While at GBTA, one of the few panels I actually managed to attend was one called: "Direct Connect, The Hot Seat", which the moderator was quick to try to rename the "GDS bypass" discussion. It was actually a really interesting debate, and follows up well from the post I did on the development of the GDS model before.
Background to the GDS bypass debate
As I have previously mentioned, in the early days of the automation of the travel industry, the GDSs provided an enormously valuable service to both suppliers and distributors, enabling them to connect to each other with a great deal more ease than could be achieved through each distributor connecting to every supplier. And when I'm talking about a supplier, I'm talking about every airline, every hotel, every car rental agent etc etc etc, so that would equate to an huge web of connections in every direction: a problem that the GDSs basically solved.
However, as Chris Phillips from Delta Airlines pointed out, the side effect of this was to completely commoditize the products; hence a traveller had very little to compare between the different supplier products. So yes, the airlines could reach a wider distribution base, but they would only sell the product if it was also the cheapest.
In recent years, suppliers (and in particular airlines) have been looking to gain more control over the distribution of their products, and basically this is in order to somehow differentiate them from the competition, and manage to win some business without necessarily being the cheapest ticket. So air miles were the original manifestation of these attempts (trying to win loyalty from travelers), but Phillips from Delta also mentioned they had spent millions of dollars on plane interior upgrades, but a traveller would never know that when they were booking through the GDS, so would never be willing to pay the premium for those trips. Phillips said: "It's all about control, both in terms of control of pricing, and control of how the product is presented to the traveler."
This phenomenon has led to the creation of various different companies which are being termed "direct connect technologies" with Farelogix being the widest used and most well known (the CEO Jim Davidson even got a special shout out from the panel!). Farelogix allows airlines a different channel to connect to the travel sellers, but also allows the airlines much more control and flexibility with how the product is sold without the inflexibility of some of the GDS models. Every airline is trying new and different ways to try to make itself differentiated from the rest of the market, and this differentiation and variability is extremely difficult to handle through the GDSs.
However, as was pointed out in some of the introductory slides on the panel, the distribution model is still basically the same. (see diagram to the left) with a company providing technology to allow Travel Management Companies (TMCs) and Self Booking Tools (SBTs) access to the content.
Is this actually good for the traveller?
When you hear anyone talking about "wanting control over distribution" and "needing to differentiate" what this really means is that they want to be able to compete on something other than price with other airlines. And essentially what that means is that they want to be able to charge higher prices for fares and fees.
Airlines in particular, but to some extent all of travel, are a really funny business in this regard, as in general travelers are very price sensitive, tending towards the cheapest available tickets. (As an aside, it is a fair question to ask to which is the chicken and which is the egg in this scenario. Are people price sensitive because of the commoditization by the GDS, or is travel just quite price sensitive?) But at the same time, the airlines never make any money, so you could argue that they were historically selling tickets at unsustainable prices.
So, the direct connect model is likely to allow airlines to sell tickets at (on average) higher prices to consumers, generally facilitated by some form of differentiation (better seats, better service, Wifi etc). However, the airline industry in general has to sell tickets at higher prices to consumers, or the industry will eventually go bankrupt.
How does this relate to rail?
Firstly, the rail industry is not at a stage where anyone is really able to integrate rail, so we are a long way away from the point where integration into the tools would lead to commoditization of the product.
Secondly, there are actually very few routes in rail where competition exists on a single route, so actual price competition is less of an issue between carriers. We are at a point in the evolution of integrating rail content into the travel management companies and self-booking tools that really any connection is a good connection.
And finally, the rail carriers already are enormously different and the level of complexity of selling rail is already very high. So to integrate rail into a distribution system, we have had to be extremely flexible about how we accommodate the rail suppliers anyway, so the need for alternative channels is actually very low.
As I have mentioned before, I see the rail connection industry at least 25 - 30 years behind the airline industry, in terms of general distribution structure. That being said, for the reasons above, I actually don't see the rail industry going in the same direction as air, but I'm sure I'll go into that in more detail in a future post.
In the meantime, it will be interesting to see how this shakes out in air over the next few years.