Proud and presumptuous, provocative and prophetic, the annual Conference of the Israeli Association of Israeli Travel Agents held last month brought together an august assembly of government officials, airline executives, industry insiders and travel consultants. Held at Airport City, that overreaching name that describes a complex of buildings adjacent to Ben-Gurion Airport, it tried to set a tone for 2014 by painting broad strokes on how the travel industry would progress in the next few years.
Most successful conferences leave in their wake some semblance of an overall theme. At the Consumer Electronics show in Las Vegas held in January, it was the preponderance of mammoth, wrap around TVs which caught the participants eyes. At the World Economic Forum in Davos, it wasn’t the income inequality among the world’s nations which captivated the attendees but the strident tone from many participants that self-driven vehicles could soon be seen on the streets.
While the exhibition hall at the Airport City had people milling around musing about the new CEO of El Al or pontificating on how the pope’s visit in May will unleash a wave of Christian tourism, it was the presentations of the three leading Global Distribution Systems (GDS) that heralded the coming trends in the travel industry.
GDS is simply a network operated by a company that permits at very high speeds automated transactions between vendors and travel agents in order to provide travel related services to the consumer. A GDS links products and services across all three travel sectors: airline reservations, hotel reservations and car rentals. A fourth link including activities and tours throughout the world has recently been added. The primary customers of GDS are travel agents who make reservations on various reservations systems run by the vendors. So while the GDS holds no inventory, the inventory on the vendors’ reservation system is made available in a real-time link. For example, when a travel agency makes a reservation on a particular airline, the GDS routes the request to the appropriate airline computer reservations system. This enables a travel agent with a connection to a single GDS to choose and book various flights, hotels, activities and associated services on all the vendors in the world who are part of the GDS.
While there are hundreds of airlines in the world and thousands of travel agents gainfully employed, there are only three GDS providers: Travelport, Amadeus and Sabre. Originally created by the airlines themselves, they were long ago spun off to independent companies, competing against each other to gain market share. With the vast majority of income provided by the inventory providers (airlines, hotels, etc.) GDS is given with financial incentives to the world’s travel agents. Visualize a very user friendly portal, into which all the data providers pay for the privilege of being distributed and distilled, that travel consultants access to make reservations for their clients. When a travel agent makes an airline reservation, the cash register of the GDS is rung and a small amount is charged to the carrier. When that same travel agent issues a ticket, an even larger amount is paid from that airline to the GDS.
Airline vendors have now adopted a strategy of ‘direct selling’ to their customers by investing in their own reservations and distribution systems. This severely limits the ability of the consumer to compare several options, as they are booking directly from an airline site. The airline benefits though by avoiding the fees to the GDS. Some experts surmise that modern technology advancement and change in business models will eventually lead to phasing out the GDS in the airline space.
Recently my office received an “Abuse of System” complaint from an airline stating we were making too many reservations for clients who in the end elected to purchase tickets on another airline. Their very direct threat was: if we have to pay for you to see our flights, then kindly refrain from booking them until you know the client will purchase them. My staff echoed what travel agents throughout the world would have replied, that their first concern is that of the client and not to promote a specific airline. The ability to make reservations without have to issue a ticket immediately is the raison d‘etre of being a travel consultant.
With this in mind, Claire Osborne, the director of regional product from Travelport, started off the morning session of the travel agent conference with a speech entitled: “The Changing Face of Travel.” Stating that 66% of the middle class – those deemed financially viable to fly – will originate from the Asian Pacific region by 2030, she pointed out that India will have overtaken China as the world’s most populated nation by 2025, having grown to 1.5 billion residents.
In opining “who is the traveler?” her clear answer was a more demanding, more daring and more independent person. Empowered by the Web, and with far more knowledge, today’s traveler share experiences and have many different ways to travel. By next year, Osborne asserted that the emerging regions will represent over 50% of travel expenditures. It’s clear to all in the travel industry that China will be the number one destination within five years, reaching up to 1.8 billion arrivals by 2030.
With 33% of the population now online, we’ve seen that technology has transformed how people make their travel plans. Fortunately for the travel agencies worldwide, this information overload allows the innovative agencies and travel consultants to focus on expediting results by utilizing the clever search paradigms built into the GDS. In concluding, Osborne was adamant that by creating an empowered selling experience through an open platform, unbiased by any specific airline, the growth for the travel agency industry should continue on an upward pattern.
Anyone who travelled last year is clearly aware of how air travel has changed. It certainly appears as if airlines have finally learned how to make money. In fact IATA, the International Air Transport Association, forecasts a global net profit of $19.7 billion in 2014 which, if their figures are correct, will be an increase of almost $7 billion over the profit from 2013. One side effect of the airlines’ rosy outlook will no doubt be an increase of regulators and consumer rights lobbyists arguing to use that profitability to create more regulations. Delving deeper into the figures shows the true cause behind this massive numbers – the profit in not from their flights or airfares but from the ancillary revenues that so many of us are eager to pay.
Whereas it’s calculated that the average profit per passenger is a paltry $6, worldwide ancillary revenues have risen to an estimated $13 per passenger. Next time you pay for that checked bag, or for a better seat or have to pay a change fee, understand that you are directly putting money in the airlines coffers. This trend will only expand in 2014. North American carriers have found this model particularly delightful and.
Delta Airlines, with a whopping $2.8 billion dollar profit in 2013 with over a billion emanating from these extras, earned the title Airline of the World from the prestigious publication, Air Transport World.
United Airlines in announcing their fourth quarter profit of almost $300 million in 2013, was quick to include that they were aiming for over $700 million profit this year just from ancillary fees.
The conference left a strong positive message that technology and a stronger economy will lead to an overall vibrant industry. Keep in mind though this is a diverse industry. Some airlines are doing quite well as recent press releases from Delta and Emirates affirm.
But others are struggling with weak profitability and an even weaker identity; look no further than Qantas, the Australian airline and our own El Al. Europe remains the weakest region, burdened by high costs, far too many carriers and cumbersome regulations. To paraphrase Horace Greely, a newspaper editor of great repute, “Go East young man (and woman)” Israeli carriers and probably politicians, need to focus less on what Europe can offer or challenge Israel with, and focus on where growth is dangling like ripe fruit from an inviting tree – the mystical, magical ever growing East.
Mark Feldman is the CEO of Ziontours Jerusalem For questions & comments, email him at mark.feldman@ ziontours.co.il