Lufthansa Group’s DCC promises added costs, lost productivity

Distribution Cost Charge doesn’t add up.

On June 2, Lufthansa Group Airlines (Austrian Airlines, Brussels Airlines, Lufthansa and SWISS) announced that beginning Sept. 1 they would begin applying a “Distribution Cost Charge” (DCC) to all bookings made through “indirect distribution channels.” Estimated by Lufthansa to cost about €16, the fee will include global distribution systems.

Lufthansa gave its partners in the travel industry no warning of its plans to roll out the major change to the booking process. The new surcharge unilaterally forces clients to either pay higher fares or use a highly inefficient process for booking travel.

“We’re actively expressing our concerns to Lufthansa, and our working group continues to analyze the impact of Lufthansa’s decision on both our clients and our company,” said Rose Stratford, BCD Travel executive vice president, Global Supplier Relations and Strategic Sourcing.

Stratford outlined several key points of opposition to Lufthansa’s new charge:

  • Lufthansa’s surcharge is nothing more than a price increase for travel buyers.
  • The DCC undermines a productive travel booking environment that corporate travel managers have developed in close collaboration with their TMCs and technology partners.
  • The GDS is still the most efficient booking channel.
  • In booking directly with Lufthansa, travel programs lose the following:
    • A side-by-side shopping experience that lists flights, fares and seat options aboard multiple competing carriers for a given city pair alongside hotels, cars and international rail in many markets at negotiated rates
    • The ability to collect and compare accurate, up-to-date information you can use to keep your travelers safe and track travel expenses to get the most of their travel dollars
    • The ability to use pre-trip information to monitor and influence traveler buying decisions

Many current contracts between GDSs and airlines prohibit programs like Lufthansa’s distribution cost charge. However, if Lufthansa succeeds in implementing its program, other airlines throughout Europe, North America and elsewhere will likely impose similar customer surcharges.  And due to the antitrust immunity enjoyed by airline alliances, airlines could collectively agree to charge such fees, leading to rapid widespread adoption across the industry and leaving consumers no alternative.

Client impact

BCD Travel’s initial analysis suggests that the DCC will result in approximately €28 million in additional fees for our clients collectively. Online booking tools access their Lufthansa content via the GDS, therefore the €16 fee will be applicable on all online bookings.

Booking via Lufthansa’s agent portal, or any other airline websites, reduces agent efficiency and has a significant impact on our productivity compared to booking via the GDS. Those inefficiencies drive up costs for customers.

“Many of our customers have expressed their concern and unhappiness with Lufthansa’s announcement,” Stratford said. “Some have asked us to book them on alternative carriers where possible—a choice that’s at their discretion, depending on their specific travel patterns and supplier mix.”

Doing the math on the €16 fee

The Distribution Cost Charge apparently is intended to represent an average per-segment cost across all of Lufthansa’s business, which means corporate travelers are bearing the brunt of leisure travelers’ higher segment costs.

Airlines that negotiate full content agreements usually pay steeply discounted GDS fees. Since Lufthansa Group opted out of its full-content agreements, its fee is based on higher-than-necessary “rack rates,” or the full fee before discounts are applied. Had Lufthansa agreed to make full content available, the fee could have been substantially less, Stratford noted.

Product distribution is a cost of doing business for any industry. Through DCC, Lufthansa is attempting to turn a cost center into a profit center—first by shifting a significant amount of the cost of distribution onto travel buyers.  This does nothing to reduce the cost of distribution; it simply shifts the cost from Lufthansa to clients.

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