New Airline Reservation System Offers Airlines an Ownership Stake

A new global distribution system of sorts has emerged and travel agents are worried that it might be taken over by airlines. G2 SwitchWorks Corp., which has developed a reservation and management system and serves as a middleman between airlines and ticket sellers, announced last month that seven major airlines have signed on with system, as a measure to cut costs.

Five of these airlines, including the world’s largest, American Airlines, pre-paid distribution fees for millions of tickets and have been offered the chance to buy a minority stake in the company.

The Amercian Society of Travel Agents (ASTA) was quick to ask the U.S. Departments of Justice and Transportation to investigate what led to G2 Switchworks’ decision to sign contracts with seven major airlines that designate the new, alternative GDS as a preferred alternative to the mainstream GDSs.

ASTA says “there is an indication that the airlines are once again poised to involve themselves in the ownership… control or significant influence of a firm with GDS-like characteristics.”

(When the U.S. deregulated the GDS sector, it had suggested airline ownership of distribution systems could present competitive concerns. It also said that it would pay particularly close attention to any airline efforts to establish control over a system.)

The society says there are complex issues involved in such a relationship, not the least of which is how the company will interact with established automated accounting systems that most agents use.

The new company said that the society’s claims are “baseless” and said any airline choosing to “hold a very small collective equity stake” would not designate anyone to G2’s board, nor “direct G2’s strategic planning or day-to-day operations.”

American Airlines, America West Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines and US Airways have signed long-term commitments, G2 SwitchWorks said. In G2’s announcement made last month, it noted that five of the major airlines — American, America West, Continental, Delta and Northwest — are going to be taking a small equity stake in the company. The two that are not, but chose it as their preferred supplier, are United and US Airways. G2 SwitchWorks, a privately-held company that was formed last year in Chicago, said the airlines agreed to distribute tickets through its TRUEconnect network, allowing them to save up to 81% in global distribution system fees.