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EMERGING TRENDS IN TRAVEL TECHNOLOGY A MIDDLEMANS
PERSPECTIVE An exploratory note that deals with the changing
landscape of the travel
industry from a mid-office connectivity standpoint with specific
focus on
the link between customers/passengers and endpoint providers
through
a travel GDS system
Virag Padalkar
www.virag.in
Contents Overview
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2
Structure
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3
History of Travel
GDSs..............................................................................................................................
4
GDS Architecture and Business Model
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6
Changing Dynamics
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9
Evolving Technology
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9
Cost
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10
Cloud Computing and Big Data
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10
AA Vs Sabre
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11
Google
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12
Conclusion
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13
Bibliography
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14
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Overview We can say that aviation changed the game for the
travel industry. With the onset of commercially viable
air-travel, people could zip from one end of the globe to
another in a matter of hours/days rather than
waste ages in uncertain seas and its associated risks. It was
therefore no surprise that it also dramatically
changed the landscape of the travel domain and is still doing
so. As the aviation industry grew, so did all
ancillary industries that fed it and were fed by it. Right from
online travel agents that acted as a link
between the customers and the carriers to computer companies
that managed the vast database of
information that the travel industry is based on, everybody
rushed to the party. Today, it is ironic that in
the travel world; everybody but the airlines are earning profits
(McFarlane, n.d.). Be that as it may, our
note explores the framework of the travel GDS and the recent
changes in technology that are shaping the
future of multiple interested stakeholders across the travel
industry. The reason that the title of this note
contains a reference to the middlemen of the travel game is
because digitization of information has spelt
fresh challenges to the middlemen in any industry. It has
enabled connecting the endpoint providers (be
it in travel, insurance, telecommunications, gaming or any other
industry that you wish to cite) to the
customers directly. Such a scenario presents a vast vista of
opportunity for all stakeholders to keep
reinventing themselves in order to cope with the dynamics that
are inherent in such a fast-changing world.
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Structure The travel industry today comprises of numerous
stakeholders that share information, money, resources
and problems (!) on a mind-boggling scale. Primarily the
structure is as follows
To dive one level deeper, we can sum up the business model of
the industry in general thus (Sterling L
Miller, Esq., 2014)
In a nutshell, in the world of the middlemen (OTAs, travel
agencies, tour operators, etc.), the travel GDS
acts as one more middleman (or middlemen since there are
multiple players here too) thus
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Essentially, the structure of the overall travel industry is
much more convoluted than other industries. No
doubt the inherent complexities associated with the magnitude
are a big factor; however, one can say the
same for almost any industry. To set a benchmark, the insurance
industry in the United States generated
premiums of USD 1.274 trillion (Federal Insurance Office, 2014)
whereas the money spent by leisure and
business travelers for the same year was USD 887.9 billion (US
Travel, 2014). While the scope of the travel
industry is quite large and the overall industry amounts to USD
2.1 trillion, this amount includes all
ancillary revenues generated. I have no doubt that the insurance
industry with its ancillaries will have a
similar magnitude (could be larger). The point to note here is
that the travel industry is no larger and no
smaller than many other competitive markets. With such a large
scope, the flow of information from one
stakeholder to another assumes critical importance. Furthermore,
since travel itself is a very real-time
activity, this flow of information has to be fast and accurate.
Leakages in information are leakages in
revenue and leakages in cost. Thats where the travel GDS comes
in to the picture.
History of Travel GDSs The Online Business Dictionary defines a
travel GDS as follows (Business Dictionary, 2015)
A worldwide computerized reservation network used as a single
point of access for reserving
airline seats, hotel rooms, rental cars, and other travel
related items by travel agents, online
reservation sites, and large corporations. The premier global
distribution systems are Amadeus,
Galileo, Sabre, and WorldSpan. They are owned and operated as
joint ventures by major airlines,
car rental companies, and hotel groups.
The history of GDSs is mired in the travel industry itself. They
evolved organically through the interests
of the players therein. For e.g. Sabre was initially cooked up
by American Airlines over a meeting
between the then President of AA (C.R Smith) and an IBM salesman
(also named Smith) whom he met on
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a flight (McMillan, 2012). Originally an abbreviation of
Semi-Automatic Business Environment Research,
it was later changed from SABER to SABRE due to copyright
issues. Sabre is of course, just one example.
GDSs were created in the 1960s as a way to keep track of flight
schedules, availability, and prices. When
the aviation industry was unidimensional, inter-airline
agreements were uncommon and coordination
between carriers, agents and other interested parties was not
required. Vanilla CRSs (computer
reservation systems) ruled the roost. The burgeoning amount of
bookings and interline agreements
between carriers for segments that each carrier sought help for
resulted in a massive amount of
information that needed to be exchanged on a near real-time
basis if passengers were to be given a
seamless travel experience from point A to point B. All of the
most popular GDSs were originally formed
by aviation firms (summary as below)
GDS Founded Parent(s)
Sabre 1960 American Airlines
Galileo 1971 United Airlines
Amadeus 1987 Air France, Iberia, Lufthansa, SAS
WorldSpan 1990 Delta, Northwest, TWA
Before the concept of a GDS was envisioned by Smith and Smith,
airline reservationists kept track of
travelers in much the same way that short-order cooks keep track
of breakfast orders. They used lazy
susans (a turntable (rotating tray) placed on a table or
countertop). It was a clumsy, ineffective system
that was costing money. Airplanes were flying with empty seats,
and about 80 percent of them were
because of bookkeeping errors in the lazy susans. Today, more
than one billion transactions are carried
out annually using GDSs, and it is estimated that nearly 500,000
travel agencies globally use a GDS to
conduct business every day (Travelport GDS, 2011).
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GDS Architecture and Business Model
A GDS creates a mirror image of a booking and maintains this
information in its computer system. Lets
assume that a passenger books a ticket from point A to point D
across two different carriers. The details
of his travel from point A to point D is called his itinerary
and each itinerary has an identifier (either called
a PNR or a locator code)
From To Carrier Visible in CRS
Visible in GDS
A B X X
G B C X X
C D Y Y
To quote Wikipedia, if a passenger books a journey from
Amsterdam to London on KLM, London to New
York on British Airways, New York to Frankfurt on Lufthansa
through a travel agent and if the travel agent
is connected to Amadeus GDS. The PNR in the Amadeus GDS would
contain the full itinerary, the PNR in
KLM would show the Amsterdam to London segment along with
British Airways flight as an onward info
segment. Likewise the PNR in the Lufthansa system would show the
New York to Frankfurt segment with
the British Airways flight as an arrival information segment.
The PNR in British Airways system would show
all three segments. One as a live segment and the other two as
arrival and onward info segments.
Sounds quite simple, but its really not. There are multiple
changes that are possible in a PNR (either
initiated by the airline or by the passenger himself). In such
situations, the GDS must have the agility to
update its own system and inform its linked systems about this
change. A delay would cause a hold-up
(much like a bottleneck in the flow of information). GDSs earn
money through various channels. They
make money off airlines as well as off travel agents. The GDS
behemoth has branched into a holistic IT
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solutions provider and they also charge all other stakeholders
money to maintain this database and its
related upkeep.
The infographic published on wired.com above shows a rather
entertaining version of the global
distribution system conspiracy theory. In structural terms, we
can of course call it a bottle-neck; but the
implications are not that easy and not so simple to avoid.
Unfortunately, the more people travel, the more
the information that needs to flow seamlessly between industry
players; and more entrenched do GDSs
get with this increase.
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Changing Dynamics In July 2003, the GAO (Government
Accountability Office) presented a report to its congressional
requesters titled, Impact of Changes in the Airline Ticket
Distribution Industry (Government
Accountability Office, 2003). It was quite a revealing insight
into the evolving world of travel and tourism.
In 2002, when major U.S. airlines posted net operating losses of
almost $10 billion, they paid over $7
billion to distribute tickets to consumers. Of these total
distribution expenses, airlines paid hundreds of
millions of dollars in booking fees to global distribution
systems. Concerns were raised that the assorted
menagerie of GDSs were exercising what is technically called
market power over aviation companies
because most of them were and still are largely dependent on
these computer systems. Its conclusion was
a study in contradictions. To quote
A competitive airline ticket distribution industry, which
includes the airline, GDSs, and travel
agent industries, continues to be important because
noncompetitive practices may adversely
affect airlines and consumers. Originally, the CRS rules were
focused on reducing the market power
of airline-owned CRSs to prevent owner airlines from using the
CRSs to gain a competitive
advantage over non-owner airlines. With the GDSs now independent
from the airlines, questions
have been raised regarding the GDSs exercise of market power
over all airlines. Among other
things, because GDSs do not compete with each other for airline
business, airlines and consumers
may be subject to prices that are higher than in more
competitive markets. While our limited ability
to get complete booking cost and fee data from the GDSs did not
allow us to independently
evaluate whether GDSs currently exercise market power, the
market position of large travel
agencies or the overall performance of the industry, evidence
that we developed in this review
provides suggestions of both a functioning market and
competitive flaws.
The advent of technology has changed the game. The GDS is now
looked at like the dinosaurs were; slowly
becoming obsolete in a fast-changing world. While the issue is
much debated, one thing is certain. There
are multiple parties interested in doing away with these
ineluctable middlemen (The Economist, 2012)
and the dynamics are changing fast. Lets explore each of these
factors in further detail.
Evolving Technology The internet has proved to be a boon for
airlines. The direct business model has affected travel GDSs
much the same way as Walmart has eaten into the revenue of
various middlemen in its efforts to directly
connect to customers. Though this analogy is a bit stretched,
the fact remains that technology and travel
GDSs are not good bedfellows (though they claim to be). Changing
technology has eroded the hold that
global distribution systems have on airlines and travel agencies
(who are traditionally reluctant bedfellows
with the GDS chaps themselves). The GAO report mentioned above
found that between 1999 and 2003,
tickets sold online went up from 7% of the total sales to 30%.
The number is vastly different now but the
point being made is that technology brought purchases online.
The next big revolution came when airlines
discovered the massive reach of the internet. They came up with
internet-only fares which were offered
to passengers booking flights directly from an airlines website.
In April 2008, William Brunger submitted
a quantitative research report titled, The Impact of the
Internet on Airline Fares Understanding the
Internet Price Effect. He used a multivariate regression in
which the dependent variable was the fare
paid and the independent variable was the distribution channel
used (Brunger, 2008). He concluded that
the internet was a revolutionary game-changer in the airline
industry. Without going into the math here,
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he concluded that the internet price effect was statistically
significant. In 2015, the effect can only have
exacerbated. More and more airlines are pushing direct sales and
are trying to bypass GDSs entirely.
Cost Some of the tastiest margins in the travel business are
enjoyed by the global distribution systems (GDSs),
a fancy name for computerized-reservations services. These were
originally created by several of the
largest airlines to distribute their flights through travel
agencies but have since become independent
firms. Most flights booked through a physical or online travel
agent go through a GDS, which charges the
airline a fee of about $12 per round trip, passing a few dollars
of that to the travel agent. According to
Take Travel Forward, an airlines lobby group, the worlds
carriers pay $7 billion in GDS fees a yearmore
than double their expected net profits this year of $3
billion.
Both sides can claim to be the consumers champion. The airlines
argue that the cost of the middlemen
adds to the price of tickets (though the superficial evidence
suggests that it is airline shareholders who
suffer). They say they want to reform the distribution system to
offer flyers a wider choice and a more
individually tailored service. The GDSs argue that they provide
travelers, through their agents, with
impartial comparisons of all available flights, allowing them to
get the best value.
Cloud Computing and Big Data The cloud is a disruptive
technology (to put it euphemistically). It has proved to be the
undoing of
enterprises that work on stashing information and charging for
it. It has, on the other hand, also proved
to be a boon for enterprises that need a seamless and
transparent flow of information with multiple
stakeholders. A decade ago, the internet posed a big challenge
to global distribution systems. It still does.
It forced travel agencies to go online, it cut costs and it
squeezed the small fish out of business
(Government Accountability Office, 2003). Today, we are on the
cusp of another change. Cloud computing
and big data are poised to create another paradigm shift in the
travel industry. It is predicted that through
an alternative distribution model and big data analysis, airline
websites will produce 59% of its booking
volume, up from 35% as of 2012 (Harteveldt, 2012). In a special
report commissioned by the IATA, Henry
H. Harteveldt postulated that any technological company (he
specifically cited Google, Amazon etc.) that
had mass reach amongst consumers through devices and had big
data on spending trends and travelling
habits was poised to change the distribution model for airline
ticketing. Through meta-searches and direct
connects, global distribution systems are threatened. A
potential model might look something like this
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Big data holds the next step. True personalization is what all
travel agencies and airlines are going for.
Imagine a world where a travel agency is going to be able to
suggest the exact hotel that will suit your
needs rather than throw you a plethora of generalized
suggestions that are no good. It will be able to do
this based on two things
Your travel preferences and your historical habits
Machine learning
Proliferation in smartphone technology means that an operating
system is constantly aware of where you
are, what youre doing, what youre searching for on the internet
and which of those products you actually
end up using. This mine of information can easily be used to
generate what the big data industry calls
true preferences. We already experience a sample of this when we
use search strings on Google.
Backend analytics throw up (or at least try to) throw up exactly
what you need.
AA Vs Sabre This is a very significant development in the travel
world. After years of being reluctant bedfellows, a wide
chasm has finally appeared in what can only be described as a
forced partnership. Once the global
distribution systems spun off into their own entities and
airlines divested themselves of stakes therein,
the tussle between airlines and GDSs has only been heating up.
Things came to a head back in 2012 with
this anti-trust lawsuit. The details are not available on the
public domain, but what we do know is that AA
has alleged Sabre (as of now) of colluding with its competitors
to deprive AA of a fair market (Boehmer,
2015)
Building a record of alleged conspiracy, documents filed last
year by US Airways in a pending
lawsuit against Sabre and unsealed this month fleshed out how,
"for roughly the past decade, the
three GDSs have moved in lockstep," according to the airline,
which since filing the suit in 2011
has merged with AA. While the suit names only Sabre as the
defendant, US Airways' filings also
cite actions and practices by Sabre's competitors (or
co-conspirators, as US Airways would see it),
Amadeus and Travelport.
The origins of this battle are in the history of the travel
industry. With so many convoluted interests, the
self-grown monster was bound to get out of hand. AA recognized
this and has dealt with it the only way
it can by trying to cut out Sabre from its revenue/cost model.
An important step in this direction is the
creation of the Direct-Connect Portal. To use AAs own words, AA
Direct-Connect is a direct link into AAs
host reservation system for the facilitation of availability,
shopping and pricing, booking, ticketing, and
post-ticketing servicing transactions. The AA Direct Connect
utilizes modern technology links, employing
XML messaging which can handle more robust and flexible
transactions. No need for a travel GDS. No
need for subscription fees, transaction fees, sales distribution
fees etc. If all airline companies throw their
doors open for each other in similar fashion, global
distribution systems would actually be at threat. Thats
where the cloud can come in (weve already spoken about this in a
section above) to ease the flow of
information from one carrier to another and to enable OTAs to
utilize it for customers.
AA has drawn first blood and it will be interesting to see how
the fight pans out. Should other players
support AA and their Direct-Connect Portal, Sabre will have a
tough time indeed.
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Google As is the norm (and it has been insinuating itself at the
core of every industry), Google is the latest entrant.
Its made a very small entry and has announced (for now) that it
does not intend to compete with OTAs
or other travel agencies.
Google Flights This tool is the equivalent of an OTA. It
provides a search feature and has linked
itself to the Google Maps API.
Google Hotel Finder Ditto
ITA Software Google acquired ITA software sometime in 2010.
Since then, the fare-search front
has been sluggish on the news.
However, Google made its intent quite clear with this
acquisition. The first sign that Google will indeed
not go after OTAs (primarily) is the fact that it is investing
heavily in fare-search technology through meta-
searches. It is building up a communications ecosystem using
Google Flights as an experimental base.
Using its Maps API, the next step will no doubt be to merge all
these recent developments together. What
do we get? A single tool that knows you and your travel habits,
is aware of your spending capabilities, is
clued in on your likes and dislikes, is aware of your schedule
and your appointments and has the power
to get you the best deal possible by talking directly to
airlines and cutting out all other middlemen.
Furthermore, its mobile OS penetration and its reach through its
search portal has massive implications
for the travel world (Rose, 2012). Traditionally, Google has
always gone after the control of information
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rather than outright sales. With its search engine, its
operating system, its application ecosystem; the flow
of information is what it seeks to control. Larry Page has been
very vocal (Google, 2015) about Googles
objective in the long run too; namely, to categorize ALL the
worlds information . . And global distribution
systems hold a small chunk of it which has now caught Googles
attention. In fact, Google is fast emerging
as the dark horse with huge implications for everybody else.
Take a gander at its offerings:
This view isnt so far-fetched too. Erin Torbensen who is a
reporter for the Dallas Aviation Blog recently
pitched an alternative distribution model where Google has the
power to customize what passengers
want. This is currently something that no travel GDS can do.
With big data at its fingertips, it can rope in
carriers and suppliers to use its own metasearch capabilities
(bolstered by its acquisition of ITA) and use
this direct-connect model to disintegrate GDSs (Torbenson,
2015). Googles capabilities with Google
BigQuery (its big data analytics tool) and its vast cloud
capabilities means it already has a stronghold in
the technologies that are going to matter most for the travel
industry.
Conclusion In conclusion, the travel industry (from a
technological perspective) is on the verge of another paradigm
shift. What remains to be seen is how organizations leverage the
biggest tools at their disposal today (big
data, analytics, cloud computing, collaborative development,
open source philosophy and automation) to
adapt to this evolving environment. An alternative distribution
model needs to keep the end customer as
its priority. This shall ensure that the system is as simple and
as lean as possible. We can learn from the
convoluted way that the travel industry has evolved hitherto and
ensure that the next step is a
simplification rather than a step back. Interesting times
ahead.
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