Air India travel partners face Rs 1,825 cr revenue hit on solo distributor move

In a letter shot off to minister of state for civil aviation Jayant Sinha early this month, a top executive of Madrid-based information technology firm Amadeus estimated the revenue loss to travel agents of Air India to be around Rs 1,825 crore once state-owned carrier moves to a single global distribution system (GDS) for domestic flights.

A GDS is an interface between an airline and travel agents.

The letter, which has been viewed by DNA Money, claims that Air India's decision to have an exclusive GDS to sell its tickets will not only impact the airline but will also adversely affect "country's image, businesses of Indian agencies and Indian consumers".

The European GDS firm, which has been working with Air India along with Sabre and Travelport for several years now, will be dropped by the airline from December 4.

A notice sent out by Meenakshi Mallik, executive director – commercial, AI, to travel partners in October said from December the full-service airline's point of sale (POS) content for domestic flights will be available only on Travelport, Sabre and Abacus. And by January, Sabre and Abacus would also be phased out. That would leave only Travelport, managed and controlled by ITQ, as its only GDS. ITQ is a part of InterGlobe group that owns low-cost carrier (LCC) IndiGo.

According to Mallik's note, Air India's POS international flight content will continue to be available on Travelport, Sabre, Abacus and Amadeus.

This move is fraught with financial risks, said Amadeus, in its letter to the minister.

"AI's decision entails a significant negative financial impact for the airline. Those tickets represent annual ticket revenues in excess of $780 million (Rs 5,800 crore) for AI (excluding taxes and surcharges). Of this revenue, $245 million (Rs 1,825 crore) is generated using Amadeus as their sole GDS. Approximately 51% of AI's travel agency bookings are generated by those using Amadeus."

"These agencies will not immediately transform their business/contract by switching GDS due to the loss of a single airline and so their revenue stream will cease immediately as of December 4," the letter states.

The letter said, additionally, Air India's partners, hosted on Amadeus, would take an annual hit of $10 million (around Rs 73 crore).

AI currently has 18 code-share partners and 18 interline partners, most of whom relied on Amadeus technology, the letter wrote. Further, of the 28 Star Alliance member airlines, 20 were hosted in Amadeus passenger service system (PSS).

With so much at stake, Amadeus has found support from its partners including travel agencies, who are aggressively protesting against AI's decision of going for a single GDS in the domestic market.

Late last week, leading travel lobby bodies – Travel Agents Association of India (TAAI) and Travel Agents Federation of India (TAFI) – backed by 12 travel agencies and online travel agencies (OTAs), made a written representation to Pradeep Singh Kharola, chairman and managing director of AI. They have copied the letter to ministers and bureaucrats in the finance and civil aviation ministries.

"We are extremely perplexed and shocked by this decision by Air India management which is a highly disturbing aspect in airline marketing and growth. For us, as industry stakeholders, Air India's success and growth is extremely important and when the management of Air India comes up with initiative that can cause losses to all, then we are bound to bring up this matter before all concerned," said a note signed by the TAAI and TAFI heads, a copy of which is with DNA Money.

In their representation to the airline, they called its "move" on exclusive GDS "wrong". "To save lesser (GDS) costs – Air India is threatened with loss of revenue on reduced seats sale – this revenue is much higher to the GDS cost," said the note.

The travel associations believe the move of the government-owned airline, which is reeling under huge losses and burdened with massive debt, was also a violation India's "competition law" and could impact it "negatively".

They urged various authorities to urgently intervene to maintain stability at Air India by withdrawing the "initiative" by Air India to "disconnect its inventory from any existing GDS".

"We offer our services to meet up with the leaders in Air India to help identify better ways to support the airline's stability and way forward, instead of taking this most threatening initiative," said the representation note.

Interestingly, a note on an internal meeting of top AI officials late last year, which is available with DNA Money, reveals that "while single GDS can bring about cost reduction, the same was not without the possibility of losing substantial market share".

"The market penetration of Amadeus is 60% and that of Travelport around 30%. From the previous noting, Travelport costs appear to be lesser than Amadeus but the same is with diminished sales," said the airline's internal note.

An Air India official, who spoke to DNA Money, said the airline's shift to solo GDS will not negatively impact its market share or revenues. "In case someone (travel agent) wants to view AI ticket booking content, they will shift over to the other GDS (Travelport). It wouldn't impact (AI's revenue or market share)," the official said.

Air India's market share last month was 12.2%, down from 13.3% in January this year. For IndiGo, it has moved up from 39.7% to 42.8% during the same period.

Today, Amadeus has approximately 44% of the global market, followed by Sabre at 39% and Travelport at less than 20%. In the domestic market, Amadeus's share is around 55% and remaining is with Sabre and Travelport.

TURBULENT TIMES

• From December, Airline India's POS content for domestic flights will be available only on Travelport, Sabre and Abacus. By January, Sabre and Abacus would also be phased out
   
• That would leave only Travelport, managed and controlled by ITQ, as its only GDS. ITQ is a part of InterGlobe group that owns low cost carrier (LCC) IndiGo
   
• This entails a negative financial impact for the airline. Those tickets represent annual ticket revenues in excess of $780 million for AI (excluding taxes and surcharges), said the letter