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Commentary by Tony Tyler, IATA’s Director General & CEO
Published in Air Transport World (ATW) online news on 1 March 2012

The past decade has seen a dramatic transformation of the air transport industry. Cost and
unnecessary complexity have been removed in response to soaring fuel prices, new business
models and the opportunities presented by the internet and mobile revolutions. Acting at the
behest of our members, the International Air Transport Association (IATA) took a leading role in
many of these developments through our Simplifying the Business (StB) initiative.
Through StB, processes have been re-engineered to eliminate waste and redundancy, while
passengers have been empowered by technology like automated airport kiosks and web check
in. Paper boarding passes may go the way of the paper ticket as increasing numbers of
customers embrace the convenience of e-boarding passes, delivered through smart phones. 
One part of the business has remained largely immune to this relentless tide of technological
and process innovation. That is the IT infrastructure powering the Global Distribution Systems
(GDSs) which handle well-over half of ticket sales worldwide. Compared to the dramatic
changes that aviation has been through, today’s travel agent terminal has not evolved much in
form or functionality since the 1970s.

The GDS is an excellent tool for displaying fares and schedules. But adapting it to the
emergence of fare unbundling and airline merchandizing has proved difficult. As airline
customers demand more choices, carriers are responding with products such as lounge access,
premium seating and preferred boarding. The inability of GDSs to display these enhancements
properly, however, is a real barrier to innovation and to the industry’s ability to generate a return
on its investments. GDS limitations force the commoditization of airline products. Yield potential
is not realized because consumer choice is reduced to what appears on a standard display of
time, class and price. Innovations which don’t fit neatly into these parameters, the Air New
Zealand Skycouch, for example, can only be offered on airline websites.

A recent report by Amadeus and IdeaWorks estimated that ancillary revenues were worth $32.5
billion last year, while L.E.K. Consulting forecasts such revenues will exceed $50 billion annually
by 2015 as airlines develop full-fledged merchandizing programs. But to make this happen,
airlines need to be able to display their products to all their customers--not just those who shop
on their websites--and in a manner that is consistent with the airline’s brand, product and selling
proposition. That is why, at the direction of our Board of Governors, IATA has launched a new StB initiative to develop the standards and infrastructure for an XML-based common interface that may be used by all. We are working with all stakeholders, including GDSs on this project. With a new
distribution model, customers will be able to access all the products and fares on offer, in the
most transparent and open way, regardless of channel. 

Airlines value their relationships with the GDSs. But they have not delivered innovation in line
with airline needs. Although there are signs this may be changing, the historical fact is that the
strength and ubiquity of the GDS system has stifled the development of alternative channels.
Meanwhile, travel agents are locked into long-term agreements that make switching suppliers
difficult and give GDSs little incentive to compete with one another. These contracts may also
forbid the agency from establishing a direct channel to an airline. Airlines pay a price for this
lack of competition in the form of ever rising transaction fees that appear immune to general
economic conditions or Moore’s Law.

With an IATA-led XML-based “direct connect” link, customers will enjoy the same autonomy,
choice and selection in their travel purchases that they have across a spectrum of consumer
products, from mobile phones to automobiles. Airlines can personalize their products based on
their customers’ travel patterns and buying habits, as occurs in other consumer industries.
Direct connect will also encourage market entry by companies that may not yet exist, and that is
a good thing; because the airline industry cannot afford to spend another 40 years with its main
distribution system frozen in amber.

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