In the start of June, German national carrier Lufthansa gave the travel industry a jolt when it announced that it would levy a EUR 16 “Distribution Cost Charge” (DCC) for every ticket issued by a booking channel using GDS, effective 1 September 2015. According to the airline’s website, the new charge will not be added to flight tickets purchased directly through airlines’ websites, service centre and ticket counter at the airports. Travel agencies will also be able to book tickets without the DCC, using the online portal at www.LHGroup-agent.com.
This is in line with Lufthansa’s new commercial strategy designed to increase profitability. Jens Bischof, member of the Lufthansa German Airlines Board and Chief Commercial Officer (CCO) of Deutsche Lufthansa AG, said in a release, “Until now, the percentage of revenue generated from the sale of flight tickets by our airlines has continuously decreased. While other service and system partners in the value chain are recording increasing margins and returns, our airline’s earnings have been compromised over time, even though they are the actual providers of flight services. We want to counteract this trend by refocusing our commercial strategy.”
The move has met with strong criticism from the agents in India, which is a large source market for Germany and relies on Lufthansa for the capacity it provides to the country. Sunil Kumar, Acting President, Travel Agents Association of India (TAAI) called it shocking that a leading airline that has been well promoted by the agency fraternity for several decades now, is resorting to unfair practices of taxing agencies for using a GDS to make a reservation to sell Lufthansa.
“This is highly objectionable and an extremely agency-unfriendly announcement. The response from our members is extremely adverse. Lufthansa must immediately withdraw this announcement and hold a dialogue with the agency associations,” he added.
Hector D’Souza, President, L’Orient Travels stated that it is extremely tough to make an unbiased comment having watched the industry steadily lose its importance over the past decade, vis-a-vis the airline business. According to him, when agents were at their unparalleled height, the industry called the shots while the airlines relented. Agents were adding to the distribution costs of an airline ticket – viz commission, GDS, credit were being slowly sidelined with stricter payment terms, larger bank guarantees, and withdrawal of commission. With the advent of technology, airlines embarked on a mission to start selling their inventory directly, he added. “So Lufthansa is not the first carrier to resort to direct selling.”
Biji Eapen, President, IATA Agents Association of India (IAAI) believes that the move could affect other airlines, OTAs, travel agents, GDSs and consumers around the world disrupting the smooth and well-oiled system of operation that has been set up by ICAO and IATA for international air transportation. “Lufthansa’s decision to charge distribution cost will massively wipe out ordinary travel agents in India as no customer will pay additional cost of Rs.1200 over and above the ticket fare. Since LH has dominance over the other Star Alliance members, all of them may follow suit, including Air India. This would mean that all airlines operating in India also eventually enforce similar surcharges. Thus, Lufthansa would be driving the final nail in the travel agents’ coffin,” he opined.
The UFTAA Board has asked for a legal opinion to find out whether the airline’s initiative has a legal implication on the relationship between agents and the Lufthansa Group in using the IATA system.
D’Souza opined that all major airlines in the world are keen to reduce their distribution costs. What Lufthansa did was no different, other airlines could follow soon. The industry needs to voice its concern at the highest level. “I do hope good sense prevails and the agent associations as well the airlines are able to work out a mutually agreeable solution. The principal- agency relationship must continue to remain intact as India is a developing country with tremendous potential for both airlines as well as travel industry to grow together,” he said.
Eapen agreed, stating that the agents should have the unity and guts to stop promoting or selling such anti-airline products. “Unfortunately, there is no such unity and all are divided. Yet, there is a ray of hope. Under the purview of our Indian Aircraft Rule 135, IAAI is looking for a legal remedy to curb such activities and save the travel agents fraternity in India from this predicament,” he informed and added that it is in our interest to take a firm decision not to support any such anti-agents policies by unfriendly airlines.
