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Global Distribution System in Hospitality Industry Report (Assessment)

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Introduction

Information technology was first introduced into the hospitality industry in the 1950s in multinational hotel chains. In the early 1970s, Hotel St. Jacques in Paris introduced automation of reservations, check in, guest billing and various aspects of management control (Brotherton 2003). Punched cards and linking of telephones and mini-bars to the system were used to help post charges directly to the bills of the clients. Over time, computerization was extended to restaurants and food service departments, the EPOS (electronic point of sales system), in hotels and cruise ships, etc. The integration of individual programs such as these led to the formation of the Management Information systems for the Hospitality industry (Brotherton 2003). The early systems were not user friendly and had many technical difficulties in implementation (Brotherton 2003). Despite these early difficulties, falling hardware prices, easy availability of computers and trained personnel and graphic user interfaces and the advent of the internet have led to the wide application of information systems in the hospitality industry. And the latest application that is widely used to research and book all types of tourism products across the globe is the Global distribution system (GDS) – the major electronic distribution system for the entire tourism Industry. The purpose of this essay to provide an overview of the ‘Global Distribution System’ and to argue that GDS is the best option to meet the changing needs and demands of the hotel and travel industries despite a few drawbacks.

Global Distribution System

A global distribution system can be defined as “a centralized and permanently up-to-date database that is accessible to its subscribers through computing terminals. It provides all kinds of tariffs and tourism services to subscribers on a day to day basis allowing its users to make change and cancel reservations, as well as to print tickets and avail themselves of any kind of rights related to services and products” (Pizam 2005, p. 275). The central site of each GDS contains many “large mainframes connected to thousands of terminals through some of the largest data communication networks in the civil world” (Jafari 2000, 254). GDS systems have high speed, highly reliable enterprise architecture and use open systems. They are capable of processing up to 17,000 travel-related messages per second during peak times, with response times of a fraction of a second (ITSA 2008). They generally opt for the most modern communications interface in the market including XML and EDIFACT (ITSA, 2008, 4). GDS systems have proved themselves to be fast, efficient, reliable, secure and global. Traditionally, the GDS operations as a retail wholesaler within the distribution channels addressing these sales to the travel agencies. But, in recent times, with the advent of the internet, all the major players have developed direct access to consumers through the internet. As a result of this reorientation, the GDS also plays the role of a retailer (Pizam 2005).

Background

In the 1960s, it was found that manual systems for the control of seat availability in airlines were not adequate or efficient enough. In order to have an automated system for oversee seat allotment in airplanes, American Airlines and IBM developed a joint program known as SABRE and it is considered the first CRS (Computer Reservation System). The original objectives of this system were to facilitate the storage and administration of all the information related to flights, lodging availability and schedules or prices. However things changed in 1987 when as a result of increasing demand for similar information in other related industries such as the hotel industry caused by the internationalization of their operations, CRS evolved to a new and enlarged version called the global distribution system (Pizam 2005). Thus the GDS can be perceived as the outcome of the evolution of computer reserve systems (CRS) to adapt to the global market. Though they were originally applied in the airlines sector, they are today the major electronic distribution system for the entire tourism industry.

Types of GDS

The popular GDS are Sabre, Apollo/Galileo, SystemOne/ Amadeus and Worldspan (Jafari 2000). There are some other smaller local GDS systems, mainly in Asia, but these four are by far the most popular ones and cater to the majority of the global needs in the GDS industry. Three of these -Galilieo, Sabre and Amadeus are comparable in dimension; but the fourth element, Worldspan is a bit different. Apart from thee four systems there are several smaller or regional GDSs, including SITA’s Sahara, Infini (Japan), Axess (Japan), Tapas (Korea), Fantasia (South Pacific), and Abacus (Asia/Pacific) that serve interests or specific regions or countries (Das 2002). Amadeus was founded in 1987 by Air France, Iberia, Lufthansa, and SAS and it is the youngest of the four GDS companies (Das 2002). However, Amadeus has the greatest number of travel agency locations with the highest productivity per terminal in the world. It serves serving the marketing, sales, and distribution needs of the world’s travel and tourism industries and it possesses the most comprehensive data network and database serving more than 57,000 travel agency locations and more than 10,500 airline sales offices in some 200 markets worldwide (Das 2002, p. 1). The system can also provide access to a large number of hotels, ferry, rail, cruise, insurance, tour operators and car rentals spread over 24,000 locations. Galileo International was founded in 1993 by 11 major North American and European airlines: Aer Lingus, Air Canada, Alitalia, Austrian Airlines, British Airways, KLM Royal Dutch Airlines, Olympic Airlines, Swissair, TAP Air Portugal, United Airlines, and US Airways (Das 2002, p. 1). Galileo has updated itself to changing times by establishing links with companies such as Go, UK’s best low-cost airline, Highwire, Inc., that provides Internet-based tools and services to the corporate travel market; and Shepherd Systems, an industry leader in the provision of sales and marketing intelligence systems and services within the travel industry (Das 2002, p. 1). Sabre has been in the business for over four decades and its technology has evolved through time. With its headquarters in Southlake, Texas, Sabre connects more than 60,000 travel agency locations around the world, providing various travel related services over an extensive region from a vast database (Das 2002, p. 1). Sabre-connected travel agencies are provided by the GDS Sabre with specialized tools such as Sabre web- based technologies and low-fare finding solutions for marketing purposes, in order to increase efficiency of operations and to improve customer service. ‘Sabre Virtually There’ is a website of Sabre that offers customized service to its travelers regarding their itineraries and destinations. Sabre is known for its adaptability to changes in the information economy and developing innovative practices for maximum efficiency. Worldspan was founded in February 7, 1990 by affiliates of Delta Air Lines, Inc., Northwest Airlines, and Trans World Airlines, Inc. It is currently owned by “affiliates of Delta Air Lines, Inc. (40%), Northwest Airlines (34%), and American Airlines, Inc. (26%)” (Das 2002, p. 1). Since its 1995 advance into the world of Internet technology for the travel industry, Worldspan has successfully expanded its capabilities across the globe in the realm of the travel industry through a series of partnerships and equity agreements with leading travel technology companies. As a result, the company is able to provide latest technologies and information technology solutions to its customers allowing them to participate in a spectrum of e-business opportunities. Worldspan has links with companies such as Datalex, a leading provider of e-business infrastructure and solutions for the global travel industry; Digital Travel, a global online tour provider; Kinetics, Inc., developer of technology and solutions for the airline industry; OpenTable.com, an Internet-enabled restaurant management tools system; and Viator, a major provider of Internet-based content, technology, and distribution services. Additionally, in 2001, Worldspan is the Internet Booking Engine for the internet site Orbitz LLC and in 2002, the launch of Worldspan ePricingSM made Worldspan the first GDS to introduce a revolutionary new multi-server-based technology, offering an unprecedented selection of pricing options to all of Worldspan’s customers. Thus we find that all the four main GDSs are doing well and are able to adapt to changing times marked by globalization, advent of internet and digitalization of information.

Application of GDS in the travel industry

GDS have a well proven history of meeting the changing needs and demands of travel agents and travelers around the world and they also lead to innovations in the global travel industry. For example, GDSs are behind most of the modern applications of information technology in the travel industry such as e-ticketing; travel e-commerce; graphic seat selection; and the ability for agents and travelers to view on one screen, public, private/negotiated, consolidator and Web fares. What is interesting to note is that GDS airline companies not only offer simple bookings but are capable of booking one way and roundtrip airline seats, hotel rooms, rental cars, tours and packages, cruises, insurance, restaurant reservations, itinerary changes, complex international routings, theater tickets and dinner reservations and much more all in a single itinerary, through a single GDS system. To provide these facilities, GDS systems have multi-year contracts with hundreds of airlines to manage their complex and ever-changing reservation needs and travel agents are linked to the travel offerings through having multi-year contracts with GDS systems. These contracts also have provision for multi-year guaranteed levels of compensation for agents, and assured agencies have certainty about their cost of automation. While most of the airlines use GDS systems, some airlines such as Jet Blue Airlines still manage reservations on their own proprietary systems. The importance of GDS for airline distribution is best seen in the fact that in the year 2003, the four largest GDSs together handled 1.1 billion airline bookings (Doganis, 2006, 214).

Application of GDS in the Hotel Industry

Global distribution systems are described as ‘global travel supermarkets’ and they provide travel agents with the options of rapid search, booking and confirmation facilities for airline, hotel and car hire products. In the context of hospitality, GDS depend to a large extent on the capabilities of the domestic computer reservation systems (CRS) within the hotels which can provide full details of properties, locations, room types, availability, prices and booking conditions (Bowie and Buttle, 185). The link between the hotel and the GDS is made possible via ‘switches’ such as THISCO – a unified interface linking about twenty major hotel chain CRSs in the United Sates to airline GDSs (Sparks et al. 2001). Some have argued that it has not yet been proved that the effectiveness of global distribution systems for hotel products has not been proven (O’Connor and Frew, 2000, 325). But that limitation has been removed and according to a study sponsored by TravelCLICK, Inc., the leading provider of eMarketing solutions for the hotel industry, travel agents are becoming increasingly dependent on Global Distribution Systems (GDS) promotions for hotel bookings (Chipkin 2005). The study was passed on a survey including 500 travel agents from 30 countries representing the four major GDS systems — Amadeus, Galileo, Sabre, and Worldspan (Chipkin 2005, p. 1). The report generated by the study holds that 41% of travel agents worldwide are using their GDS platform more often than in the past, while 30 percent are using the GDS shopping displays more often. Survey results also revealed that most travel agents worldwide believe GDS systems should offer rate parity: 89 percent of US travel agents and 76 percent of international travel agents said it was very important to see the same rates available on all platforms (Chipkin 2005, p. 2). GDS is very useful to the travel agencies and gives them access to all the necessary information that is needed for them to carry out their tasks and increases their productivity. The wholesale factor in the distribution channel is also an advantage for hotels, airlines, car rentals, etc;

While hotels are not the main users of the GDS distribution executives are monitoring the situation and trying to compete with online sites that offer hotel booking services. John Burns, president of Hospitality Technology Consulting says that hotels were never brought under regulation like the airlines but they were treated as if they were regulated because they represented a small percentage of total transactions and it was easier for the GDSs to simply deal with them that way (Chipkin 2005, p. 2). Burns pointed out that this meant GDSs presented a neutral environment for hotels and travel agents were able to see a random listing of properties based on preference criteria set by the client. This works out to the advantage of the client and makes GDSs in the hotel industry a really valuable tool.

SWOT Analysis of GDS

Strengths of GDS

It is possible to argue that computer reservations systems are better than global distribution systems cost wise. But then, global distribution systems by virtue of their small number compared to individual computer reservation systems have several advantages: economies of scale generated in marketing the service to agents; research and development costs and maintenance costs are shared and made more effective; wider range of travel and tourism products throughout the world are facilitated. Moreover, GDS today are in a position of great strength having evolved to publicly owned companies that provide e services to both marketing intermediaries (such as retail travel agents, tour wholesalers, general sales agents and MICE organizations) and travel principals (such as airlines, hotels, tour operators and hire car companies). With the integration of internet services, they now also have the B2C model of e-business offering their services directly to consumers through online travel agencies such as Travelocity (owned by Sabre) and OneTravel.com (Amadeus). Modern GDSs focus on the following areas of strength: they provide a menu driven price service structure in which the services are provided on an individual basis helping airlines to select and pay for the services needed; they have new value adding information such as profiles of the passenger making the reservation, filings of competitive fares, closure of certain fare classes, identification of situations where ticket time limits are not being enforced and the status of flight tickets; they have moved towards emerging models of suppliers in an attempt to add and drive value in the travel chain; GDSs have reduced overall costs through increase in the use of e-tickets that help in saving the cost of ticket distribution, accounting and billing and finally, they provide a value adding fee structure based on the GDS reach and reservation yield (Taneja, 2005, 153).

Weaknesses

GDS, in their traditional role have been expensive as they included the role of intermediaries such as travel agencies. With the advent of the internet however, this weakness has been overcome and GDS are able to be in touch with the client directly. But then, the internet has allowed smaller hotels to enter the competition. Moreover, when they list different tourism products, it has been found that GDS can create a ‘halo effect’ that can possibly camouflage the reality behind the effectiveness of these products. The importance of GDS in airline distribution declined in 2004 for two reasons. First some airlines began to view GDS as an expensive option and decided to bypass them and even sold their shares. Since GDS was a non-core activity and since by the late 1990s all the GDSs carried the same unbiased travel information, ownership of a GDS no longer provided the airlines with any competitive edge. Moreover, airlines felt that profits could be boosted or losses could be reduced by selling shares (Doganis, 2006, 216). In 1998-99 British Airways and KLM began this process of disinvestment when they sold their stakes in Galileo. They were soon followed by other airline owners. In fact the rest of Galileo was sold off by the end of 2000 and became part of a larger company, Cendant. These are inherent weaknesses in the GDSs. These are small weaknesses of the system. When one compares the strengths of GDS with the weaknesses, it is easy to deduce that the weaknesses are very minor and can be easily overcome.

Opportunities

The de-regulation of the Global Distribution System industry, the globalization of tourism and the internet have provided a nurturing environment for Global distribution systems. These forces of globalization and the internet have lead to a situation in which the consumer is the king. This situation is exemplified by the GDS. The consumer can compose his products, and buy directly from his PC at home. Besides the traditional value chain of purchase, production, marketing and sales, a virtual value chain has been created by the “collecting, organizing, selecting and distribution” of information (Wahab et al. 2001, p. 149). Another aspect of GDS that can be considered as its opportunity lies in its ability to break the monopoly of travel agents over access to the reservation systems of all important players in the market). At the end of 2003, the US Department of Transportation has lifted all regulations relating to GDSs. The two critical constrains were that GDSs refrain from biasing flight listings in favor of some airlines to the disadvantage of others and that an airline must provide all of its fares to GDSs. The main transformation is that GDSs can now charge airlines for better placement in the page where fares are displayed to travel agents and that airlines have greater flexibility in the fares that they choose to distribute through a given GDS. An airline flying a new route can pay a certain GDS to be listed first for flight searches in that new city. This benefits both the GDS who can earn income from this arrangement and the airline who receives direct value from the global reach of GDSs. Thus deregulation of the GDS industry has been a great opportunity that is leading to the development of new business models (Taneja 2005). With deregulation, the GDSs have developed an interest in creating new revenue streams. One is to charge for preferred-screen positioning, Burns said. That already has happened with a product called Hotel Spotlight from Sabre where hotels can pay for preferred positioning. Burns said. “There will also be an opportunity for advertising.” Deregulation of the GDSs also allow their owners to develop and implement market based practices relating to pricing strategies, content access, contract terms and conditions and products and services based on different technologies. Examples include engines that search for lower fares on alternate dates and alternate airports, corporate focused booking tools. These are all opportunities for the growth of GDS.

Threats of GDS

Buhali and Licata (2002) feel that the future of GDS is likely to face threat from “principal’s internet presence – example, www.BritishAirways.com – new e-mediaries who deal directly with the consumer via the Web – online travel agents such as Expedia (once owned by Microsoft) and Opodo (owned by a consortium of European airlines) and travel portals who are likely to bypass GDSs” (Pizam, 2005, 277). Competition come from new online travel agents such as Microsoft, Internet Travel Network, CNN Interactive Travel and big companies such as air carriers (American Airlines) and hotel chains (Mariott International), which see an opportunity in direct selling. “In late 1995, British Midland was the first airline in Europe to introduce a reservation booking system with online payment via credit card on the www called Cyberseat” (Wahab et al. 2001, p. 149). The new players were successful because of their competence in their core business (Microsoft had knowledge of new media and information technology and CNN had brand name). Hotels too began to reach out to the consumer directly using the internet. Through the websites, consumers can get information and make reservations online anywhere anytime. In fact many hotel chains today are doing voluminous business through their online sites. The possibility of including colored photographs and videos in the global transmission enhances the scope of marketing through the internet. Though the internet is currently used to market simple products as tickets and reservations, it is possible for marketing more complex products. This is a serious threat to the GDSs as it completely cuts out the role of the travel agents – especially business travel agents. This has made traditional suppliers such a KLM Lufthansa and British Airways to explore other opportunities for cost reduction and cost control (Wahab et al. 2001,150). French (1998) has said that the new systems have the ability to cut out not only the travel agents but also the GDSs themselves, by selling airline inventory direct to consumers via an extremely cheap global network linked to home or office based PCs. Therefore the competition that existed in the context of airline distribution has shifted its focus from GDSs in the 1990s to online direct-to-consumer distribution systems. Small firms are getting new opportunities to be part of the global network without being part of the GDSs. A few years ago in the town of Bruges, 12% of the hotels were affiliated to the Galileo system (Wahab et al. 2001, p. 151). This allowed them to compete with larger hotel chains. Travelocity now allows even small family hotels with no computer-link to connect globally via fax service. Many local English bed and breakfast hotels have become global in this way and increase the competitive environment for GDSs. Increasing competition in this area, there are about ninety plus regional reservation systems which emulate the original GDSs. These regional systems cater to the small and medium size companies in the tourism sector. These new developments in the organization of the tourism industry are a threat to the GDSs and in order to maintain competitive advantage GDSs must develop new strategies. Abraham Pizam (2005:276) suggests that to be successful, GDS must “continue to evolve their technological experience; reduce utilization costs; simplify the utilization processes; enlarge the products and services range; establish strategic alliances with the new competitors; and develop a more effective relational marketing policy with travel agencies, etc.” (Pizam 2005, p. 276).

Future Scope of GDS

In principle both airlines and travel agents benefit from the availability of a GDS. Airlines gain through wide distribution and travel agents gain through greater productivity. But Airlines now feel that they pay, through their booking fees a disproportionately high level of total costs while the travel agency industry pays far too little. In fact 90% of GDS income is derived from airlines by way of booking fees (Doganis 2006). In many countries there is an intense market share battle with agents being offered bigger and bigger incentives to switch from one firm’s system to another. In responding to the challenge of domination by the travel agents, airlines began to make use of the internet and offering the options of buying tickets online. To meet this competition, travel agents are now forced to offer a diverse variety of services and they are aided by the GDS in acquiring tools in the form of computer systems to aid effective travel management. This is one area that the GDS needs to look into in the future. They must empower the travel agents with more tools to maintain competitive advantage. Next, to meet the challenge of the internet, the GDSs, often in partnership with their airline owners are aligning themselves with the internet and offering internet products rather than ceding these products to non-airline entrants (Wahab et al, 150). Due to changes in the structure of airline distribution, new business models of GDSs have emerged: Sabre has created its own online portal (Travelocity); Sabre offers Direct Connect Availability Three Year Option (DCA3) – discounts of 10-15% in GDS booking fees by segment for three years in exchange for the availability of all fares. Amadeus, by buying a stake in the European online travel website Opodo has introduced a value pricing initiation where there would be higher fees for higher value reservations and values – price would depend on where the reservation is made and how the ticket is sold rather than a flat fee transaction. Cendant, the owner of Galileo has acquired Orbitz, the travel site owned and developed by US major airlines, the UK wholesaler Gullivers Travel (an owner of an online travel agency) and the European travel website ebookers. Earlier, the main weakness of GDSs used to be the expenses associated with it – their fee structure which involves charging airlines for distribution and paying an incentive to travel agents for making a booking. New models of GDS offer lower cost than traditional GDSs because they do not pay travel agents an incentive. While hotels represent a small percentage of all GDS transactions, they still account for 50 million bookings annually according to the Hotel Electronic Distribution Network Assn. (Chipkin 2005) GDS need to focus more on the blooming hotel industry. Though one fifth of its bookings are made through GDS, Marriott is looking for new GDS entrants according to its management (Chipkin 2005). Two prominent new entrants in development are G2 SwitchWorks in Chicago, and ITA Software, based in Cambridge, Mass. Both are advanced technologically and can reduce costs for travel suppliers who sell through travel agents (Chipkin 2005, p. 1). Jim Young, V.P., global distribution for InterContinental Hotels Group, said the company will encourage new entrants only if they can develop functionality to sell hotel rooms (Chipkin 2005). Marriott and IHG both see themselves as carrying the kind of clout that will influence the future of GDS distribution. One of the key issues to be tackled by GDSs in defining their future role is whether they should continue to be directly involved with subsidiaries that are themselves online travel agencies competing directly with the same customers as the GDS. There is a conflict of interest. This has made several GDSs to opt for wholly owned subsidiaries. In 2002 Sabre bought back the 30% holding it did not control in Travelocity.

Technological and structural changes are revolutionizing the travel industry and to maintain competitive advantage GDSs need to be adaptable. Amadeus and Galileo and other GDSs appear to be adapting well to the shift of business to the Internet. Having acquired e-Travel, Inc. from Oracle Corporation in July of 2001, Amadeus now has a new business unit dedicated to delivering solutions to e-commerce players worldwide. The e-Travel solutions enables travelers to book air, car, hotel, and rail services, through the internet, within corporate guidelines. Galileo is pursuing the futuristic strategy of expanding its global distribution, strengthening customer loyalty, leveraging technology, and capitalizing on opportunities created by increasing Internet use. In general, GDS are still the best option for consumers to travel and make travel arrangements around the world. However, due to the many challenges faced by the industry, the secret to success of the GDS industry in the future lies in its adaptability to provide electronic distribution and many components of e-commerce to other industries, and utilizing its strengths to provide expanding services to its growing customer base.

References

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  3. Chipkin, H 2005, Hoteliers eye GDS changes to save costs, Hotel & Motel Management, 2005
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  10. Taneja, KN 2005, Fasten Your Seatbelt: The Passenger is Flying the Plane, Ashgate Publishing, Ltd., 2005
  11. Wahab, S; Cooper, PC and Cooper, C 2001, Tourism in the Age of Globalisation, Routledge Publishers, 2001
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