Why Delta and Lufthansa Want to ‘Control the Information’ and What They’re Doing About It

Airlines want:

  • Lower costs to distribute their tickets
  • Greater flexibility in how their fares are displayed — especially the ability to upsell unbundled products through whatever channels are distributing their fares.

Delta is limiting the sites that can display its fares. Lufthansa has declared that all ‘indirect channels’ (like travel agents, online booking websites) have to pass on a 16 euro fee for their tickets.

While these two moves are being lumped together (the New York Times covers them together today HT: Joel G.), they’re actually quite different.

Delta Tries to Control the Information

Delta takes the view that they do not merely get to choose who can sell their product, but even who can display information about their operations.

“Delta reserves the right to determine who it does business with and where and how its content is displayed”

That’s a step to far in my view — factual information about what aircraft Delta is flying between which cities and at what time is hardly something they can protect, even if they do not have to provide it.

It should come as no surprise from Delta though, as they forced Expertflyer to remove all references to the airline and they blocked Award Wallet from helping members track their SkyMiles (though there’s a workaround). Delta has deep pockets for lawyers.

Lufthansa Wants to Control How its Information is Sold

Lufthansa’s move is more about the ‘New Distribution Capability’ that’s meant to change the way airfare products are sold.

They want to raise the price for bookings through global distribution systems so that (1) consumers book direct which is cheaper to them, and lets them sell the way they want, and (2) these systems are pressured into changing the way that distribution occurs.

The 16 euro fee appears in the fares that travel agencies have access to whenever they’re booking through one of the global distribution systems. Their fares only appear without this fee when booking direct with Lufthansa. That makes Lufthansa tickets appear more expensive than competitors’. It should mean fewer Lufthansa tickets sold through these channels. And that’s a big deal because the vast majority of Lufthansa tickets are sold through ‘indirect’ channels such as this.

The fee can be avoided by booking United fares for travel on Lufthansa. A United ticket, which may require booking the first transatlantic flight as a United codeshare, would price without this fee. I generally suggest avoiding codeshares and wouldn’t book one for a 16 euro savings.

Lufthansa’s Move Will Be Costly — to Lufthansa

This is far worse for Lufthansa than last year’s tiff between American and Orbitz where American flights were not shown on the online travel booking site. Orbitz is just one site. Lufthansa’s fares now show up as more expensive on all sites other than their own and their joint venture partners’.

In addition, since Lufthansa hasn’t actually negotiated new agreements allowing for these fares with the global distribution systems, they’ve simply let existing agreements which require those systems to have access to Lufthansa’s lowest fares lapse, the airline is likely to see higher charges for each booking as well.

Consumers Will Be Mostly Unaffected

Consumers indifferent to airline will continue to book the cheapest option, which will simply be an airline other than Lufthansa. And there will be options to book Lufthansa without the 16 euro fee, as noted above (codeshares).

There’s a parade of horribles presented for consumers. They’ll have to shop on more than one site.

“Consumers are going to go to the price-comparison sites and thinking they’re comparing prices, but they’re not,” said Fiona Scott Morton, an economics professor at Yale, who conducted a study for the Travel Technology Association, a trade group representing air travel sites, asserting that the airlines hurt competition when they cut independent distributors out of the loop.

… “Imagine a world where you have to download six or seven apps just to book a flight,” he said. “It’s already hard enough.”

Of course, consumers already shop on multiple sites for a single trip.

This Is a War Between Agencies and Distribution Platforms and Airlines

Each online travel agency, of course, wants consumers to buy from them. Because even though they don’t make much money on the sale of an airline ticket (long gone are the days of 10% agency commissions!) consumers tend to settle on air first and that gives the site the opportunity to sell hotels and other ground activities which have much better margins — even though hotel commissions for large online travel agencies have fallen compared to five years ago, the major chain hotels still pay 15% – 20% for the booking.

These agencies will either have to adopt new booking technologies to work directly with Lufthansa, or risk losing out on business they’d sell their customers if those customers had booked through them rather than booking direct with Lufthansa where those flights will be cheaper.

No one wins in the short term from this. In the long-term, it’s about the ground rules for distribution of airfare. Other airlines are certainly rooting for Lufthansa — the carrier that steps out ahead takes the arrows but potentially changes the terms on which other airlines will operate with their distribution partners. Lufthansa will feel the biggest losses. The question is who cries uncle first. My guess is that it will largely be Lufthansa, stubbornness aside, but that there will be a series of face-saving agreements to obscure that somewhat.

Ultimately I’d expect that the airlines will succeed in their quest to ‘sell direct’ to consumers provided government rules don’t get in the way. There will be less and less need for intermediaries. Currently the GDSs do much of the heavy lifting in the sales process piecing together fares including when passengers are interlining. There will be less and less need for intermediaries so lower and lower margins for providing intermediation. That doesn’t mean that Lufthansa will flat out win this round, however.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Gary – I hate to even suggest it, but why don’t airlines just not give you miles if you don’t book with them the way hotels do now?

    Too many ways to piss business travelers off given many have company agreements to use a particular travel agent?

  2. A message from Amadeus

    June 3rd, 2015

    Dear customer,

    The announcement of Lufthansa Group’s (LHG) commercial strategy on June 2nd, has led to many questions from our valued customers, which we would like to address here.

    First, LHG has created some confusion suggesting we have recently reached an agreement, and support its new commercial strategy. This is not the case.

    LHG’s intention to introduce a surcharge was completely unknown to Amadeus. It is only through LHG’s public communication on June 2nd that Amadeus became aware of its plans.

    Amadeus has engaged in good faith with LHG for over a year with the objective of renewing an agreement with LHG to make all of its content available to the travel agency community. Having this content in the indirect channel would provide travelers with the consistency, transparency and choice that they demand, giving them the liberty to shop where they want.

    We were led to believe that LHG was engaged throughout the process. It seems this was not the case and LHG’s true intentions were not shared with us.

    As of June 1st, only a Global Distribution Agreement (GDA) remains in place between LHG and Amadeus. The GDA (formerly, the Participating Carrier Agreement) is the baseline agreement that any airline has in order to be distributed through Amadeus, with or without a full content agreement. The GDA is not a new contract model, and has been in place for many years now.

    Without a full content agreement, LHG may have fare differences between direct and indirect distribution. But this does not imply that Amadeus agrees with LHG’s new commercial strategy. We believe that this surcharge in the indirect channel will put travel agencies at a disadvantage.

    Amadeus supports easy connectivity, transparency and comparability throughout the entire travel industry. The majority of the industry seems to support this, too: more than 500 airlines are bookable in the Amadeus GDS, and in 2014 over 85% of bookings made on Amadeus were covered by full content agreements.

    Second, LHG claims in its communication that the standard indirect distribution cost is €18 per ticket, while the direct distribution cost is only €2. Amadeus does not recognize these figures: they have no relation to our current or previous agreements.

    The €2 direct distribution cost seems to be significantly understated. We do not know how LHG has reached this number but we believe the technology and internal costs to LHG alone for direct distribution are above €2. Furthermore, this figure seems to omit the substantial cost of online traffic acquisition, commonly understood in the industry to be €15-€20 per ticket. Therefore, it seems LHG is driven by reasons other than cost.

    As such, LHG’s true intentions with its surcharge program are unclear.

    We believe that this is an industry issue and to progress will require a constructive dialogue among all players: airlines, travel agencies, travel buyers and technology providers.

    Please let us know of any concerns or comments you may have and, as always, we’re at your disposal for further discussions.

    Best regards,

    Scott Gutz
    President and Chief Executive Officer
    Amadeus North America, Inc.

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