To say the debate over the Lufthansa GDS surcharge has been rather heated would be a bit of an understatement.
It is, in fact, perhaps one of the most polarising debates in travel technology for many years (since American Airlines tried the same with its Direct-Connect strategy in 2010).
In the middle is the Lufthansa Group,which last weekintroduced a Euro 16 levy on all tickets bought through the industry’s global distribution systems.
Either side of the debate you have those baying for the airline’s blood for implementing such an “illegal” or “anti-competitive” strategy, and its vociferous defenders desperate to end the apparent financial and technical stranglehold that intermediaries have over it.
Some think there is a way, somehow, for it to play out calmly and with all parties in agreement… over something.
In the meantime, away from the letters from legal representatives of online travel agencies in Europe, threatening an injunction but not following through, has been a head-to-head behind the scenes.
One of the inevitable protagonists is Kevin Mitchell, chairman of the US-based Business Travel Coalition, a vocal lobbying group which has brought together a large group of opponents of the Lufthansa fee under the name AirChannelChoice (a group which perhaps rather strangely doesn’t include any of the GDSs).
Opposite the fire-breathing red corner belonging to the BTC is Jens Bischof, chief commercial officer at Lufthansa.
The pair have been trading correspondence for a few weeks.
The first letter, reprinted in full below, is to Mitchell from Bischof, dated 3 September 2015, two days after the introduction of the fee.
Immediately below that is Mitchell’s reply from 10 September 2015.
In some respects, many will think that there is little hope of this current issue being ironed out, such is the sense that many of those at the heart of the debate are opposed to giving any ground at all.
Make your own mind up…
Dear Mr Mitchell,
Thank you for your letter of 13th August, 2015 which has been forwarded to me for review and reply being that we are closer to the local market.
After long and careful consideration our new commercial strategy with respect to the DCC was announced and implemented so as to create more transparency in the cost of distribution channels and at the same time enable content differentiation which we believe in the mid/long-term will benefit our leisure and corporate customers, together with their TMCs where applicable.
The 3 billion euro investments which the Lufthansa Group is presently making in products and services will result in true added value and negotiable content for our corporate and leisure customers. It would be most unfortunate for all involved in the value chain if these benefits could not be displayed or marketed by our TMC partners or be limited due to unnecessary technical constraints.
Greater transparency in offers, which include and display exactly what the traveler will experience, can also be expected. We also feel strongly that present day display technology is long overdue for modernization; something that in the B2C area, especially for low cost carriers who haven’t subscribed to the traditional DDS model has been proven to benefit carriers and their customers. One of the prerequisites for such technology advancement is freedom of content differentiation, which comes with a price for continued use of all of the present benefits offered by DDS fed distribution channels. The DCC represents the difference between direct sales distribution costs and the cost incurred under new GDS agreements.
We continue in very constructive dialogue with our TMC partners, our technology providers, as well as our customers, and are quite optimistic that mutually beneficial solutions will be developed in due time.
I do hope, however, that this explains our criteria for implementing the DCC, and gives a clear message that we expect further-reaching technologically advanced alternatives to be communicated soon.
Sincerely,
Jens Bischof
The reply…
I am in receipt of your response (appended) to our letter of 13 August 2015 to Mr. Carsten Spohr, Chairman and Chief Executive Officer of the Lufthansa Group. On behalf of the 135 travel buyers, consumer groups, industry associations and travel agencies, with operations in some 155 countries, who were signatories to the letter, I thank you for your reply. Please find additional feedback below based upon the points put forward in your reply.
LHG REPLY
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AIRCHANNELCHOICE.TRAVEL
Transparency from a consumer point of view means the ability to compare competing offers between and among different suppliers. The Lufthansa Group (LHG) is hijacking the term endeavoring to refer to its exclusive content as “transparency” when content differentiation by an airline group as dominant as LHG in its home markets will mean exactly the opposite – less transparency, less competition and higher fares.
To be clear, there is nothing wrong with content discrimination, as long as it does not adversely affect the consumer’s right to choice and to transparent information, and as long as it does not distort fair competition in the aviation sector. Many stakeholders and industry observers believe that the LHG DCC is viable only through the abuse of LHG’s dominant position in its home markets. The regulator, of course, will decide.
LHG REPLY
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AIRCHANNELCHOICE.TRAVEL
Content discrimination is not a prerequisite for technology advancement. The International Air Transport Association (IATA) airline community has itself monopolized the technical and procedural standards for how other parts of the value chain manage IATA airline products. Since 2007, the main technology providers leapfrogged IATA’s old standards by interconnecting with non-IATA airlines with new interfaces, most notably XML. It is IATA airlines themselves who are responsible for any lack of progress.
LHG continues to make statements in public that are factually incorrect, whether about the technological capabilities of GDSs, or the cost of indirect distribution. Most recently, your representatives argued that the surcharge is not refundable because the GDS booking fees are not refunded to LHG if a booking for some reason is cancelled. This is just factually incorrect; cancelled bookings are deducted from the booking-fee invoice to the airlines.
Moreover, LHG has yet to show documentation for how it arrived at 16 Euros and how direct distribution costs 2 Euros per ticket. LHG claims that the goal of its DCC program is reduce distribution costs. However, that claim is belied by the fact that the surcharge would not be applied to the two most expensive LHG distribution outlets – its own airport ticket offices and reservation centers.
LHG REPLY
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AIRCHANNELCHOICE.TRAVEL
There appears to be no “constructive dialogue” with LHG, according to corporate travel managers, travel agencies and other industry stakeholders. It would also appear that LHG does not seek to engage in a dialogue on other than how to move forward with a decision already taken, and with zero consultation with your most important customers and commercial partners. If we are wrong about this, perhaps you could point to a few examples of recent constructive dialogue.
LHG REPLY
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AIRCHANNELCHOICE.TRAVEL
We know for certain that the DCC initiative is illegal in many countries where that assessment has already been made by the authorities there. Likewise, LHG has decided to waive DCC in markets when realizing that there would be legal hurdles or prohibitions. The regulator in the EU and key EU member states has yet to conclude in this matter; however, it would be strange if the EU, where fair competition and consumer rights are such core values, would not come to similar conclusions, based on the many complaints that have been raised by key stakeholders, including consumer groups and members of the European Parliament.
The LHG DCC would appear sustainable only if the regulator fails to recognize the imposition of market power this represents in LHG home markets, and if other, equally dominant carriers in fact follow the obvious invitation to collude that was made by LHG at the IATA Annual General Meeting in Miami in June where your CEO was conveniently the first speaker on the CEO panel, which, incredibly, was allowed to discuss a commercial pricing strategy of one airline in a plenary session among competitors. We know that both the U.S. Department of Justice and DG Comp are looking into this issue in conjunction with the ongoing investigation on airline coordination in the U.S. to limit capacity and raise average fares.
Mr. Bischof, we continue to have many concerns regarding your plan’s potential negative worldwide implications for the functioning of the competitive structure of the industry, the ability of travel agencies to remain viable distribution channel competitors to airlines and the accessibility to choices and alternatives for consumers and managed-travel customers. In a world and in an industry where all stakeholders are interdependent and can and need to work together for a common good, we hope and believe that the LHG approach to competition and the consumer will change for the better. Our offer stands to meet with you so that you are fully cognizant of the apprehensions and needs of industry stakeholders.
Sincerely,
Kevin Mitchell
NB:Popcorn image Shutterstock.
