The slow end of Expedia et al? Lufthansa introduces €16 GDS fee

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Lufthansa made a very surprising announcement yesterday which I don’t think anyone saw coming. They (ie Lufthansa, Swiss, Austrian and Brussels Airlines) have decided to attack Expedia and the other online travel agencies.

You have probably heard of Amadeus and Sabre even if you don’t know much about how they work. These two companies control the two main airline booking systems, called the Global Distribution Systems. Almost all legacy airlines and a few low cost carriers use a GDS.

It is a GDS which powers any airline ticketing system which is not exclusive to one airline. As a consumer, the ones you will see most often are Expedia, Opodo, Travelocity etc. There are also corporate versions used to book business travel.

It is not impossible to exist outside a GDS. Ryanair does it, for example. easyJet, on the other hand, started paying fees to be included in the GDS systems a couple of years ago because it wanted to do more with the corporate market. Many PA’s will only book flights shown on the screen by their corporate booking tool and won’t bother searching individual airline websites to see who else may fly a route.

From September 1st, Lufthansa is planning to charge €16 for all tickets booked via a GDS.

As Lufthansa explains it:

Until now, these costs have been passed on across-the-board to all passengers as part of the ticket price. The costs of using a Global Distribution System, in particular, far exceed those of the other booking channels and this year these have again increased significantly. In future a part of these costs for GDS bookings will be passed on in the form of a new charge in the interests of a fairer allocation based on the cost-causation principle. As with the introduction of the new Economy Class European fare, with this new charge the Lufthansa Group airlines are enabling their customers to pay only for those benefits and services that they actually use.

What this means is that tickets booked on lufthansa.com should be €16 cheaper than tickets booked elsewhere. The airline call centres and ticket desks will also be exempt.

Travel agents will be able to use a new trade-only booking website. Business customers with special rates will be given the equivalent of a ‘corporate rate code’ to use on lufthansa.com – codes which, if the hotel industry is anything to go by, will soon be appearing online for everyone to use ….

It will be very interesting to see if this charge sticks. The risk to Lufthansa is that people continue to focus on the GDS route and, because their tickets are now €16 more expensive, gravitate to another airline. I assume that Lufthansa is hoping that all of the other major European airlines swiftly follow them. They could be very lonely otherwise ….

If it goes well, Lufthansa may consider another step – following the major hotel companies and refusing to award miles for tickets which are not booked on their own website.

The full announcement can be found here (PDF).

Category

Lufthansa and Miles & More

This article is closed to new posts. Discussion continues in the HfP Forums.

Brian says:

3 Jun3 June 11:16

I think the key question here is how many consumers use a GDS to find a price and then book on the airlines website with clicking on a link versus those who just go straight to the airlines website.

I struggle to see how Lufthansa would know whether a customer has checked the price in this way first (maybe they have some good online research). I for one will always use a comparison site, will then go directly to the airline (usually AA or BA) to make the actual booking.

So have Lufthansa wrongly assumed that customers directly coming to their website haven’t used a GDS minutes before?
- Aeronaut says:
  
  3 Jun3 June 16:05
  
  Expedia et al are not GDSs. Consumers don’t have direct access to GDSs.
Nick says:

3 Jun3 June 12:14

Is EUR16 enough to change people’s behaviour though? I can see that it’s a noteable increase on cheap domestic tickets, but is it really going to stop people using Lufthansa for other flights? My main criteria when booking a flight is convenience along with cost – I generally book the most convenient flight as long as I don’t think the price is unreasonable. For example, LH to Berlin from LHR at say 8pm on a Friday night is ideal for me, so if that flight was say £100 I’d book it. I’d also book it at £110. I might go for an earlier/later flight if that earler/later flight was say £40, but that is the case whether or not the ideal flight was £100 or £110. I can’t see anybody changing their flights from LH for long-haul, for example. A few quid is hardly going to stop you booking the most appropriate flights.
- tony says:
  
  3 Jun3 June 20:18
  
  Eur16 might seem like nothing but if you’re a party of 5, or sending dozens of people to FRA every week, this could bite.
  
  I wonder if it’s a bargaining chip by lh group to cut fees. After all they’ve gone to great pains to highlight the number of airlines involved. And sent this direct to some consumers….
- Calchas says:
  
  3 Jun3 June 21:52
  
  Absolutely yes. People sort by price and pick the cheapest.
  - Nick says:
    
    4 Jun4 June 10:03
    
    I’m not really sure that’s true though. I take Tony’s point as regards groups – I only ever book for me and the wife, but I can see how it would be a more material cost to a bigger family.
    
    But as regards people just booking the cheapest flight: if someone wants a flight at 10am and it costs £116, surely they are not going to book a 7am or 1pm flight because it is £16 cheaper?
@alastairtravel says:

3 Jun3 June 14:16

Working at a TMC this is a big call from Lufthansa.

It will be interesting to see how the display of these fares is negotiated with the GDS. Will it be included at the fare quote stage, or tucked in at the end? With the recent changing laws about displaying the final fare I’d be inclined to the former, which will make them uncompetitive (especially on short-haul)

GDS bookings also tend to be corporate bookings (and generally with a much higher yield to the airline) so it’s a fair argument that you get a better quality of booking through this channel, one which Lufthansa are conveniently ignoring)

Overall this is going to lead to fragmentation of the booking process at a time when technology is moving it towards a smoother booking experience for travellers and consumers.

I’m not sure whether the position is sustainable without other airlines adopting similar positions en masse. How many other companies do you know that charge extra to distribute their products through their largest and most lucrative channel?