Need a vacation? Those days, you rely on a travel agent to book your tickets, set your itinerary and make arrangement on hotels and tours. In reality, there are several types of travel agents and in Malaysia the most common are ticketing agents, tour-based agents and umrah agents.
You have probably heard a lot about Andalusia Travel, Apple Vacations or Rayhar Travel. Well, the fact is that they are umrah and tour-based agents which deals directly with consumers. However, a big chunk of the travel agents are ticketing agents. They do seat bookings mainly for corporate clients and government agencies. And the system to check seat availability and book tickets are called Global Distribution System or GDS. There are 3 main players in Malaysia namely Sabre, Amadeus and Travelport.
Back then, Sabre or was then called Abacus was the monopoly and charge travel agents for the service of hardware and software in a form of monthly rental but since 2002, as both Amadeus and Travelport enter the market, the monthly rental has been waived (or so it seems) and agents got to use them for free with certain condition.
“Competition has changed the whole landscape of the GDS structure as extensive price war and contract negotiation often dictates the travel agents’ contracts with GDS”
Competition has changed the whole landscape of the GDS structure as extensive price war and contract negotiation often dictates the travel agents’ contracts with GDS. Therefore, before a travel agent enter into a contract or renewal with a GDS, there are a few key points that they need to be considered.
Firstly, GDS gain revenue from airlines, and different GDS charge airlines differently based on their international contract. These revenues are shared with travel agents based on TA’s performance or booking segments. A booking segment is a one-way sector for passenger and often a booking is consisting of 2 return segments.
Over the years, GDS has introduced Sign on Bonus or Loyalty Bonus which is a one-off payment at the start of the contract. Calculation on how GDS define an amount of a sign on bonus varies significantly. A rough calculation, if your travel agency yearly booking segments are about 40,000 and all of them are domestic bookings, GDS probably will earn about USD 1.50 for domestic segments from airline (some GDS charge even higher), that is about RM 250,000 x 5 years: RM 1,200,000. Your agency will probably be offered the 1st year revenue ranging from RM 100,000 to RM 200,000. But the sign on bonus changes substantially if all of the travel agency 40,000 bookings are International segments, as GDS charge about USD 6 to USD 7 or RM 24 per segment. Your agency could earn a whopping RM 1 million sign on bonus.
Segments incentive was introduced to encourage agents to book more and earn more segments incentive. GDS usually pay agents around RM 0.50 for Domestic segments while around RM 1.50 – RM 4.00 for International segments. For top performing agents, there are also special bonuses or segment tiering incremental if they hit more than their targeted segments. Certain GDS pay the segments incentives on monthly basis but some practice quarterly payment.
Those days, GDSs provide PCs to travel agents and charge monthly rental, but since the software is now through Cloud, GDS charge software rental. And if your travel agency is on the Incentive Scheme, the software charges are waived as long as you achieved the minimum yearly segments bookings. Some GDS will offer the software for free to new travel agents as long as you achieved the minimum bookings per software. Therefore, before signing the contract, you must ensure that all of the software needed have been counted for as getting an additional software after the contract has been signed would be difficult.
Some GDS will also offer Technology Funding to travel agency in a form of cash or reimbursement. This funding is important as for the travel agent to buy PCs, laptops, servers or any hardware related to grow the business. It could also be to purchase back office system or website and some GDS offer their in-house solutions or any 3rd party solutions to be purchased via technology fund contra. Either way, it is an important funding that travel agent need to be smart especially to grow their business in the future.
And lastly would be the duration of the contract and exclusivity. Most of the travel agency would be requested to sign 3 years to 5 years contract while they are cases where agents sign up to 7 years contract. That depends on the travel agent’s confidence with the GDS. Most GDSs would also have an exclusive contract, meaning that your travel agency is not allowed to use any other GDSs for the duration of the contract.
As such, all the factors above are important to consider before signing an agreement with a GDS. There are also other factors that need to be considered such as after sales service, customer support, support from the airlines and staff acceptance to the system. You should not be surprised when other GDSs come knocking at your door when your contract is near expiration, and offer a huge amount of money, but it is always the relationship and solutions in totality that the GDS offers that make the difference.