Financially-stressed full-service airlines in the country are slashing their sales and distribution costs by renegotiating contracts, but such measures could compromise their market reach.
On Sunday, state-owned Air India selected UK-based Travelport as its exclusive ticket-distribution service provider in the country.
The agreement will come into effect from January 2020. As the carrier tries to cut costs, this is part of Air India’s contract revision with its suppliers such as aircraft lessors and enginemakers, and providers of global distribution systems (GDS).
“The deal will help us to reduce our distribution cost by almost 60 per cent,” said a senior Air India official. “Our market study tells us that an increased share of domestic bookings comes through the airline’s website.”
Travelport has already announced a revised agreement from April 2019. Sabre is yet to make an announcement.
For instance in 2017-18 IndiGo’s sales and distribution costs were Rs 7.81 billion; Jet Airways spent Rs 28.2 billion.
Renegotiated contracts will result in lower costs, but it will mean offerings of these airlines will be unavailable to travel agents who use Amadeus — the GDS provider with the largest number of travel agents and market share of more than 40 per cent in India.
Travel industry sources said this will also result in Amadeus terminating contract of international bookings.
“As a global policy, they only accept consolidated contracts for both domestic and international bookings. If they cancel the international contracts, both airlines, which have a large international presence, will lose access to a big booking channel,” said a source. Amadeus did not respond to queries.
“Airlines distribute inventories through major GDS platforms as this increases their reach. Also, it gives equal opportunity to all travel agents. Agreements with a single GDS provider will result in consolidation and monopoly,” said Pradip Lulla of Cupid Travel & Tours.
Airlines, however, claim to have done a cost-benefit analysis, and expect the new contracts to lead to savings.
They are already reeling from high fuel costs, a falling rupee, and stiff competition.