In the 1980s and 1990s, the global distribution systems (GDS) were the 800-pound gorillas of travel distribution. The four dominant GDS providers controlled more than 80 percent of all air tickets. This market control allowed the GDSs to raise fees at will on a captive clientele of hoteliers and airlines dependent on the reservations they delivered.
Today, they are in not quite the dominant position they once enjoyed for a variety of reasons. This article examines how they rose to a controlling position and then faded somewhat, by looking at changes in some of the key relationships between travel suppliers (i.e., hotels) and distributors (GDSs, brand central reservation systems and the rise of the online travel agents). Looking at these relationships will give us some clues as to the shape of the distribution market for the future.
The logical place to begin is, well, the beginning. Most observers concur that the GDS concept derived from airline reservations systems, a lineage that began in 1946 with American Airline’s Reservisor, with actual mechanical moving parts. These early systems evolved into massive global data networks connecting green screens, flashing cryptic codes around the world attaching ticketing transactions to the ubiquitous PNR, or passenger name record.
The early systems included American’s SABRE (Semi-Automated Business Research Environment, a contrived acronym if there ever was one), United’s Apollo, DATAS from Delta and TWA’s Programmed Airline Reservation System (PARS). The core relationships enabled by these early systems were between the ticket agent employees and the airline itself.
The game changed when United began offering the Apollo system to travel agents in 1976, and the other airline systems quickly followed suit. At this point, the critical relationship became one between the travel agent (TA) and the airline.
As the 70s turned into the 80s, these systems evolved from airline CRSs to GDSs, representing multiple forms of travel, including hotel and car rental as well as air. The travel agent was central to the relationship on the demand side, with the GDS creating a niche–the distributor between demand and supply1. And the supply side was now populated by not just airlines, but hotels and car rental companies around the world.
As the distributor niche fulfilled by the GDS became primary, the relationship between airline and reservations systems transformed. The parent-child relationship between the entities morphed into a vendor-customer relationship. This transformation of the relationship was ultimately reflected by changes in the organizations. In a series of divestures, mergers, acquisitions and absorptions, we are now left with what amounts to three GDSs, none of which is majority owned by a founding airline.
Amadeus, founded by Air France, Iberia, Lufthansa and SAS airlines, is a publicly traded company on the Spanish Stock Exchange, with parent airlines owning only 30 percent of its shares. Travelport is the corporate inheritor of the Apollo, Galileo and Worldspan GDSs, which were founded by United, BA, Delta, Northwest and TWA airlines, among others. Travelport is a privately traded company based in Atlanta, Ga. Sabre Holdings was been spun out of American Airlines’ parent, AMR, in 2000, then taken private by a pair of private equity firms, Silver Lake and TPG.
As vendors to the airlines and other travel suppliers, the GDS relationships became strained as distribution costs become a problem for the airlines and hotel companies. Airlines began pushing back on costs imposed by their former corporate siblings, and Thanksgiving dinners in Southlake became fewer and fewer.
More or less simultaneously, while the corporate transformation reflected the shifting relationships, the distribution picture became more complicated with the rapid proliferation of the Internet and the rise of the OTA wholesaler. The distributor niche between travel supplier and travel consumer got more crowded in the late 90s as the Internet spread like a virus, and nimble competitors leapt into the intersection of travel and the Web. These players naturally gravitated to travel distribution for the same motivation that allegedly drove Willie Sutton to engage in bank robbery: “Because that’s where the money is.” Most of the OTAs used some form of GDS content, especially in the early years, to bring travel inventory directly to the consumer, but they were clearly occupying the distributor niche as well.
Another relationship driver entered the scene in this general time frame, circa 1994–2001. Other technological enhancements (XML and Web booking engines) made relatively inexpensive direct connections between suppliers and either lower-cost distributors, or direct to consumers. This became a way for suppliers to disintermediate distributors where possible.
The early 2000s reflected these shifting and tension-filled relationships in a predictable manner. A number of lawsuits and other disputes between suppliers and distributors played out, often over cutting off access to content in retaliation for high fees. Like most commercial disputes, these have settled for now, with the suppliers and distributors hovering warily outside the ring.
In the meantime, the GDS market share of travel overall has dropped significantly, probably cut in half since the late 1980s. But they retain a significant presence in upscale and luxury segments, especially managed corporate travel. The GDS’ ability to consolidate air, hotel and car bookings (not to mention cruise and other products these days) is vital to corporate travel managers and their ability to monitor and manage travel spend. Recent statistics are showing growth in GDS traffic levels typically attributed to managed corporate travel, which suggests that the current uptick can be attributed to a key relationship–that between the corporate travel agent using the GDS and the firm.
Mark G. Haley is managing partner of The Prism Partnership, LLC, a marketing and technology consulting firm serving the global hospitality industry. Please visit http://theprismpartnership.com for more information.
