Conflicts in the Aviation Ecosystem

Amadeus has built a complex ecosystem around it: a mesh of 500 airlines, 100 rail operators, 32 insurance companies, 770,000 hotels, and hundreds of thousands of traditional travel agents, as well as online travel agencies, serving all of the world’s air travelers. Amadeus rests at the heart of it, intermediating millions of transactions per day.

The role of intermediaries is often misrepresented, when not despised or secretly envied, and Amadeus is no exception. Describing the conflicts in the ecosystem that Amadeus triggered provides an illuminating perspective of the kind of conflicts that intermediaries, and digital intermediaries in particular, raise in most markets.

An early conflict existed, as Sabre complained that the European airlines controlling Amadeus would not provide fare data that was accurate and up-to-date, at least not to the same degree as the data they provided to Amadeus. Because data were so critical for a computer reservation system to compete effectively, the refusal to provide such data would exclude Sabre from the European market. Such a complaint even triggered the first formal referral of the Department of Justice of the US to the Competition Directorate of the European Commission in 1997?

The vertical integration of European airlines as owners of the leading global distribution system was also a source of conflict with other airlines. Exclusion was feared by smaller airlines entering the liberalized aviation market. If they were not allowed to make their services available in Amadeus, they would not be able to effectively enter the market? Furthermore, they feared that once in Amadeus, they could be discriminated in the display of search results. Amadeus could rank the services provided by the parent airlines first and leave for a second or third screen the services provided by competitors. Airlines called for search neutrality.

These concerns triggered a dual response. On one hand, regulation was adopted to ensure fairness and neutrality in the intermediation services of the global distribution systems, both in Europe and in the US. We believe this represents the first example of platform regulation in the transport industry, and we will develop it further in the next section. On the other hand, first Sabre and later Amadeus decided to vertically unbundle: airlines sold their shares and they no longer own either Amadeus or Sabre.

Despite regulation and unbundling, conflicts persist. Not all airlines have the same interest in participating in Amadeus. Airlines provide the possibility to directly book services with them, both for passengers and to travel agents. However, only the largest airlines can count on their direct distribution systems to sell a significant portion of their seats.

They have a large market share, a strong position in their home markets, and customers know they can receive good service directly from them. Large airlines are increasingly confident that they can by-pass Amadeus. Smaller airlines, however, rely on intermediaries for a larger part of their sales and perceive that a weaker indirect distribution channel would threaten their position in the market.

In 2015, German airline Lufthansa introduced a €16 distribution surcharge on tickets sold through Amadeus and other global distribution systems. Travel agents could contract Lufthansa directly, bypassing Amadeus. This seems to be a strategy to reduce the dependency on Amadeus or, in other words, not to be “platformed” by Amadeus. Ryanair, the largest European low-cost airline, went further and terminated its contract with Amadeus in 2017.

In response, in 2018 the trade association uniting global distribution systems and online travel agents filed an antitrust complaint against Lufthansa’s surcharge, claiming that Lufthansa was abusing its dominant position in the German and Austrian aviation markets to distort the downstream distribution market. In 2019, the European Travel Agents &c Tour Operators Association (ECTAA) filed another antirust complaint before the European Commission for discriminatory practices against IATA, the international organization of airlines, for similar practices.

In parallel, also in 2018, Lufthansa filed an antitrust complaint against Amadeus and Sabre before the European Commission. Lufthansa claimed that Amadeus’ and Sabre’s agreements with airlines and travel agents restrict the ability to use alternative suppliers of ticket distribution services. This may make it harder for suppliers of new ticket distribution services to enter the market, as well as increase distribution costs for airlines, which are ultimately passed on to the ticket prices paid by consumers.

To complicate things further, other conflicts exist between online travel agents (OTAs) and Google. Our Belarus engineer can directly connect to an online agent’s site to search for a quote, but he might just use Google to search for a Minsk-San Francisco flight. The UK antitrust authority has identified that at least 40 percent of traffic to online travel agencies derives from Google (and it is common to have as much as 60 percent).4 Google’s search algorithms traditionally provided online agencies’ propositions among the first organic (non-paid) ranked results. In parallel, online agencies pay Google to display their proposals as advertisements. Online agents are among Google’s best customers: Expedia spent more than $5 billion on Google advertising in 2019, before COVID-19 hit. Online travel agencies often spend one-third of their revenue on digital advertisement.

In 2019 Google launched Google Travel, its own specialized service to search, compare, and book flights, accommodation, and other travel services. Online agencies complained that the search algorithms were modified to show ads first (as before), then Google Travel results, in a visually rich box reserved for Google Travel, and only later the organic results showing the OTAs proposition. In 2020, Expedia’s CEO accused Google of trying to disintermediate them.

A formal antitrust complaint before the European Commission was filed in 2020, accusing Google of self-preferencing in travel search results. Recall that Google was fined €2.4 billion in 2017 for self-preferencing its price comparison service (Google Shopping) when delivering search results. To no one’s surprise, online travel agents, fully familiar with the neutrality regulation imposed on searches in Amadeus, have also asked to expand the search neutrality regulation imposed on Amadeus to general searches in Google.

The European Commission had still not decided this mesh of complaints and countercomplaints two years after they were filed.

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