After the VDR criticized Lufthansa’s GDS fee in an open letter on the 9th of July, the company replied politely but firmly and explained why the DCC (Distribution Cost Charge) might be important for the future of the travel industry.
“German companies and their business travelers (…) are opposed to the sales strategy you have announced”, the VDR reproachfully started its letter to Jens Bischof, member of the Lufthansa German Airlines Board. “The introduction of your DCC involves a fundamental unilateral change to the system – those that fail to comply pay a high price, with a surcharge of 16 Euros per ticket.”
Mr. Bischof, however, remained steadfast and appealed to the positive business relationship between VDR and the Lufthansa Group. Bookings made via GDS are simply too pricey for Lufthansa and could therefore not be accepted anymore – at least not without a charge. He also pointed out that the DCC would not have to be paid through LH.com or LHGroup-agent.com. The fact that almost 70 percent of VDR members are planning to take their business away from the Lufthansa group does not seem to bother him. Au contraire: The criticism clearly shows the interest of people for the change initiated by Lufthansa, Bischof claims.
Limited Options for Travel Managers
Bookings made via GDS have a huge advantage, since they allow travel agents to compare multiple airlines and fares within seconds. They don’t have to check every airline’s website to find the lowest fare for a ticket. Since many travel managers and players of the travel industry seem to be so upset about the DCC, I assume there are two options now:
- They will be choosing cheaper booking channels from now on, removing a lot of transaction volume from the GDS and also slowing down the booking process noticeably. Managing those bookings will also become more difficult.
- They will stick with business as usual, but book tickets for very price-sensitive clients directly on Lufthansa’s website – or not.
Full content agreements with GDSs are holding Lufthansa back from customized and attractive offers, Lufthansa states in its reply to VDR, and the DCC doesn’t necessarily mean higher costs for customers. This might sound illogical at first, but it actually isn’t.
What many corporations don’t seem to consider is that the GDS fee existed before, but it was bundled into the fare and therefore not directly visible to us. Now that it is unbundled and the increased price is obvious, it is on you to decide if the easy comparison shopping via GDS channel is worth the unbundled price of 16 Euros per booking.
DCC: New Possibilities?
When I published my previous article, I was thinking that Lufthansa was just following negotiating tactics with the announcement of the GDS fee, but right now I am not so sure anymore. Bischof announced that Lufthansa isn’t done with its solutions, offers and distribution strategies yet and that those changes will mean new possibilities for the travel industry, so we will see in which direction the company will be going in the future.
I’m sure that the DCC will lead to some changes in the airline industry. When the GDS volume reduces due to leisure and savvy business travelers who are not willing to pay a junk of money for shopping and data collection or TMC support (on basic trips), GDSs will lose money on their easy to handle transactions, which is where the majority of their profits come from. This will force them to raise the fees on complex itineraries and airlines will counter by adjusting their GDS channel surcharge until the market stabilizes.
Even though the VDR seems to fear those changes and criticizes that the DCC will lead to a loss of transparency and neutrality, the change will still be made on September 1st.
I wonder what Lufthansa will do with its new profits? Buy new planes, invest in the traveler experience? Could they be right when they say that this change will benefit the travel industry in the long run? We will see how the industry will adapt to the changes…
Image by zwola fasola