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Business travel lobby group goes to bat for agents

June 14, 2017 Headline News No Comments Email Email

A business travel lobby group is fighting on the side of travel agents to halt a surcharge proposal by a huge airline conglomerate that it fears will cut travel agents out of the action.

The Business Travel Coalition (BTC) says that British Airways and Iberia’s parent, the International Airlines Group (IAG), is proposing to surcharge customers GBP 8 per segment (GBP 16 per typical round-trip ticket) if they purchase a ticket anywhere other than its websites, service centres and airport ticket counters. IAG is said to be aiming to bring this in from 1 November 2017.  The BTC believes the move represents a possible abuse of IAG’s dominant market position.

Founded in 1994, the US-based BTC aims to interpret industry and government policies and practices and provide a platform to let the managed travel community influence issues of strategic importance to their organisations.

BTC chairman Kevin Mitchell says the IAG development warrants investigation by competition authorities.

He has written to the UK Competition and Markets Authority, the UK Civil Aviation Authority and the European Commissioner for Competition voicing the BTC’s objections.

“In the marketplace for travel distribution services, airlines, travel agencies and travel management companies are competitors,” the BTC says.

“When a dominant airline participant in the direct distribution channel intentionally and discriminatorily forces a GBP 8 per segment surcharge on indirect channel participants, it is potentially using its dominant market position in both the marketplaces for commercial air transportation services and travel distribution services to illegally drive up the costs of its indirect distribution channel competitors harming them and potentially causing many of them to exit the market.

“While many current global distribution system (GDS) contracts with airlines preclude programs like the GBP 8 surcharge proposal just announced by IAG, if successfully forced on the industry, on the heels of the 2015-implemented Lufthansa Group surcharge, the scheme could spread throughout Europe, North America and elsewhere – antitrust immunized alliances all but guarantee it.

“As a point of reference, back in 2006 and 2007, in the US and Europe respectively, major airlines threatened travel management companies (TMCs) and their corporate, university and government clients with denied access to schedules and fares through the GDSs. The goal was to decrease GDS segment fees. Those fees have fallen by more than 30 percent since.

“IAG now claims that the goal of its surcharge program is again to reduce distribution costs. However, that claim is belied by the fact that the surcharge would not be applied to the two most expensive IAG distribution outlets – its own airport ticket offices and reservation centers. The positioning of the surcharge, as a cost-reduction initiative, is simply a head fake aimed at competition authorities.

“IAG appears to be pursuing a three-part strategy to drive new revenues – all generated on the backs of consumers and the managed-travel community.

  • Part 1. An ambition of the IAG program would appear to be to drive leisure and business travellers seeking to avoid the GBP 8 surcharge to the walled gardens of IAG airlines’ websites where comparison-shopping does not exist and where those airlines would generate higher yields – especially from unsuspecting, infrequent travellers. For managed-travel programs the surcharge represents a direct price increase with no corresponding benefits whatsoever for the corporations, universities and government entities that already underwrite the lion’s share of the airline industry’s cost.
  • Part 2. IAG also would seem to want to use its dominant market position to price online travel agencies (OTAs) out of the market and out of business, as many OTA customers would be unwilling to pay GBP 8 (or GBP 16 per roundtrip ticket) when, for instance, or calling BA, is free. IAG airlines and OTAs are direct competitors in the marketplace for distribution services, which has been very positive for consumers.
  • Strong, independent distributors are necessary to keep airlines honest on their own websites and in their offerings elsewhere to consumers. OTAs uniquely provide consumers with the comparison-shopping tools that keep pricing discipline in the system.
  • Part 3. Product distribution is a cost of doing business for any industry. Through the surcharge, IAG is likely attempting to turn its distribution cost centres into profit centers first by shifting all or at least a significant amount of the cost of distribution to TMCs and onto their clients’ travel departments and then eventually charging for access to their fares and schedules.
  • In the process of seeking to extract more revenue from the managed-travel community IAG would, of course, create substantial collateral damage and, not just transfer costs, but create new costs within the industry by effectively insisting on its clumsy and in fact often unworkable direct-connect strategy for its contracted customers.

The BTC gives examples of cost consequences and much else.

“According to press reports,” the BTC says, “the IAG GBP 8 surcharge, to some industry participants, bears no resemblance to the GDS fee structure. And there is no basis for an argument – none – that reservations booked by IAG personnel at its airport ticket counters and reservations call centres are less expensive by GBP 8 per segment (GBP 16 per roundtrip ticket) than sales made via GDSs. In fact, those ‘high touch’ outlets are an airline’s most expensive distribution channels.”

Edited by Peter Needham

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