By Neil Hammond, Partner
American Express GBT recently announced a $10 surcharge for its corporate customers that wish to book carriers that don’t operate via the typical GDS ARC/BSP settlement system. There have been strong arguments on both sides for and against this latest measure. Is this move a good thing or not? Let’s take a closer look:
The Case For
- Increased Transparency
There is a lot of money flowing in many directions during a travel transaction. It is generally a good thing for the buyer to have visibility on what and where the costs are. I liken this surcharge to sales tax, something U.S. buyers are accustomed to on a daily basis (and something that is usually one of the first cultural surprises that a visitor to the U.S. experiences). In the case of sales tax, the intention is presumably to prompt the user to consider that a portion of the money is going to state and local government and reflect upon the effectiveness of its use. In the case of this surcharge, such reflection could also be prompted amongst buyers.
- Driving Behavior Toward Lower Cost Solutions
As stated, the altruistic intention of this transparency is presumably to drive the consumer towards actions that will influence behavior on the part of the buyer that will impact the market. The outcome of the sales tax visibility may be a voting decision, acting as a check and balance on local government spending. In the example of the non GDS surcharge, the desired outcome may be to shift buying preferences, thus inciting the carriers subject to the surcharge to consider adopting more efficient processes. Currently the business portion of the non GDS carriers is gained via free access to a market channel to which they are not contributing.
The Case Against
- Driving Business to GDS Carriers
The first argument is not so much against, but perhaps pointing out that the true intent behind the move may not be grounded in free market principles as is being touted. We note that some credit card companies have fought long and hard to prevent merchants from unfavorably differentiating between their card merchant fees and those of their competitors.Also, let us not forget that driving business back through the GDS is also increasing business through a revenue generating contract that financially benefits the TMCs. Do not expect the TMCs to provide additional transparency on those monies any time soon, let alone phase in a generic line item deduction on client transaction fees. They could do so without violating any contractual non-disclosure requirements by simply providing a generic fee as they have done with the surcharge. Let’s just say that this initiative can be described as situational.
- Sticky Surcharges
The second argument would be to invoke a very sore point with travel buyers, the ‘temporary’ airline fuel surcharge. We saw the fuel surcharges implemented many years ago and despite recent low fuel prices, this significant line item has not disappeared, although it has been renamed. This is a below-the-line expense which is a normal cost of doing business for all flights on all airlines (at least until the arrival of solar powered flight). Anyway, the point is that once implemented, any surcharge or tax is likely to outlive the costs of whatever it was designed to cover.
- Curbing GDS Innovation
Finally, there are some that have likened this to the Lufthansa €16 surcharge for GDS bookings and thus borrow the same argument for support. Yet there are differences in these cases. If we are to believe that current GDS technology is slow, unwieldy and an unfit-for-purpose medium to market, sell, and settle travel transactions in the current day, then the Lufthansa initiative is likely to stimulate innovation in technology that the GDSs will be forced to compete with. The Amex GBT initiative could be considered an action of support for the current model, however, as opposed to driving innovation. Therefore, if you support free market principles and healthy competition, you are free to take different positions on these two surcharges.
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