14 Aug, 2015
13 August 2015, WASHINGTON, DC – AirChannelChoice.travel, a Business Travel Coalition (BTC) initiative, today transmitted a stern letter – with 10 pages of industry comments – to Lufthansa (LHG) Chairman and CEO Mr. Carsten Spohr rejecting his organization’s Distribution Cost Charge (DCC) – a 16 Euros surcharge for tickets purchased anywhere other than through LHG websites, service centers and airport ticket counters beginning on 1 September 2015.
The letter, signed by a group of 135 diverse travel buyers, consumer groups, industry associations, travel agencies and other stakeholders, with operations in some 155 countries, was shared with the LHG Supervisory Board and antitrust officials in Brussels, Bonn and Washington. (The letter and comments can be downloaded at http://btcnews.co/1DQLNMX.) More than a third of the signatories expressed an unusual willingness to speak directly with the press on this issue.
The clear message to LHG and regulators is that front-line industry participants forcefully reject LHG’s attempt to abuse its dominant market position in seeking to increase revenue, decrease comparison-shopping and diminish intra and inter distribution channel competition. AirChannelChoice.travel is urging travel professionals in each country to formally request that their antitrust authorities weigh in on their behalf with DG COMP, the Bundeskartellamt and the U.S. Department of Justice. Individual countries’ competition authorities can be found at http://btcnews.co/1EpinQT.
Signatories communicated that the surcharge would not just shift the cost of distributing LHG products to consumers and the managed-travel community, but would also create substantial new costs within the industry. As the cheerleading by LHG competitors at an IATA gathering in Miami, FL implies, airlines are poised to follow LHG. Consequently, the managed travel community may soon be forced to deal with hundreds of airlines’ one-off direct-connects undermining existing highly efficient corporate travel procurement processes by requiring new infrastructure and workaround procedures.
“Today some airlines are waging a war on new entrant airline and inter and intra distribution channel competition. For example, in an unvarnished attempt at commercial protectionism, some U.S. and EU airlines have successfully strong-armed regulators to block Norwegian Air International’s proposal to serve U.S. markets from the EU and have called for a freeze on Gulf carrier service to both the U.S. and EU,” stated BTC and AirChannelChoice founder Kevin Mitchell.
“Now that these carriers have secured their antitrust immunized global alliances, and dominant market positions, they are relentless in their pursuit to protect those positions through efforts to obscure fares and fees, undermine consumer protections and block competition. The LHG’s surcharge is just the latest egregious example of this anti-consumer behavior,” added Mitchell. (See numerous examples at http://btcnews.co/1Kv3eVs.)
HOW THE REAL THREAT TO CONSUMERS MATERIALIZES
According to BTC, the greatest danger for consumers would appear evident in the way LHG and its competitors have rolled out this scheme and responded to it. LHG conveniently announced DCC days before a worldwide IATA gathering of its horizontal competitors in Miami who very publicly and improperly heaped praise on a competitor’s commercial strategy only to be made worse by a exceptionally inappropriate IATA-sponsored audience poll where 96 out of 120 airline executives present publicly indicated that they would consider following LHG’s lead.
Now that LHG has secured the moral support of its competitors, and those competitors have seen broad enthusiasm among their peers, LHG now has the confidence to proceed with implementation without being held out to dry. LHG’s competitors will prepare to follow as global distribution system (GDS) contracts come up for renewal in 2016 by which time they will see that LHG has secured both lower costs through the transfer of GDS fees to consumers and higher yields via unsuspecting consumers eschewing the 16 Euros surcharge and paying more at LH.com due to a lack of comparison shopping.
With airline industry confidence in LHG’s implementation soaring, airlines in 2016 match the 16 Euros surcharge and begin to build the infrastructure and tools necessary for massive consumer and corporate migration to airline.com. During 2018, airlines one by one raise the surcharge from 16 to 100 Euros. Lights out, game over: online travel agencies’ economics collapse, traditional agencies’ valuations plummet with many forced to exit the market, GDSs shrink and consolidate and consumers are irreversibly and greatly harmed by all manner of higher fares and fees and onerous airline policies and practices.
“In the marketplace for airline distribution services, airlines (direct channel) and travel agencies of all stripes (indirect channel) are direct competitors. By forcing the 16 Euros surcharge on indirect channel participants, is LHG using its dominant market position in both the marketplaces for commercial air services and airline distribution services to drive up the costs of its travel agency competitors harming them and forcing many to exit the market? Antitrust enforcers need to examine this question,” said AirChannelChoice’s Mitchell.
The mission of AirChannelChoice is to elevate the public-policy discourse regarding airline industry distribution issues and to promote travel distribution system choice for travel agencies and their customers. Learn more about this issue at AirChannelChoice.travel.
Founded in 1994, the mission of Business Travel Coalition is to interpret industry and government policies and practices and provide a platform so that the managed travel community can influence issues of strategic importance to their organizations.
Contact: Kevin Mitchell 610-999-9247; Mitchell@BusinessTravelCoalition.com