Deregulation is a process and a lot of progress has been made in the airline distribution segment in China, with the support of the Civil Aviation Administration of China and IATA. TravelDaily China takes a look at how a technology company of Amadeus’ stature is gearing up for China.

By Ritesh Gupta TravelDaily

Is the regulatory environment too listless for any travel intermediary to make any meaningful foray into China?

Foreign GDSs have contemplated an answer to this conundrum over the years, as the travel industry has anticipated when the Civil Aviation Administration of China (CAAC) would open up this segment of the market.

Until 2012, China was a closed market to all foreign global distribution systems (GDS). But all of this is changing with partial deregulation, with the CAAC deciding to pave way for foreign GDS to handle bookings for foreign airlines flying into and from China.

Assessing the situation, Bart Tompkins, managing director, Greater China, Amadeus said with the gradual deregulation of the market, sophisticated technology developed by foreign GDSs “will soon prove highly beneficial for the travel industry in China”.

It should be noted that TravelSky, as a specialist in air ticket distribution and accounting, settlement and clearing in China, too, is making diligent moves to strengthen its position.

Only over 20 million segments on international carriers each year are available for international GDSs to compete as Chinese carriers are still taking the majority share of outbound air travel and TravelSky holds the monopoly in that segment. “They are also taking a big share in the distribution mix in mainland China for international carriers as they have been striving to build the direct connect with international carriers over the years,” said a source.

As for the Chinese commercial airlines, the cumulative flight bookings figure last year was around 366 million, with the CAGR for the last couple of years being around 10%, according to the CAAC.  Chinese airlines carried 26.55 million passengers on international routes last year, and majority of these were processed by TravelSky.

In 2013, there were over 620 million transactions and over 265 million BSP tickets processed by the accounting, settlement and clearing system of ACCA, a subsidiary of TravelSky.

Current status

Lufthansa, KLM, Air France were among the first international airlines to obtain approval for travel agencies to book via Amadeus in China, with many other Asian and European airlines expected to follow suit.

As explained by Tompkins, this means that for the first time, these authorized airlines will be able to book and eventually ticket, via Amadeus, through a pre-selected group of travel agencies in Beijing, Shanghai and Guangzhou.

“While progress has been gradual, we are making headway. We gained CAAC approval in January 2014, allowing authorized international airlines bookings via Amadeus in China,” he said.

In July this year, the company gained billing and settlement plan (BSP) certification approval from IATA for mainland China, which means that the company is one step closer to giving authorized travel agents the ability to fulfill the entire billing and ticketing process of travel products offered by foreign BSP airlines.

Amadeus anticipates enabling authorized travel agents to fulfil the entire travel billing and ticketing process offered by foreign BSP airlines by October this year.

The BSP is designed to simplify the selling, reporting and remitting procedures of IATA accredited passenger sales agents.

But, as a senior executive says, the industry is diligently trying to work out apt reporting and remittances, and electronic ticketing, billing and collection. Printing the official invoice or itinerary accredited by the Chinese tax authority is still an ongoing process for Amadeus. In fact, Etihad Airways and Abacus have announced that they are set to print the first BSP ticket, an indication that the industry is gearing up to adopt the IATA-approved ticketing system.

Sustained effort

Tompkins pointed out that agents haven’t largely been exposed to distribution technology that Amadeus has to offer.  “This unique situation means the industry in China needs time to adapt to and understand the full capabilities of these technologies,” he said. “Our focus is to educate the market on the benefits of our technology.”

Amadeus has expanded its teams in Beijing, Shanghai and Guangzhou.

For their part, GDS companies are also looking to embrace local options that can help agents to service travellers better. For instance, Amadeus has a strategic collaboration with Alipay, Chinese online payment service provider, to integrate into the Amadeus Payment Platform (APP). This collaboration will make it easier for Amadeus’ travel providers to serve Chinese travellers by offering them the option to pay with Alipay’s online payment system.

A source mentioned that travel agents in China have to evolve at an unprecedented rate to manage the explosion in outbound travel. “It necessitates greater automation, with the latest productivity tools,” he said. “China’s travel agents each have different business models, so the solutions must work in many different commercial settings.”

Abacus, which also secured IATA BSP certification for China earlier this year, has set up six offices across China to understand and cater to regional differences. But the team also acknowledges that localization is always ongoing in a market of this scale.

Overall, GDS companies have worked hard to align with China’s travel agents’ practices and protocols with a system that complements their own universal distribution platform. Much of it is about knowledge exchange and best practice.

Many travel agents in China are attracted to the idea of connecting with their counterparts overseas on a common GDS. A growing number of their customers are also interested to explore the foreign aviation brands as part of the experience of travelling internationally.

Amadeus is trying to ensure productivity increment for agents as the company says its solution can be tailored to fit specific customer work flows and it requires no installation.

Tompkins said there is a completely localized interface in place and it is offered in Chinese language. “We also connect many travel agencies to our extensive range of content, via an API connection. This means, we adapt to and connect with their in-house systems to ensure they can benefit from Amadeus’ full range of content, while using their preferred front end tool. This could also be done with third party solutions on request,” he explained. Also, there are low fare search tools, available for both the online and offline segment and hotel content is integrated with the Amadeus Selling Platform with more payment methods needed by Chinese travel agencies. “A lot of the hotel information of aggregators’ content is in Chinese language,” said Tompkins.

Also, it would be important for Amadeus to focus their efforts on merchandising for airlines in China.

Airlines are striving to strengthen their ancillary revenue, and companies like Amadeus are supporting them in developing the right merchandising strategies. Amadeus’ “Thinking like a Retailer: Airline Merchandising” report shows airlines how to successfully deploy the right merchandising strategies, removing the possible complexities to deliver to market.

So it would be interesting to assess how GDS companies take note of existing preferences of airlines in China. As witnessed generally, airlines tend to go for both industry standard processes using ATPCO OC and EMD for fulfilment while some also use using XML- based direct connect solutions for accessing and selling ancillaries. One needs to assess how Chinese airlines’ integrate their merchandizing engines with the indirect channels, and how they make the most of NDC, an IATA-led collaborative initiative aimed at working out a messaging standard between airlines and agencies.

Competition

As for how foreign GDSs can make inroads in the initial stages, a source said they would surely help carriers in China to expand their global footprint. “As the Chinese carriers have been operating more flights to overseas destinations, their growing needs for overseas distribution should push them to develop further distribution partnership with international GDS companies,” he said.

He further added that the agencies don’t need to cooperate with foreign GDSs if they only deal with domestic ticketing business. “But those doing international business can benefit from the partnership with foreign GDSs,” he said. “Agents who have any sort of partnership with foreign GDSs can see the benefit of data consistency if they can use the same GDS in China to serve the corporate clients. Also, each GDS has its own unique partnerships with different airlines, giving it an advantage over other GDSs when it comes to inventory and the availability of lower fare,” Tompkins said.

Foreign GDSs still have a long way to go. It remains to be seen how foreign GDSs can play their part in helping agents in managing complex itineraries with fare guarantees, re-issue tickets etc. Fees too will be a battle, with TravelSky already indicating that it has an upper hand at least as of now.

Tompkins admitted that there is a lot of paperwork required to operate in China. At the same time the processes are actually reasonably straightforward and are very manageable, he said. “We appreciate the CAAC’s efforts in processing airline applications, and we plan to be able to issue tickets for mainland China by October this year,” concluded Tompkins.

Bart Tompkins, managing director, Greater China, Amadeus is scheduled to speak at the upcoming 2014 TravelDaily Conference, scheduled to take place in Shanghai (September 3-4, 2014).

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Following the proven success of its high-profile partnerships with Google’s Hotel Finder and Room Key, hotel central reservation system (CRS) vendor Trust International is looking out for similar opportunities, as it perceives the proliferation of online booking channels a boon to its hotel clients.

Trust’s managing director, Richard Wiegmann, says in an interview with Travel Daily China that it is a CRS’s duty to get in bed with as many channels as possible and extend the reach for hotel clients, even if the channels duplicate each other in functionality.

“From the technical perspective, the business model (of the online booking channels) may be the same, (but) they cover different geographical market segments. They might open new markets for our clients, and this is the key for the hotels,” he says.

The partnership with Google’s Hotel Finder that started a year ago is already paying dividends. Hotel Finder has been generating nearly 50 million page impressions a month for Trust’s portfolio of over 7,000 hotels, most of them are live on the Google platform.

Mr. Wiegmann is impressed with the Google solution’s delivery of availability and rates and its graphic interface showing geographical boundary and points of interest in the neighborhood of the targeted property.

That the Google search takes a customer to the hotel’s website instead of via an online travel agent (OTA) is a major advantage. “(This way) the hotelier owns the booking. The hotelier has the unique chance once the customer has come through the Google link to keep that as a direct customer, through direct mailing or whatever. That is a unique chance not offered by the OTAs today,” he says.

Price guarantee set to change hotel game

He also sees Tingo’s initiative of offering lowest rate guarantee a positive development for online hotel booking. Tingo has offered to rebook customers if a more favorable rate is on offer after bookings are confirmed, to assure customers that they enjoy the lowest rates even if they book early.

“Some of my hotel customers would hate me for making that statement – I like the idea because it gives customers assurance. In the back end it ruins all yield management of hotels,” says Mr Wiegmann, “(but) I think it puts more faith into online booking. People will feel a lot more secure. It will increase the lead time for booking, giving hotels planning security.”

.What remains to be seen is the impact on yield management. “If (the Tingo offer) comes true, it will change the way hoteliers look at distribution and the associated yield management,” he says.

GDS should change business model to face challenges from new channels

While multiple online channels are advancing on the hospitality front, global distribution systems (GDS) are lagging behind, he observes.

“The GDSs have missed the plane on the B2C (business to consumers) side clearly,” he says. “GDSs are on their 1990s business trip. They work with the big corporates at corporate rates. Their interfaces are a little bit 90s.”

On the B2B (business to business) end of the business, it is essentially down to three GDSs controlling the market, but they don’t factor in the B2C business.

“There are better standard than GDSs’. Why is that?” he queries. “Today the OTAs go to 100 places – to the CRS sites and the hotel sites. Why have the GDSs not concentrated on offering better products to make the OTAs go to one place and source their availability and rates? I think the GDSs have lost their unique chance there,” he says, while conceding that the GDSs’ focus is understandably on airlines.

“Certainly, the airline side is still dominating on the GDSs. Hospitality is not making as much money as airlines. But it’s a very good story to have success in hospitality and to not be just one-sided, one focus. They should concentrate a lot more on the hospitality side,” he says.

He would like to work with GDSs on a much bigger scale. At the moment, 30 per cent of the bookings on Trust’s CRS are from GDSs, and 70 per cent from other channels. “When I started, we had 85 per cent from GDSs,” he recalls.

The barrier for working with GDS is cost. “Given the cost of GDS booking, it is simply not worth anymore compared to what I can generate from other channels,” he says.

He urges GDSs to rethink their business model to stay relevant. “They have to understand why consumers go to other channels such as Google, Expedia, you name them… If they don’t change their business model very soon I think the other players in the market have a very good chance of taking them over,” he cautions.

‘They should rethink their business models and their pricing concepts. Just to increase distribution prices every year does not drive additional demand. The question is what does drive additional demand. This is the sort of question they should ask themselves,” he suggests.

“If they want to get some traction on the B2C side then they have to make a huge change in their strategy and say hoteliers are really important to us and we would like to keep up with the fantastic models and ideas that are out there.”

Positioning for a bigger play in China

He believes that the CRS’s knowledge from working with multiple distribution channels will be useful in finding a strategic direction in working together with GDSs in a more cohesive way.

Currently, Trust and Travelsky are in discussion on connecting their systems to drive additional business into China for the 212 hotels in China in Trust’s portfolio.

Acknowledging that China is the fastest growing market worldwide at the moment, Trust is in the hunt for a Chinese counterpart to work in a similar way as per its partnership with Google. “I’m not naming anyone. That will be interesting for us,” he says.

In addition, Trust is also looking to connect to China’s major OTAs to tap the market when individual travel takes off as the market matures. “When that time comes, we would like to be there to ensure that the Chinese travellers, through whatever channels they are choosing, can go to one of our properties,” he says.

He will meet with prospective hotel clients as well as existing clients, and keep tab of the China market when attending the Travel Distribution Summit on September 12-13.

“What is it that a system like ours can contribute to the market? What do the hotels need in the market? There is a new channel. Would you like to work with our customers? Those are the three key components I’m looking forward to (pursue in the summit),” he says. “The important thing for us is to be very much aware of what is going on in the market.”

Mr. Richard Wiegmann, managing director of Trust International will participate in a panel discussion on “The Emerging Asia Pacific Online Travel Market” in the 2012 China Travel Distribution Summit to be held on 12-13 September in Shanghai. For more information about China Travel Distribution Summit, please visit the event website http://summit.traveldaily.cn/18/index.aspx