Key Points
  • Advances in internet and mobile technologies pose a huge threat to GDS. The number of agents using GDS fell from 90 percent in 2005 to 75 percent in 2011
  • Airlines, especially low-cost carriers, are connecting directly to consumers to reduce GDS fees
  • GDSes, meanwhile, are starting to accommodate sales of airline ancillary items and have been securing more inventory from low-cost carriers
  • If GDS evolves to meet the changing needs of the airline industry, it will survive; else it may cease to be relevant.

The Global Distribution System (GDS) has been a bulwark of airline operations for decades. GDS is a worldwide computerized reservation network used as a single point of access for reserving airline seats, hotel rooms, and rental cars by travel agents, online reservation sites and large corporations. In 2005, about 90 percent of agents used GDS. However, technologies like the World Wide Web and smartphones are allowing consumers to buy air tickets directly from airlines. Does this mean an end to GDS, or will it reinvent itself and continue to remain relevant?

GDS was a product of the efforts of airlines to keep track of flight schedules, availability, and prices. American Airlines came up with Sabre, United with Galileo, and Air France, Iberia, Lufthansa and SAS with Amadeus – the most used GDSes today.

But advances in internet and mobile technologies pose a huge threat to GDS. The number of agents using GDS fell from 90 percent in 2005 to 75 percent in 2011. More and more people are buying tickets directly from airline web sites, and smartphones have made it much easier for consumers to do their buying on the go. Some observers forecast that there may not be any GDS, at least in the way we know it, in a few years.

Airlines, especially the low-cost carriers, are looking to cut costs by connecting directly to consumers and avoiding GDS fees. In June 2015, Lufthansa Group announced that it would be imposing an additional 16-euro charge on bookings done through external GDS rather than their own systems. Air France, KLM and Emirates may follow suit.

GDSes have hitherto enjoyed 'the tastiest margins in the travel business', says Economist magazine. A GDS charges about USD 12 per round trip, passing some of that to the travel agent. Take Travel Forward, an airline lobby group, estimates that the world's airlines pay USD 7 Billion a year in GDS fees! In an industry, where margins are wafer thin, this is a whopping figure.

But the party may not be over yet for GDS. According to a 2014 Business Travel Survey by Business Travel News, GDS still processes growing volumes of travel transactions. The report says that GDSes are starting to accommodate sales of airline ancillary items and have been securing more content from low-cost carriers.

For years, GDS has provided an invaluable service to airline because of its security, reliability, speed and accuracy. According to an IATA study, what airlines will want in the future are more flexible, robust commerce platforms built on contemporary software and architecture. They also want commerce platforms that can support extensive fare and product transparency, dynamic pricing, rich basic and ancillary product merchandising and retailing, and the ability to reliably and securely process the massive volume of shopping sessions.

If GDS evolves to meet the changing needs of the airline industry, it will survive; else it will cease to be relevant.

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