a GDS was really smart they would use this as a springboard. Nah… never happen.
And that is it. None of the others were complete enough. Some fundamental issues with each of them. Honorable mention may go to Maptia – love the idea (Maps again) but the execution as incomplete and needs a lot more work/effort. Amadeus and Concur get excluded for being too big. OpenBooking is nice but the model is based on screwing someone else’s model. Always find that hard to accept.
Anyway – enjoy it. Let me know what you think