May 2009

Global distribution costs (GDS) are the charges incurred by the travel management sector when utilising the services of Internet-based travel reservation engines such as Galileo, Worldspan and Amadeus and according to Val van den Bergh, general manager of SAVRALA’s car rental section, the corporate travel sector in particular, is feeling the impact of these costs.

“GDS costs have a significant impact on the distributions costs of the car rental industry – primarily in the corporate segment of our business where customers prefer to reserve their vehicles via a travel agent as their travel itinerary also includes flights and accommodation. This one-stop travel solution is important to corporate customers in terms of their travel policies and the subsequent integration of information into their financial systems and management reports.

She goes on to say that these costs are reservation-based and have no link to length of rental or type of vehicle reserved. “GDS costs to the car rental supplier are around R45 per reservation depending on the prevailing exchange rate. On a one-day rental for example, the GDS cost could be in the region of 20% of the rental value, clear indication that single-day rentals booked via GDS are not profitable for car-rental companies.

“In addition to this, with the Rand weakening from R7.50 to R10.00 to the US$ over the past six months, car rental companies have had to absorb a 25% increase in GDS costs.”

Van den Bergh says that generally speaking, corporate travellers tend to make numerous changes to their travel arrangements and this leads to cancellations and ‘no-show’ problems for car rental companies which in the main, do no levy charges back to the travellers. “Most car rental companies experience 5% – 10% customer ‘no-shows’. With some agents this figure is significantly higher which means that GDS fees are paid out for no revenue earned.”

In attempt to resolve the issue, she says that the car rental industry is engaging with the various GDS companies to seek recourse and refunds and is also consulting with ASATA and the travel industry at large to determine ways in which this problem can best be addressed.

“Most travel agents have not been motivated to move away from the GDS systems as they provide operating efficiencies, management information and real-time access to multiple products and suppliers within a single, one-stop system,” she explains. “In addition to this, they are incentivized by the GDS companies on sector or reservation targets across all products.”

One solution that has been mooted by certain suppliers within the travel industry is that customers are offered two pricing options: one via the GDS channel and the other not.

“While most of SAVRALA’s members remain committed to partnering with travel management companies, the fact is that most travel-related businesses – car rental companies included – will for the foreseeable future, continue to experience diminished margins and consequently, they will need to reduce costs,” concluded Van den Bergh.

“Going forward, a win-win solution between the suppliers, GDS companies, travel agencies and the traveller is going to have to be found in order to ensure that the traveller receives the lowest cost option available while at the same time ensuring that each link in the travel chain is remunerated in line with the value they have added.”