Garner

The path to restoring revenue performance in #corporatetravel can be long, expensive, and uncertain. What did American Airlines' earnings call tell us about how far they have come? What lies ahead? American spoke in detail about the *inputs* into the recovery of corporate revenue performance -- i.e., executive attention, restructured corporate discounts, new incentive agreements with TMCs and other agencies -- and suggested much of the *outputs* may still lie ahead in 2025. In our view, the numbers they shared did not show material improvement post-pivot (or material degradation pre-pivot, for that matter), so we continue to wait for substantiation that their previous strategy cost the company $1.5 billion in *net* annualized revenue. More on that attached. The behind the scenes color provided by Steve Johnson, American's EVP, Vice Chair, and Chief Strategy Officer, provided some insights into where they stand in patching up corporate and TMC relationships. Contractual relationships with large corporates were less affected by the prior strategy than we initially assumed. Johnson shared that only 24 percent of accounts had been moved to a "one-size-fits-all" discount model, and those have now been replaced. We question how much large corporate revenue was missed in the first place, given the partial rollout and impaired fungibility of the customer set's travel footprint and airline choices. The greater impact among large corporates may have been the return of content to the majority of EDIFACT-only displays which still exist. There thus may be less to do and to gain in large corporate relationships going forward. There may be more to gain from the repaired TMC relationships, the negotiations of which are far from a playground for the sweet and innocent. For the uninitiated, these commercial relationships are typically a mix of upfront and backend compensation. TMCs like upfront compensation which allows them to collect a percentage of every ticket sold -- either in the form of cash in their pockets or the ability to mark up a private fare -- especially when it involves a ticket they would have sold on the airline anyway due to its network, pricing, or customer preference. TMCs accept, but do not prefer, backend compensation based upon revenue share performance, with revenue from uncontracted SMB clients being the largest lever to pull. When they accept backend compensation, they try to push the revenue share performance hurdles down as far as possible. If they can push them down to a level below an airline's fair share, it becomes possible for them to earn backends from many airlines/alliances, not just one or two. TMC relationships produce the highest upside when airlines are not strongarming or apologizing. Strongarming airlines meet resistance. Apologizing airlines often end up paying a lot for underperformance. American went from strongarming to apologizing in short order, so we will see what results follow in 2025.

In life, there are no free lunches. You either pay with your cash or your time. In the case of those who are interested in our take on today's American Airlines' earnings announcement and their progress of regaining lost corporate revenue share, you will have to pay with your time! We should have something to share next week. Let's just say the earnings call today was very revealing. 👀

The United States DOJ has sued to block American Express Global Business Travel's acquisition of CWT (https://lnkd.in/gs9X34Rn). This case matters, but not for the reason you think. We do not think the outcome of this case will have a material effect on the state of competition in the #TMC market. Either will result in a bigger GBT and a weaker or non-existent CWT, with the difference being the cause. Despite CWT being EBITDA positive in 2019, free of onerous debt post-bankruptcy in 2021, and on a path to positive "adjusted" EBITDA in 2024, customers question CWT's ability to remain a going concern in its current form over the long term, a notion which is supported by anecdotes in the DOJ complaint. The case matters for an entirely different reason: it discloses how the parties think and act internally on other matters of general market interest. We've reviewed the complaint in detail, and have a few of our favorites to share with you: 1. GBT sees Spotnana as a competitive threat. They have been asked by a customer on at least one occasion to partner with Spotnana, but GBT resisted. Internal GBT emails suggest that any such partnership would need to include a commitment by Spotnana not to market directly to GBT customers or bid against GBT together with any other TMC. 2. CWT may see Spotnana as a customer retention tool. The anecdotes used by DOJ to tout the CWT/Spotnana partnership exclusively involve existing CWT customers. Also, in recent months, it seems that further innovation with Spotnana - e.g., incorporating a potential integration with Blockskye -- has cooled in light of the planned acquisition. 3. GBT is focused on growing volume on its own "platform" and "tech stack." The complaint alleges GBT will compel a "forced march" of customers from CWT's (and presumably other third parties') technology to their own. 4. The documents cited by DOJ makes it appear that GBT is buying time to make further progress on #NDC. In June 2023 (i.e., just after the onset of American Airlines' aggressive content differentiation initiative), executives concluded GBT should "do enough to appear progressive... but also use these pilots to highlight the gaps and block further activity until we have a scalable model." 5. GBT estimates suppliers will pay $100 million more in commissions and fees based upon their prior experience with the Hogg Robinson acquisition. This is also consistent with GBT's experience with the Egencia acquisition, which GBT estimated would net them $50-80 million more from supplier "revenue harmonization" -- including $15 million more each from American, United Airlines, and Delta Air Lines. 6. CWT had other potential suitors. A "major travel tech company" made an offer in fall 2023 but that offer was rejected because the GBT offer had an ROI of 212% according to one owner. Another company was in active conversations with CWT, but CWT determined that it was unwilling to wait for diligence to be completed.

The United States Department of Justice has sued to block the acquisition of CWT by American Express Global Business Travel. We are going to spend some time reading the complaint this weekend. There are always some interesting tidbits in the parties' internal documents! The press release: https://lnkd.in/ghwtvNQD The complaint: https://lnkd.in/gs9X34Rn

Still at less than 2 percent of global #GDS bookings, we expect GDS #NDC booking growth to begin losing steam in 2025. But wait, weren't we just getting started? ------ The information in this post is sourced from the 3Q24 update of our Garner Flow data product which will be to our Garner Research clients on December 18. Register for the free or premium versions here: https://lnkd.in/gUWDiWi3 ------ For the past two years, the GDSs have been growing NDC booking volumes rapidly off a very small base. According to our estimates, they grew NDC bookings by ~5x in 2023 followed by another ~2x in 2024. If things are going so well, why can't the rate of growth continue? First, much of the achievable growth among early adopting airlines has already been achieved. In 2025, these airlines will have been processing NDC bookings in the GDSs for two years or more, depending upon the case. Their integrations with the GDSs will be close to mature from a capability perspective, and their content differentiation strategies will be fully digested by the market. In the notable case of American Airlines, significant elements of its strategy have been reversed. Continued exponential growth from the early adopters will therefore not be possible next year. Second, whereas the early adopters tended to be very large airlines, the second and third waves of adopting airlines have been mid-sized or smaller. The airlines which implemented in 2Q23 or before comprise 12% of all GDS bookings but the second and third waves comprise 5% and 4%, respectively. Though any new airline implemented will grow its NDC bookings quickly at first, the rate of growth will be applied to an ever-smaller pool of bookings. It is difficult to imagine the GDSs reaching 10% of all bookings processed via NDC anytime in the next few years. Of the 98% of bookings processed via EDIFACT, many belong to airlines which are unlikely to pursue NDC anytime soon for strategic, technological, or economic reasons. The most accessible pool of EDIFACT bookings for conversion to NDC are from the airlines already implemented, but the GDSs' commercial approach to the NDC rollout is a limiting factor. For so long as the choice to use NDC or EDIFACT is made by each travel agency -- first to participate in the GDS's NDC program at all and then, if they do, one booking at a time -- the ceiling for NDC booking volume will be commercially limited. It is left to the airline to provide the commercial incentive to shift, sometimes at its competitive peril. In today's environment, competitive peril is out of fashion. We therefore believe GDS NDC volume will likely remain relatively stagnant post-2025 until one or more large airlines greatly accelerate their EDIFACT vs. NDC content differentiation, or sunset support of EDIFACT altogether.

Serko Ltd. will acquire Sabre Corporation's GetThere #onlinebookingtool for $12M (https://lnkd.in/g2wUaQqN), 98% less than the $757M Sabre paid 24 years ago. Was it a bad investment by Sabre? History says no. Think of it instead as a $31M/year insurance premium as part of a broader plan to protect Sabre's core business. The viability of the #GDS commercial model relies upon its status as the primary content aggregator in the #corporatetravel market. $31M/year is small compared to the stakes. In the late-1990s, GetThere was a startup with cutting edge content aggregation technology (https://lnkd.in/g83btwjG). Meanwhile, #airlines were disintermediating Expedia Group *and* the GDSs in the online leisure space by setting up new alternatives like ORBITZ to facilitate direct connects outside the GDS using lower web-only fares as content differentiation. GetThere was quietly pursuing the Orbitz playbook in the corporate market, sans airline investment but with the same content edge. "Intrigued" by their direct connect business model (https://lnkd.in/gbWc84Aa), Sabre acquired GetThere in August 2000. Perhaps seeing it as diversification of its content aggregation portfolio, Sabre marketed the direct connect edge and built GetThere into the market-leading booking tool (https://lnkd.in/gyEJ-iWa). In 2002-2003, Sabre signed "DCA3" deals with airlines which brought web-only fares back into the GDS (https://lnkd.in/gPm4CiNg) and dealt a blow to airline direct connect strategies. GetThere began its assimilation into Sabre's broader strategy to maintain its dominant position. According to a 2011 antitrust case brought by American Airlines (registration required: https://lnkd.in/gjs7JEKs), the strategy was called "Project 99" internally. American alleged its goal was to "neutralize" the "one disruptive force in the industry" -- American's direct connect -- and any airline followers. American said the strategy involved a web of contractual restraints on airlines (i.e., full content deals which, in the case of American, included a "blow up clause" which Sabre used to bias against American), competing booking tools (https://lnkd.in/g-Q8SKq4), and agencies (via incentives and penalties). Complain all you want, but Sabre has retained its gatekeeper role in corporate travel these past 24 years. GetThere was an inextricable part of making that happen, and through that lens we believe the ROI goes well beyond the loss incurred on the asset itself.

We’re hosting a “family meeting” in #corporatetravel #distribution! No more sponsored product roadmaps or staged collaborations. Join us for open discussions, spontaneous debates, and candid conversations—no PowerPoints allowed. Got a corporate travel distribution issue to discuss? Let us know! Cory Garner have a 30-minute slot, and we’ll announce more conversations as the event approaches. The last hour will be an “open mic” session—expect memorable moments. This format could be a hit or a miss, but it’s going to be a blast for buyers, #TMCs, #GDSs, #traveltech companies, #airlines, and other interested parties (except media!). Let’s have some real talk!

We thought we were going to post mainly about American Airlines' corporate revenue performance relative to its competitors today but, unfortunately, we also need to talk a bit about accountability. First, the numbers. American's 2024 quarterly earnings reports have featured one quarter entirely under the "old" sales and distribution strategy (1Q24), one hybrid quarter in which the strategy was largely reversed (2Q24), and, now, one quarter entirely under the "reversed" sales and distribution strategy (3Q24). American has said that its "old" strategy cost it $750M of passenger revenue in the first six months 2024. This equates to ~3% of passenger revenue -- certainly something that should be a noticeable number should it return. From a cost perspective, it is clear that American has begun reinvesting a significant amount of distribution costs. We estimate they were up ~20% on a unit basis in 3Q24, likely as a result of channel shift from direct to indirect channels as well as commission rate increases among the "half" of travel agency contracts which have been renegotiated (according to their earnings call commentary). Unfortunately, it is not clear where they currently stand on corporate revenue. Their corporate revenue growth deteriorated relative to ASM and total passenger revenue growth in 2Q24, the last quarter in which they mentioned YOY change in corporate revenue. Because of the concoction of corporate and channel metrics they reported in 3Q24, it's hard to pinpoint exact performance. Inexplicably, this quarter they shifted to reporting change in "indirect channel" revenue while also mentioning the change in "managed corporate" revenue. The problem is that neither of these are "corporate revenue." Corporate revenue encompasses both managed and unmanaged corporate revenue, with much of the latter coming through direct channels. "Indirect channel" encompasses managed corporate plus a lot of non-corporate (especially OTA revenue) and "managed" corporate is 1/3 to 1/2 of all corporate volume according to AA's own estimates. As they say, "What gets measured gets done." If American's "old" sales and distribution strategy and its effect on corporate revenue were the main culprit for American's revenue underperformance, then to us it follows that American ought to use the most representative metric possible to track their progress. Moreover, they ought to report it publicly for the sake of transparency and accountability to their shareholders. Instead of clarity, we have been handed an unsolved Rubik's Cube.

United Airlines has renewed its distribution agreement with Amadeus. What does it mean? Not much, for now. There does not appear to be any material difference in content commitments or #NDC rollout plans. This renewal comes in the wake of United's renewals with Travelport last year (https://lnkd.in/d2-EgAnF) and Sabre Corporation in 2022 (https://lnkd.in/gg8k3_y6). Buckle in for what may be a sleepy year or so in the United States. American Airlines has the most content flexibility in the industry but is not in the mood to use it under the current regime. Delta Air Lines is unlikely to make any waves despite its incremental steps in the direction of NDC. More on the United / Amadeus deal here: https://lnkd.in/gJiFKNY2

With today's addition of Timmo Rol, the Garner Network adds deep expertise in #airline and #corporatetravel technology. ***VERY FEW*** people in the industry have managed retailing transformations at 2 airlines and a major #TMC, giving him 360-degree perspective rooted in practical solutions. With Timmo's help, the Garner team is expanding its airline distribution and retailing offering from research, strategy, and negotiations to also include the practical elements of modern retailing transformation. Reach out to Timmo to find out more about how he can help with organization and architecture design, technology selection, and implementation assistance. Garner's corporate travel clients should also be on the lookout for Timmo on future calls! He has many insights on how best to navigate the ever-evolving landscape of airline distribution and its ripple effects on corporate travel technology. Here is Timmo in his own words! ================= G'day Airline & Corporate Travel Industry Colleagues, With over two decades of experience in airline technology and #distribution strategy at companies like Qantas and Virgin Australia, I have been deeply involved in the industry's evolution towards modern #retailing practices. Additionally, during my time at Corporate Travel Management (CTM) AU/NZ, I gained unique insights into the challenges faced by sellers as the industry transforms to facilitate airline retailing in the corporate space. A critical issue facing our industry today is the integration of modern retailing capabilities (#NDC and Offers & Orders) into existing airline ecosystems. While the potential for personalized, dynamic offers is immense, the challenge lies in implementation without disrupting core operations and facilitating the seamless delivery of new products and enhanced user experiences at the same time. The key to success in this transition is a holistic approach that balances innovation with practical implementation. First, we must focus on solving customer experience pain points across the entire value chain, collaborating closely with our partners. Second, it's crucial to create value, ensuring the commercial viability of our innovation investments. Beyond that, in today's cost-focused distribution landscape, it's essential for airlines to craft, communicate, and take ownership of their brand and product retailing narratives. This approach requires aligning distribution strategies with IT infrastructure and commercial objectives while differentiating your brand in a competitive market. And to you corporate travel managers out there: we at Garner have not forgotten about you! As airlines evolve, so will the platforms you use to manage your travel programs. I am already working closely with the rest of the Garner team to help address the needs of early adopters. I would love to engage in this crucial conversation together. Let's connect on how we can collaborate to shape the future of airline retailing.