Iata head of NDC engagement and adoption Olivier Hours addressed a hearing on ‘Airline distribution channel discrimination’ of the European Parliament’s Committee on Transport and Tourism’ in July.

Hours told the committee of MEPS:

“There is a problem in airline distribution due to a bottleneck between providers and consumers.

“Several hundred airlines compete to distribute their fares to tens of thousands of travel agencies.

The CRSs are the technology used by travel agencies to access airline fares and book flights, and the bottleneck happens because there are only three CRSs in the EU – Amadeus with 65% market share, Travelport with 20% and Sabre with 15%. By country, a CRS may sometimes have 80% market share.

“Most travel agencies use only one CRS and rarely shift to another. The reason is they sign long-term contracts and are dependent on the technology – hardware, software, staff training. They [also] get incentives from the CRSs and don’t want to lose these.

“CWT [Carlson Wagonlit Travel] testified in the Sabre-American Airlines court case in the US that it gets hundreds of millions of dollars in incentives from the CRSs. For the industry, we are talking billions.

“CRS contracts reflect the lack of competition. Airlines pay CRS fees of between €3 and €10 per flight per passenger.

“For example, an airline selling an intra-European trip with one connection may pay up to €40 in CRS fees on a round trip, when the total airline fare is often below €100.

“On top of high costs, CRS full-content contracts prevent airlines from distributing content freely. Airlines have to give the same fares to all CRSs and contractually cannot offer lower fares in specific channels like their own websites or call centres.

“As a consequence, airlines refrain from creating lower fares and this harms the consumer.

“It’s almost impossible for an airline to negotiate with a CRS since the CRS can impose almost any costs and conditions. The CRS knows an airline cannot afford to lose the travel agencies it services.

“Airlines are trying to change distribution for the benefit of the end consumer. They want to move away from the old technology the industry has been using for over 30 years.

“Alternative technologies have been developed and airlines want to use them. Iata is proposing a new standard based upon these technologies called New Distribution Capability (NDC). It will enable the consumer to have more transparency and to purchase all sorts of products and services.

“The good news is the CRSs support this new standard and travel agencies worldwide support it as well.

“CRSs will be ready to allow this new standard next year. However, despite this technical buy in, the CRSs’ commercial practices pertain [remain in effect]. If an airline wants freedom to distribute the way it wants, the CRSs roughly double their fees. Airlines have no choice but to pass the extra cost to intermediaries who may pass it on to the end consumer. This is the CRS surcharge.

“The question is do consumers prefer cheaper fares available via different channels or all fares available in all channels but at a higher price?

“Airlines don’t have an issue with the CRSs as such, they just want more competition.

“Iata strongly believes that what airlines are doing is good for the end consumer. Having more competition will mean greater transparency not only on fares but also on the costs of different services. Travel agents will be in a position to get the same fares and products as on airline websites, they just need to choose the right technology.

“Large travel agents are a bit afraid of these changes because of the money they get from CRSs. They have to decide whether to wait until the CRSs are ready or to choose an alternative technology now.

“Airlines have been frustrated with the lack of innovation from the CRSs. One of the goals of this new distribution standard is to get new technology entrants who will compete to deliver new products faster.

“If there is discrimination in the airline industry it certainly does not come from the airlines.”

Michel de Blust, head of the European travel agents’ and tour operators’ association ECTAA told the Committee on Transport and Tourism of the European Parliament:

“ECTAA represents 70,000 travel agents and OTAs which distributed travel services last year worth in excess of €210 billion.

“Travel agencies and tour operators have successfully marketed not only airlines but also rail companies, hotels, cruise lines, car rental over many years.

“While the internet has added a new dimension to distribution in the last 20 years, indirect distribution remains the main distribution channel online.

“Clearly, European consumers favour a one-stop shopping experience combined with a high level of consumer protection.

“Travel agents access a comprehensive airline offer through CRSs which integrate most of the air transport offer in Europe. This has a series of advantages. Airlines have a fantastic distribution tool which allows them to reach 70,000 agents and millions of travellers at an affordable cost.

“GDSs are the conveyor belt of the distribution chain, providing information on flights and fares, but also ticketing and payment functionalities. Agents provide fare and flight comparison in a neutral and impartial manner. The ultimate beneficiary is the consumer, who is able to compare the full flight and fare spectrum.

“But the situation has become more complicated. With the unbundling of air fares you end up having to pay for the ticket, pay for your luggage, pay for your seat. Airline marketers call this ‘enhancing the consumer experience’. We feel it is a jungle of fares, taxes and fees.

“In this context, transparency is indispensable to preserve comparison and an efficient marketplace.

“NDC is a standard aimed at collecting a lot of customer data before showing the customer a fare on one airline.

“What would you think if before entering a supermarket you have to swipe your supermarket [loyalty] card at the entrance and then you only see the prices the supermarket would like to show you? This is what NDC is about. It poses problems on fare transparency and comparison.

“Fortunately, GDSs are becoming NDC-certified. [But] there are four challenges. First, to preserve full access to fares. We heard from Iata that airlines do not like full content. They don’t like customers to be able to compare.

“Second, to preserve transparency of airfares and the means of comparison of air fares for consumers.

“Third, to preserve consumer choice of distribution channel. The consumer should be able to choose whether to buy direct from airlines or indirect.

“Fourth, and this is very important, to preserve [protection against] consumer discrimination based on their state of residence.”