It appears that speculation surrounding the future shape & role of the traditional GDS within the business travel sector continues on an almost daily basis. Most recently this speculation has been fuelled by the news that American Airlines (AA) are apparently attempting to persuade travel agencies to use direct connects, bypassing the traditional GDS route. The airline wants to cut costs and get closer to customers by tailoring offers, which they feel isn’t possible with existing GDS technology.

But industry experts believe that AA is just the first airline, and there are others including Delta Airlines, ready to announce their own direct connect plans.

When and if other airlines follow this path, the main GDS providers could soon see millions wiped off their revenues and consequently their stock market valuations. The irony here of course is that the GDS technology was originally created for airlines! However, the perception is that the GDS providers have been slow to respond to changing market conditions and it wasn’t until the recent recession shook the market, that they thought of lowering their reliance on air revenues. Now it seems that they are seriously looking at other segments to continue their growth and spread their risk.

It appears at the moment, that hotels seem the best bet, and several of the main GDS providers are working hard to develop their business model to maximise the opportunity presented by hotels.

The reasons for this move to hotels are clear – market forces! According to The Pegasus View Oct 2010, hotel reservations are growing at a healthy pace of +20.7% year-over-year. The growth in ADR at +6.5%, combined with a growing ‘length of stay’ has contributed to the +32.3% revenue growth for the month.

Corporate travel drives a major share on the GDS, and the growth points towards a recovery. Pegasus’ Forward Looking GDS booking forecast for November till March 2011 also paint a picture of growth. Net reservation would grow to 34% y-o-y by March 2011, while ADR is expected to grow by 14% for the same period. This would all lead to net revenue growth of 62%.

Several major GDS providers have introduced their new technology offering for hotels this year. Amadeus’s recently introduced Hotel Platform, Travelport’s new mobile booking solution, and Sabre’s Red platform slated for launch in Q2 of 2011, are all geared to increase hotel participation.

Corporate travel demand is expected to be stronger in the next 6 months, and that has the potential to significantly drive forward the hotel numbers for the GDS providers – if they can succeed in their strategic drive toward Hotels. Further current efforts by GDS to grow the hotel count on their systems would help them grow these numbers further and provide an increasing buffer against the seemingly inexorable rise of online Hotel Reservation Systems.

Now, if only the economy remains stable across US & Europe!

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In the past few months, we have noticed a growing trend in the travel media speculating on the ‘bleak’ future for the Global Distribution Systems (GDS).

When the Google-ITA deal was announced, the media were quick to write an obituary for major GDS/OTAs.

While the Google-ITA deal is still under anti-trust review, the wider perception remains that the ‘traditional’ GDS, with it’s age-old technology and failure to adapt to growing market needs, has lost it’s relevance and market share to the point of no return.

As an example of this, in June Business Travel News (BTN) reported that, despite considerable effort by hoteliers, the accuracy of the hotel rates loaded into the global distribution systems has only slightly improved. It is estimated that approximately 25% of the rates loaded are inaccurate, leading to incorrect bookings and billing errors.

American Airlines (AA) recently stirred things up, when it tried to get travel agents to hook up to AA Direct Connect and bypass global distribution systems. Many believe that AA’s move is just the tip of the iceberg, and other large airlines would also go forward with their direct connect plans. If proven true, this trend would seriously undermine the whole GDS model.

A more recent article published this week in the respected Hospitality Times compares the major features of a GDS with other currently available technology – and concludes…

“The GDSs are struggling to remain valuable. They have failed to reinvent themselves to compete with the Internet and are dependent on aging technology and broken business models. The few advantages GDSs still have are under siege from new technology and speedier competitors. To avoid going down with the ship, Travel suppliers should find ways to replace GDS production using their own web site and third party online channels.”

Despite all these reports, the evidence at the moment for the demise of the GDS remains unclear. Indeed, with Corporate Travel leading the recovery in the Travel Sector, a strong presence on the GDSs apparently remains a key driver of growth.

According to Pegasus Sep-2010 data, the GDS sustained a global growth of +25.2% over 2009. This evidence does seem to contradict reports of the demise of the GDS. Whether this is simply an anomaly, and the under lying pressures for a move away from the GDS have yet to have the major impact that many suspect they will, only time will tell.

One thing does appear to be certain, the GDS providers need to up their game considerably to retain their relevance and market-share – particularly in the Hotel space. Both Buyers and Hoteliers today have more choice than ever before of alternate channels through which to transact and an erosion of the relevance of the GDS for hotels could be the start of this increasingly anticipated slippery slope.