Birds of a Feather Flock Together

Opinion Piece by James Wells, Founder and Chairman of World Travel, Inc.

On November 30th, 2015, JetBlue Airlines chose not to renew the sale of their product through the Travelport global distribution system. Earlier in the year, on June 1, 2015, Lufthansa Airlines implemented a global distribution fee to cover their GDS costs when a reservation originates through any global distribution system.

With their actions against the GDSs, both JetBlue and Lufthansa have made selling managed travel more difficult or expensive.

What do both carriers have in common? Lufthansa purchased JetBlue stock in 2008, providing a much needed capital infusion to JetBlue to compete with other low cost carriers. In connection with Lufthansa’s approximate 19% stock ownership, two seats were provided on JetBlue’s Board of Directors. In March of 2015, Lufthansa divested its ownership interest in JetBlue to strengthen the German carrier’s balance sheet facing strong competition and pilot strikes. Both board seats continue today.

With their actions against the global distribution systems, both JetBlue and Lufthansa have made selling managed travel more difficult or expensive. Businesses rely upon quick and easy information that compares the best time and price options through global distribution systems utilized by travel management companies. Airline sales through the GDS have provided higher-yield revenue to airlines due to limited business traveler flexibility.

These actions take from your bottom line, and cushion JetBlues' and Lufthansa's profit margin.

JetBlue and Lufthansa are obviously looking to combine their efforts in an attempt to shed yet another cost, which will inevitably end up coming out of their customers’ pockets. Similar to ancillary fees for seats, bags, meals and other services once included in a ticket purchase, these carriers hope to pass along or eliminate the GDS fee in some form. They feel this is a good business move to increase profits. But do they need to increase profits? In 2015, airlines will collect over $59B in revenue from ancillaries. JetBlue's net income for third quarter 2015 alone rose to $198M from $79M in 2014. Lufthansa's income for the first nine months of 2015 increased to $1.97B from $482M a year ago, partially attributed to its sale of JetBlue stock.

These initiatives are bad for business.

Most businesses, travel managers, and agencies dealing with these challenges recognize that that these JetBlue and Lufthansa initiatives are bad for their business. The only beneficiaries are the carriers themselves, who can expect even higher profits as a reward for shirking what the industry considers a cost of doing business. Meanwhile, competing airlines that continue to appreciate the global distribution system as a means to sell their services without added fees are being rewarded with additional business.

Businesses need to continue sending a strong message to JetBlue and Lufthansa by utilizing competing airlines whenever possible. Otherwise, more airlines may join in these strategies to further increase their profits – which means decreased efficiency and increased travel expenses for the end consumer. The travel industry has begun calling JetBlue and Lufthansa "disrupters,” and not in a positive way. Disruption for the sole purpose of increasing profits at customers’ and partners’ expense may be more appropriately described as taking business for granted and abusing your customers and partners.

Tags: airlines, Ancillary Fees, GDS, JetBlue, Lufthansa, Opinion

This post was written by Chesley Turner

The World Travel, Inc. Blog

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