It’s a simple formula. Google Flight Search + Airlines’ Hunger for Direct Connect = Trouble for GDSs.
You may think Google Flight Search is just another meta search tool. I think it is a major step in a campaign to build direct connections between airlines and travelers. Google Flight Search is GDS Bypass personified.
Google sees the GDSs as fortresses, producing hundreds of millions of captive airline searches beyond the reach of any search engine. Searches that need to be freed. Searches that should have the right to be completed directly with the supplier. Searches that in their basic form can be served up quite nicely with Google Flight Search.
But the campaign is far from over. Airline products are evolving rapidly. Complexity is increasing. The successful search platforms have to keep up. Direct Connect, or its technical equivalent, has to be part of the solution.
Why? Because the airlines will eventually win their battle to merchandise their products the way they want. All they need is the technical platform and the marketing muscle.
The technical platform is not the issue. Between the high-IQ boys and girls at Google, ITA and FareLogix, that problem is classified as either solvable or solved. It’s the marketing muscle that’s the real issue.
And Google just threw its marketing muscle squarely behind the airlines.
Will we see advanced boarding fees and day passes sold next to airfares in Google Flight Search? Maybe not soon, but surely those are coming. It’s too hard to see how airfares can be shopped without taking those into account. My money is on Google being a big part of that solution.
Here’s Google’s explanation of Flight Search:
Gillespie's Guide to Travel Innovation 
Wow, I had not seen Google Flights before, that is cool stuff.
We are seeing the rise of GDS 2.0 … for sure. The main issue I have is what is the benefit for the Traveller? Looking at AA new seats pricing and exclusive fare, I just wonder if betting on a GDS not able to tackle ancillary services is not a good choice … for me.
Hi William, No doubt the GDSs will be able to display airline merchandise; some say they can do this now. I think the issue is the business model. On what terms will the airlines want the GDSs to handle their merchandise? That’s where I think Google will have the eventual advantage.
Airlines will want travelers to easily find their products, displayed attractively at a lower cost than what GDSs charge today. Maybe the issue can be framed like this:
Traditional cost to the airline for a traveler to search and book via a GDS-based OTA: $8 GDS cost (my estimate for a typical domestic US round trip ticket), plus something for the OTA – perhaps $5.
Alternative cost to handle a Google Flight Search ticket booked directly with the airline: Google’s Flight Search fee: $3 (an illustrative guesstimate) and the internal cost of handling the booking and subsequent reservation servicing: $3 ( number I’ve heard loosely in this context). Total distribution cost is $6, versus the $13 traditional GDS/OTA cost.
I’d welcome your or anyone else’s input here, especially anyone well versed in airline distribution economics.
Your demonstration is interesting. But
1) you underestimate the difference between the two segments: the users buying through Google only air and the business travelers or the family buying a package Through GDS or travel agent. I’m not certain that the shopping basket is exactly the same. So the 7 $ benefit is subject to discussion!
2) I do not thing Google will provide advanced search concerning ancillary fees. No airlines are stupid enough to present to customers the REAL cost of a trip. They will push ancillary as a last minute sell (which is also a way to overcome travel policy by splitting the total cost of the trip in small chunks, and not in one bill tracked easily in expense management).
3) I do not think the Google’s Flight Search fee is around $3 … But, Google will earn lots of money with ads by reusing all the information collected during your search … Anyway, they are not transparent on the revenue model.
4) Having Google showing only airlines for Booking is a proof that they are not creating a fair ecosystem.
At the end, Airlines will face the same issues with Google/BIng/etc than with GDS in term of distribution … So, this is a gold move for Google Travel, but this is NOT a great evolution for customers … and for suppliers also at the end.
But let’s see, it’s just the beginning of the experiment and everybody can use ITA API … for now.
Scott,
though im not qualified on distribution economics , i believe Google fees will be a bit more than what meets eye , cause Google im assuming will work on PPC model where they would probably charge Airlines websites for pushing leads whereas GDS’s charge only upon fulfillment .
On the whole im quite happy that airlines could be free of the GDS clutches. But what does it have in store for the Agents and corporate consumer considering they still are generating more than 50% of the airline business .
GDS generates 50% of air Business in North America only, not in EMEA.
One could also argue that, after all of this plays out in a few years, the airlines will realize all they did was trade the devil they thought they knew (GDSs) for the devil they didn’t. Imagine the GDSs are all gone and the only channel left standing is Google… how much do you think the cost of distribution will be then when there’s no competition at all?
For a more detailed analysis of Google Flight Search, please see this article written by PhocusWright’s Carroll Rheem: http://connect.phocuswright.com/2011/09/google-%E2%80%93-itas-moment-of-truth/
It was published a few days before I wrote the post at the head of this thread. Wished I’d seen it sooner – it’s quite good.
A couple of thoughts, Scott:
As long as Google can provide a mechanism to reduce the share of distribution through traditional GDS, at a lower or similar cost, the airlines will welcome them with open arms. Google will gain negotiating leverage with the GDS systems, will own the customer through hand-off to the brand site, and will have a rich opportunity for up-sell and cross-sell.
Does Google want to do anything more than just be THE search provider for travel? I don’t think so. I think this effort will closely mirror Google Shopper (http://www.google.com/prdhp) in function but is more likely to have a greater impact than Shopper has.
I still believe that the greatest disruption will come from third parties leveraging Google’s search functionality to integrate travel buying into innovative platforms. Will the Google Flights functionality be available at a lower cost, deployable more quickly to market, with a faster innovation cycle than other “booking engines” that a third party might utilize? I think there is no doubt that will be true.
As always, love your articles!
Jay, you raise a fascinating point – imagine what 3rd parties could do with the Google Flight Search if it were open to them – wow! Anybody know if GFS is already open to integration?
I believe that there is a set of issues here that no matter which side the fence you sit/stand on has impact here. First and foremost – there is no longer a one size fits everything. The legacy GDSs have been trying perpetrate that myth for a long time and neither in fact nor desire does it hold water. Why? Well when you have just ONE player not in the field the game is not complete. The largest airline in Europe (Ryanair) has no participation in the GDSs. Nor will it allow its participation in GFS.
When you add up the total amount of Non-participating airlines that number is rather large. Percentage wise – approx 20% of flights worldwide are not available via different GDSs. When you examine the falling share of the GDSs you also realize that the one size fits everything story doesn’t hold true.
The CPA (cost per acquisition) for Google based transactions is on par with that of a GDS based booking. So on balance the airlines could – as has been suggested – be swapping one gatekeeper for another.
There is both a genuine fear and a series of perceived fears that inhabit the corporate travel community. There is a very real fear that the disruption of the nisnamed Direct Connect will upset the nice easy and cosy world. The perception is that the cause is Direct Connect. The reality is that Direct Connect is a result not a cause. For corporate agencies – there is a very real fear that they will lose their revenue stream of GDS incentives (also a mis-named thing). These are no longer incentives but DIS-incentives to mis-serve their customers.
GFS is a very early beta product. Its fast but not necessarily good. So in reality it is not moving the dial. Scott is quite correct in stating that the GDSs will be losers. We are anxiously awaiting the web numbers to see how much share (mind and traffic) GFS has captured. I doubt many people are going to be abandoning their current behaviour for GFS – yet.
This is but a skirmish – perhaps not even a battle – in a very long war. I agree with Scott that the GDSs will be initial losers as will in my opinion the other search providers. Those who own the product must ultimately win. HOWEVER it is most important for Google to demonstrate quality and value not just speed to all consumers. So far that is not quite apparent.
If the legacy GDSs had been smart some years ago – they would have courted the airlines and kept them onside. They didn’t and now they have become in many cases sworn enemies. The bad blood will never go away. The question is not if but when.
Frankly Google is nobody’s friend – except to itself.
Cheers
The flight features look amazing, easy to use, visually appealing. This issue I see is in data aggregation away from the GDS. Many travel agencies use the GDS as the central repository for reporting – feeding multiple other products with business travel data (in addition to using the GDS for shopping, booking and ticketing). That being said – with Google Analytics and other products – maybe we’ll continue to see real solutions in the corporate travel as well as consumer space.
Flight search is going to be a PPC model for Google so all airlines and OTAs will get on it. Who knows maybe Sabre and the GDS’ will work out a way to sell direct as well. But I think despite all this there’s a point where people will fall back to human travel agents.
I personally use internet for everything but in cases of booking an expensive travel with hotel, flight, cruise etc I prefer talking to a travel agent, at least I have someone who can answer my questions.
Direct Connect is a good solution but limited to a few number of players. Google will push OTA´s to innovate and to be more efficient. Airline represents a commodity and there are other services and products different to air tickets that airlines are not capable or willing to deal with. I do not see a radical change in the distribution in the short or mid term. Agencies should be occupied in improving and thinking how to offer a wider and better service instead of worrying about fare restrictionas and Google gadgets