Automation Negotiations,
Default Protection and More
CBTG 2009 Annual Group Meeting
Rose A. Haché
Attorney at Law
Telephone:(713)621-7253
E-mail: Hachelaw@aol.com
GDS Contracts
 Accept lack of predictability
 Marketplace is in transition
 Clients range from $1M to $7B
 No “typical” client
Background
GDS Contract
Old Framework of DOT regulations
 Length of commitment: 5 years
 Productivity payments allowed
 Mandatory participation by
carriers
 Loyalty could not be enforced
Background on Today’s
GDS Contract
Old Framework of DOT regulations
• Override connection to GDS
deal prohibited
• Co-terminus provisions part of
contracts = restrictive covenants
• Shortfall penalties part of
productivity formula
Current State of Marketplace
• The importance of the agent has been the shocker.
• Global capabilities are crucial.
• Legacy GDS companies will aggressively protect
their investments.
Marketplace News
• Aggressively Protect Contract Terms
• UAL Credit Card Impact
• Looming Summer of 2011 increase to $.80
Today’s Contract Negotiations
Range of contract terms:
• Menu of optional services
• Negotiate shortfall fee
• Monthly cost-check
• Automatic renewal on adding
equipment-Co-terminus
provisions need to be added
• Contract commitment 1-7 years
• Requirement for exclusive use,
or percentage
• Negotiate payback (pro-rate)
• Include aggregation clause
Today’s Contract Negotiations
Particular Revelations:
• Verify NWA lack of full integration on
Amadeus affects exit row seats & FF
• Travelport GUI Environment early to
mid-2010
Today’s Contract Negotiations
• Negotiate shortfall, $.80
Content Fee, upfront payback
and future fee impact
• Promise longer contract if a
perfect deal
• Insert co-terminus clause
• Negotiate Aggregation Clause
Today’s Contract Negotiations
In exchange for future opportunities:
• Higher incentives
• Explore ability to tie particular airline
to higher incentive
• Tailor incentives to favor preferred
airlines
Negotiation Strategy
Key Questions:
• Where do you see yourself
one year from now? Three to
five years from now?
• How many segments do you
realistically see producing
over the next 12 months?
36months? 72 months?
• Impact of Funjet type Web
sites or UAL credit card on
segment production
Negotiations Strategy
Do you start with your existing GDS?
 Excellent beginning...
 Call GDS competitors, when and if truly
interested in converting.
 Request 3 references of similar size and mix
agencies: What were the pleasant and
unpleasant surprises?
Negotiation Strategy
Ought you deal with more than one GDS?
•
•
•
•
Yes. If serious, test the waters.
Travelport will pursue new business.
Amadeus remains generous in every way.
Sabre adjusts to the marketplace, and often
preferred for government business
Negotiation Strategy
Is it best to switch to increase inducements?
Conversions:
• Tolerance for change
• Verify how segments are counted
• Compare multi-leg ticket pricing/convenience,
group bookings and ticketing, vendor (Amtrak)
variations
Negotiations
Conversions:
• Content/participation comparisons of air,
cruises, tours, hotels
• Do not assume: equal content capabilities
• Inquire: How long are your full content
contracts with my most important carriers?
Negotiations
Conversions:
• Impact on productivity and efficiency
• Get their best trainer who “speaks” both
languages
• Obtain and split bonus for employee time
devoted to training
Negotiations
Conversions:
• Check references
• Some employees will embrace the change
• Impact on productivity and efficiency
• Data-merge must be perfect
• What is your plan if it is not?
Negotiation Strategy
How long before your
expiration date should you
start to talk?
 If no shortfalls-12 months if
50,000+ segments
 If in shortfall-ASAP
 Otherwise, 4 months….
Shortfalls or Need for Change
• Verify count
• Do not procrastinate
• Be friendly and direct
• Delete what you don’t
need or can’t afford
• Re-contract or innovate a
response
Negotiations
At what point do I contact a lawyer or
other consultant?
 Once you have the offer(s) call.
 Some lawyers do more than just legal
terms, and will coach you on economic
incentives available for agencies with your
production.
 GDS Contracts are legally enforceable.
Negotiations
Get organized:
• Data on past 12
months of segment
production
• Know your expiration
date(s)-GDS and space
Negotiations
Get organized:
• Will you need a free move?
• How long is the perfect term? Coordinate
with space lease term?
• Check Virtuoso(Sabre), Odyssey(Travelport)
and other deals… create your own LLC
collaboration.
Negotiations
Get organized: What will my monthly bill
look like under the new contract? Zero?
• Scan numbers and impact of robotic
software
• Unbundled scan or bundled scan?
• Variables cost?
Negotiations
• Software interface
issues with chosen GDS
• Commercial account
requirements
• Supplier requirements:
Luftansa
• Consider market share
issues
Financial Incentives
• Cash signing bonus
ranging from 4 to 6
figures
• Address no deinstallation charges
Financial Incentives
• Tiers: Ranges go from $.20 up to
$2.85+/segment
• Verify incentives start from #1
• Cumulative option: continue, renegotiate, or
terminate the agreement
• Backdate contract to recoup segments
Financial Incentives
 Verify no shortfall
penalties or how to get
there
 If cash upfront, limit
threshold to zero,
provided loyalty
percentage is met
 Free move
 Protect against debit
memos: Auto price
protection?
Financial Incentives
– Technology Fund
– Acquisition Fund
Financial Incentives
– Development of Affiliate Program
– Premier Account Status-Beta testing
– BBR Booking credit
Financial Incentives
–
–
–
–
Payment now due under old contract
Spend soft dollars
Waive penalties for re-contracting
Address services not used ex.
Microfiche $26/month
Financial Incentives
Three rounds to obtain best offer
Legal Amendments
Verify meeting within 30 days
to renegotiate contract if
certain events occur:
1. Substantial Loss of Business
2. Loss of Individual Account
3. Loss of Particular Carrier
Legal Amendments
– Industry event
– Technology change
– Loss of Content
– Period to review and object to the setoff
Legal Amendments
– Confidentiality language to protect travel
agency’s database, pnrs, E-mail addresses,
and contacts
– Co-terminus language protection
– Mirror indemnity language
Legal Amendments
• Options: Impact of potential Participant
revenue reduction
• No charge for deinstallation at end of
term
• Cessation of Business/Shutdown Clause
What keeps the Company
President awake at night?
• Client’s failure to pay $9,000, or $90,000
or hundreds of thousands of dollars
• An independent contractor creates
$150,000 in debit memos
• Supplier default
• UAL Credit Card Policy Affecting
Everyone
Use legal tools available to
retain profit!
Qualify the Client
• What information do you collect about
corporate accounts?
• Do accounts submit an application for
credit?
• Do you conduct a credit check?
• Have you updated your database for
authorized travelers?
Travel Services Agreements
Travel Services Agreement
Ideas
• Right to offset-Deduct for defaults in payment
against compensation due
• Require a list of authorized travelers
• Late payment provisions-add interest
• Cancellation fees included
• Anti-raiding provision
Travel Services Agreement
Ideas
• Self-settling credit card
• A/R on a 10 day to 30 day cycle-spell it out
• ACH Options-Carefully understand it…
Security Features
• Personal Guaranty
• Letter of Credit
• Escrow
Independent Contractor Debit Memos
Microcosm of a Corporate Account
Qualify with a credit and background check:
1.
2.
3.
Former travel agency owners
Top producers
Former employees of other agencies
Written contract should spell out payment terms,
including an offset provision, consent to apply
charge to their credit card, and a Personal
Guaranty.
Failure to Pay
• Cut off: Internal control
• Documentation
• Persistence
• Face to face meeting
• Final Resort: Need the written agreement and
proof of use of services to successfully sue.
Supplier Defaults
Supplier Defaults
Credit cards-Fair Credit Billing Act
Escrow Account-Viking River Cruises
Pay net, deducting commission
Sell default protection insurance-No
documents without insurance or a signed
waiver
• Preferred Vendors
• Keep current with CNN Air Travel
Update
•
•
•
•
Insurance Availability
• Independent provider
• Bundle cost/include insurance
• Implement execution of waivers
• Document with e-mail
• Non-preferred supplier form
UAL’s Credit Card Policy
• Sell another carrier & focus on booking
patterns.
• Obtain client’s written consent to
charge credit card and do it on the UAL
web site-Direct responsibility by UAL if
there is a problem…
• Eastman AutoLink solution?
• Impact on GDS and card issuers
UAL’s Credit Card Policy
• August recess-Contact your
Representative and Senators
• Use the sample letters
• All carriers are watching our industry’s
effectiveness to stop UAL.
Crystal Ball Predictions
Now is the best time to add business
• Lunch with smaller competitors
• Weddings, Family Reunions, Students,
Pet Friendly Travel
• Business Executives require face to
face contact
• Privacy of computer data is of growing
importance
Proactive Future Plans
• Battle to keep profits
• Strategy: Recognize and implement financial
and legal tools to protect your agency.
• Size matters
Pet Friendly Travel
New Business:
• Offer Pet Friendly Travel/Main Cabin not Cargo
• Visit www.Petairways.com
• 2 month waiting list/Trained Pet Attendants
• Recession Proof Business: Pet Spas
Proactive Future Plans
Mantra:
“What will you do today, that
will change tomorrow’s
outcome?”
CBTG = Preparation for Success
THANK-YOU!
Rose A. Haché
Attorney at Law
Telephone:(713)621-7253
E-mail: Hachelaw@aol.com