As many business travellers are already painfully aware, Lufthansa introduced a new fee last month. They call it a “Distribution Cost Charge (DCC)” and it adds €16 (approximately £11.70) on to the flight cost for anyone booking via a Global Distribution System (GDS). As almost all travel management companies use these systems, this has hit corporate customers the hardest, many of whom are (understandably) not happy about paying the price for this power-play between airlines and their distribution channels.
Our International Air Travel team have been investigating options to escape the GDS charge…
Can we avoid the fee by booking directly on a Lufthansa website?
The option being promoted by Lufthansa is to book via their trade website instead, but this is far from an ideal solution. For starters, the saving is less significant than you might expect, as Lufthansa Airline sites apply a credit card fee of about £6, leaving you with a saving of just £5.70 compared to booking via GDS.
Not using a GDS to complete your booking also raises the following concerns:
Loss of Transparency – If you search on an airline website, you only see a selection of fares and options, whereas a GDS search will display all the options available across 99% of the world’s carriers, with complete transparency on all costs. TMCs like NYS Corporate book £millions via GDSs each year because this is the most comprehensive way of ensuring that we are booking the best available option for every journey.
Duty of Care – For all bookings completed through a GDS, your TMC receives live updates connected to each Passenger Name Record (PNR). These updates automatically inform us of any cancellations or delays that may affect travellers, and also enable us to take immediate action if needed (e.g., we can quickly book a ticket on the next available flight if your flight is cancelled). For bookings completed through an external site, however, we would be dependent on the airline contacting us if any issues arise, and making secondary arrangements is likely to be more complicated.
Time Investment – Booking directly requires extensive manual data entry, and thus is a much more time consuming and less efficient means of booking a flight, which could result in higher transaction fees.
Should we boycott Lufthansa?
As a member of Advantage Travel Consortium, NYS Corporate are actively opposing Lufthansa’s new GDS fee by recommending alternative carriers wherever possible. On select routes, however, Lufthansa continue to be the best value option (even after the GDS fee has been taken into account). In these instances we feel obliged to present the most economical option to our customer, but we will also include details of the next cheapest carrier so that you can choose to boycott Lufthansa if you wish to do so.
It is hard to anticipate how successful boycotting will be though. Lufthansa anticipated kick-back against this new charge and set aside funds to cover the cost of a significant percentage of their customers voting with their feet.
Can we speak up against the fee?
NYS Corporate are already speaking up against the fee, and as a partner of the Advantage Travel Consortium, ITM and the GDS providers, we are fortunate to be in a position to make sure our concerns are heard across a wide range of forums. Needless to say, there is widespread outrage across the industry, and we have added our voice and considerable influence to the ongoing protests.
We are hopeful that these actions might at least result in Lufthansa reviewing the GDS fee.
As a member of Advantage Travel Consortium, NYS Corporate are actively opposing Lufthansa’s new GDS fee.
Deborah Dearling, International Air Travel Supervisor, NYS Coporate
Currently, most airlines are sitting on the fence, waiting to see how it pans out for Lufthansa, but given the amount of money they pay to GDSs for distribution each year they are certainly motivated to follow in Lufthansa’s contrail.
In all likelihood, GDS fees will eventually become the norm across airlines, just as other charges (such as fuel surcharges) did in the past. However, this does not necessarily mean that the cost of flying will increase for corporate customers. Falling fuel prices and increased competition from low cost carriers is likely to continue putting airlines under pressure to reduce their fares, hopefully mitigating any “DCC” related increases.
What could this mean for the future of the industry?
This is more than just a fare hike in disguise. In fact, it’s probably reasonable to assume that if Lufthansa had increased their fares by €16 across the board no one would have noticed. This new fee was designed to strike a blow against the GDSs, which could have a lasting impact on the industry as a whole.
At the moment, GDSs are responsible for the single largest profit segment in the travel industry (approximately 20% of the overall total). By applying a new fee which they claim is representative of the cost incurred to airlines by distribution systems, Lufthansa have put GDSs under pressure to reduce their profit margin or risk losing custom. And if the existing GDSs don’t reduce their rates, we may even see new systems emerging in their place. Lufthansa and the Star Alliance have enough airlines under their wings to even justify creating their own GDS. For all we know, this may have been what they had in mind all along.
Whatever happens over next few months and years, we will keep you informed.