Q: The GDS vendors periodically state that they plan to cut back on incentives to travel agencies. Have they succeeded, as far as you can tell? Do you have any facts and figures in addition to your own anecdotal experience?
A: GDS incentives are better than ever, despite the intentions of the vendors to cut back or at least stem the rate of increase. My own experience with the latest GDS contract deals mirrors what the U.S. publicly traded vendors themselves have stated in their latest annual reports filed with the Securities and Exchange Commission.
The cause of the increases is the intense competition for travel agency loyalty. As Sabre puts it, “We must compete with other GDSs and other competitors for their business by offering competitive, up-front incentive consideration, which, due to the strong bargaining power of these large travel buyers, tend to increase in each round of contract renewals.” Sabre continued, referring not only to up-front incentives but also to incentives per booking or segment: “Incentive consideration, which often increases once a certain volume or percentage of bookings is met, is provided in two ways, according to the terms of the agreement: (i) on a periodic basis over the term of the contract and (ii) in some instances, up front at the inception or modification of contracts, which is capitalized and amortized over the expected life of the contract.”
Next, Sabre admits that incentives are indeed increasing: “Although this consideration has been increasing in real terms, growing in the low single digits on a per- booking basis in recent years, it has been relatively stable as a percentage of Travel Network revenue over the last five years, partially due to our focus on managing incentive consideration.”