When I saw it in the news that easyJet will sell its seats via GDSs, my first reaction was “oops”. What is a GDS and why is it surprising for the airline industry?
What is a GDS?
The abbreviation stands for Global Distribution System and there are a few of them available in the world. You might have read about Amadeus, Gabriel, Galileo, Worldspan, Apollo or Sabre in our blog. Airlines use these systems to distribute their products: seat availability and prices. This is the traditional sales channel for airlines. Travel agents also have access to GDSs and they use them to reserve places through them. The reason why low cost carriers do not use this channel is that there are costs attached to each end every transaction and it might happen, that a booking is cancelled, but the airline had costs with it.
Why is it suprising that easyJet starts using GDSs?
Now easyJet opens towards this sales channel, which will definately increase its sales costs. It says it will add a point-of-sale fee to fares booked through the GDSs, ensuring that its Web site “remains our primary distribution channel and fares will always be cheapest when booking direct online. €7.50 will be paid for a one-way ticket, €12 for a return ticket and €5 per segment for a ticket that includes more than 2 segments. Taking the fact GDSs normally charge USD 2-3 per segment for a transaction, they must have thought about cancelled bookings by creating the new fees.
Why is it still very logical?
The intention behind easyJet’s step was to open towards business travellers. The characteristics of business travellers are that
- they usually travel in and out within a day or maximum 2-3 days – by this characteristic low costs are better for a traveller as traditional airlines usually charge much more for these short returns than low costs
- they like loyalty programs, especially if the company allows them to collect miles during business trip that they can use for leisure purposes – this is something low costs do not have yet, although I believe there are some low costs seriously considering it.
- they do not arrange their trips for themselves, they have travel agents to arrange it for them – now this is the weakness of low costs, because the real big agencies like Amex will do their best to make their reservations via GDSs, so they loose business by not being present in them. And this is the point where Easyjet decided on taking action.
Low cost trends
easyJet is a follower with this strategy. They just copied the model of 2 US low cost carriers: Jet Blue Airways and Southwest Airlines. So what is happening in the airline industry?
The classic low cost model is that they save money on sales channel costs and spend it on direct advertising, thus generating direct traffic for themselves. It is a clear trend that the gap between low costs and traditional network carriers is narrowing. Network carriers are forced to keep up in the tough competition with low costs, so their reaction against the low cost attack was reducing sales cost by directing more passengers towards their direct online sales channel (their website), stopping costly services like hot meal on board, basically giving less service for a lower cost. Besides that they give even higher services and better for their business and first class passengers to gain more revenue from that segment.
On the other hand low costs have to compete with each other, too. So we can see they start giving sandwiches and refresheners on board (for example Sky Europe) and start selling tickets via GDSs. Next steps can be loyalty programs, code share flights or at least strategic cooperations and different cabin classes, but the latter one is less realistic. The tendency is clear: at the end there will be very similar airlines, some of them offering long haul and very high niveau first class services, but for us, “the rest” it will be irrelevant whether we will fly a low cost or a traditional airline.