EXCLUSIVE: ‘We are not trying to cut the GDS out’: Lufthansa UK chief
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Why have you decided to apply the DCC?
Airline customers have a variety of options for finding out information about airlines’ offers and services and booking them. The various booking channels are associated with sometimes significant cost differences for the airlines. To date these costs have been generalised and passed on to all passengers as part of the ticket price. The costs for bookings via global distribution systems (GDS), in particular, far exceed those of other booking channels and are increasing significantly again this year. In future, in the interests of a fairer allocation of distribution costs, part of these costs for GDS bookings will be passed on in the form of a new charge. With effect from 1 September, the Distribution Cost Charge will be incurred by those customers whose bookings are made via global distribution systems*.
Direct bookings with Austrian Airlines, Brussels Airlines, Lufthansa and SWISS will remain DCC-free. As with the introduction of the new Economy Class European fare, with this new charge the Lufthansa Group airlines are enabling their customers to pay only for those benefits and services that they actually use.
Why are you trying to cut the GDS out of the picture and are you not concerned about losing the GDS as a distribution channel?
We are not trying cut the GDS out. In parallel to announcing the DCC we had numerous talks with our partners. There has been a wide variety of reaction worldwide, from consent and approval to criticism, concerns or simply need for more details. So it is important to stress that we want to move together with our distribution partners, not against them. The GDSs offer a worldwide infrastructure and established sales channels but, right now they are too expensive for us and not up to date in terms of displaying our products. However, we are open to looking at other solutions that may be presented to us by the market.
Is the EUR 16 fee to cover any specific costs? GDS merchandising or other?
The DCC will compensate for the difference between the GDS costs in the travel agency sales channel and equivalent IT costs of direct sales channels. As a rule, the charges invoiced by the GDS are considerably higher than the costs of direct sales. The level of the DCC will be based on this difference; the method of calculation is certified by independent auditors. The cost levels will be checked at regular intervals and communicated in time about eventually necessary adjustments.
Will you still continue to work with GDS providers? What’s your long-term GDS and distribution plan then?
What we are aiming for is freedom in distribution. We must work with all partners to establish free markets with many participants without limiting conditions such as ‘full content’. This will allow us to develop a more balanced ratio between price and service. If a customer requests a service they should expect to pay for it within a source-based environment. In recent years this environment has become out of balance. Customers who want to use a more expensive distribution channel will have to accept this higher cost – and they will see added value in this channel.
What does this move mean for your relationship with agents and TMCs?
Our belief is that in the future airline distribution will be doable at lower cost in general. Customers, travel agents and distribution partners can all benefit from such a development. The only losers will be those who insist on stagnation and sticking to the status quo.
Customer benefits are customised products and freedom of choice, no ‘one size fits all’ anymore. The overall cost for distribution might be based on new technology much cheaper than today.
Travel Agents have the chance to be part of the change. Thus meaning they benefit from a more customer-oriented and flexible distribution infrastructure and not being left out completely in some years while only focusing on a technology invented in the 1970s.
Benefits for the airline will be more flexible distribution possibilities at lower cost. Thus meaning differentiation in competition and making customised and targeted offers will be enhanced
What steps are you taking to educate the trade – and allay fears you are trying to cut them out of the picture?
I accept that there is still need for discussion and we are talking. Travel agents will always have the opportunity to avoid the DCC by using our lhgroup-agent.com portal. They do this already for LCC and other services outside of the GDS system.
What are the chances of the trade boycotting Lufthansa in favour of other carriers and how will you respond to this?
Of course this move requires change and this could lead to a “rocky road”. But we understand their concerns and are convinced that there are more opportunities than threats. Transparency and comparison of competitors is not a monopoly of the GDS systems but also possible on other, more modern IT systems. We do not deny that this requires adaption and change, but the GDS systems are well capable of adjusting to the changing environment and new technological developments
Other carriers have said they’ll follow suit, but nothing is finalised yet – will you still go ahead with this if you are the only carrier making this move?
The Lufthansa Group carriers are going this way alone in the first place, because we are totally convinced about the benefits of more modern, liberal and efficient market structures. The market is ready for change, for timely distribution formats and more contemporary forms of displaying content – and all this, at a lower cost!
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