Distribution Mayhem - Strategies and Choices with the new GNE models
Frank Socha Interviews David Cerino,
Chief Marketing and Product Officer of Farelogix
Frank Socha: Mr. Cerino, it is a fact, that all airlines, or at least the majority of them, continue to complain about exorbitant distribution costs, mainly generated by the GDS providers. GDS executives, on the other hand, highlight the overall value proposition they bring to all players in the distribution chain, even if they are unwilling to publicly concede that carriers are insisting on lower average booking fees. Examples are plenty:
- Iberia Lineas Aereas de Espana SA has indicated that it plans to work on measures to cut its 130 million Euro annual payments to GDS ticket reservation companies.
- Evidently the alliance carriers are eager to get the new GDS entrants up and running because they are spending about $2 billion a year on GDS fees, which amounts to about 18% of the $11 billion they spend on distribution.
Now, why is a GNE like Farelogix so different from the GDS? Is it just technology?
David Cerino: Farelogix is different because we consider ourselves to be the only total content solution. Farelogix is able to provide the most productive environment for a travel management company to work within because we bring together content from all the GDSs, direct content, web content, and private fare/consolidator content at the point of sale. This distribution environment is provided at over 75% savings for the travel suppliers. Farelogix is a win-win for both the travel supplier and the travel management company.
[farelogix graphic: www.farelogix.com]
Frank Socha: Why is Farelogix able to offer so much lower processing fees compared to the GDS?
David Cerino: Farelogix provides travel suppliers over 75% savings on distribution processing. This type of savings is provided through a low cost operation using the latest technology infrastructure.
Frank Socha: So the airlines can save a lot of money, depending how extensively they use this alternative distribution channel. But, do you agree with me, that it is still a long way before Farelogix achieves "Global Reach?" And is Global Reach really your overall goal at all?
David Cerino: Global reach is absolutely the Farelogix goal. The high cost of distribution impacts all travel suppliers across the globe. Will global reach take time? Farelogix considers itself evolutionary, not revolutionary. Nothing will happen overnight. We will move where the opportunity for travel suppliers, travel management companies, and their customers can all benefit from a total content solution coupled with a low-cost distribution platform.
Frank Socha: A lot of concern is voiced by airlines that if a GNE channel is added to their distribution strategy, travel agents will resist such endeavor because it would not be in sync with their back office applications, provided by the GDS. What is your strategy in terms of interfaces to the travel agency back office applications?
David Cerino: The Farelogix platform provides a non-disruptive distribution platform through the use of XML interfaces to other technology providers within the travel agency operation. Farelogix has integrated with all types of travel agency point of sale applications, mid-office quality control systems, corporate online booking tools, and agency back-office applications. Farelogix has an open, standard XML interface following all OTA standards which makes integrations with other technology applications relatively simple.
Frank Socha: Another concern is the question, of how to convince travel agencies to use the GNE distribution channel instead the classic GDS one. What are your thoughts about this? Would you help the airlines to build a business case and discuss it with selected travel agencies or even travel agency chains, together with the airline?
David Cerino: Farelogix does not believe that the travel management company has to make a “choice”. We understand that the GNE distribution channel will only offer a portion of the content that a GDS contains. This is what differentiates Farelogix from the rest. The Farelogix platform integrates GDS information as a source of data together with other sources such as direct connect content, web content, and private fare content.
The travel suppliers and travel management companies can both benefit from the Farelogix platform. The travel suppliers benefit with distribution savings of over 75%. The travel management companies benefit from an environment that makes their agency operation more productive. Also, travel management companies that can market an all content solution in a productive environment will benefit from a higher customer retention rate and an increased customer acquisition rate.
Frank Socha: Mr. Cerino, the issue of “Content” is frequently discussed when GNE applications are the issue. What are your experiences in the US market with airlines distributing their products to selected channels only in order to cut costs?
David Cerino: Many say that the jury is still out on the US airlines distributing their content in selected channels only. The US airline market continues to be in a state of change. The Farelogix platform insulates travel management companies by providing a total content platform supporting all travel content sources. On every booking, a travel management company can use business rules to determine if content should be booked in a low cost distribution channel or higher cost channel. If travel content is only available in the lower cost distribution channel, the travel management company utilizing the Farelogix platform will have a productive environment in which to book and service that content.
Frank Socha: How is the acceptance by the travel agencies? Have you gone through some sort of due diligence processes?
David Cerino: The Farelogix platform is currently in operations at a number of North American travel management companies. To date, there has been quite a bit of success. We continue to be in the due diligence process with a number of other travel management companies. Again, an evolutionary process, not revolutionary.
Frank Socha: Mr. Cerino, if I am the CEO of a European airline, what would your advice be in terms of tackling the GNE issue? Where to start? Should I think about specific city pairs (O & D) which would perfectly fit into a different distribution strategy?
David Cerino: My strategy would be broader. I would assemble my top travel management companies and corporations to provide them an overview of my alternative distribution direction in order to secure their comfort level with being able to support my direction. If the travel management companies understand that there are more productive environments and the corporations understand they will only be impacted in a positive way, I believe everyone will support alternative distribution.
Frank Socha: Mr. Cerino, I thank you for this very informative interview.
David Cerino: Thank you.
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