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Northwest makes distribution changes to better compete with Low Cost Carriers

Travel News Asia 25 August 2004

Northwest Airlines announced steps Tuesday, to lower its domestic distribution costs by aligning them with those of the low-cost carriers it increasingly is competing with for todays domestic travelers. Northwest will offer consumers and travel agents options that allow them to choose the level of service they desire when purchasing or issuing tickets for travel within the 50 United States.

Domestic tickets issued through Northwest reservations offices in the U.S. will now include a Call Center Ticketing Fee, and domestic tickets issued through airports in the U.S. and Canada will include an Airport Ticketing Fee. In addition Northwest will reduce the amount of global distribution system (GDS) fees it will absorb on domestic tickets. U.S. and Canada-based travel agents issuing domestic tickets through GDSs will incur a new Shared GDS Fee. 

Once fully implemented, the changes are expected to lower Northwests annual domestic distribution costs by approximately $70 million.

Customers using Northwests web site and travel agents using Northwests WorldAgent Direct web site or other technology that bypass GDSs will continue to enjoy the convenience of these services without incurring a ticketing fee or Shared GDS Fee.

More than 70% of Northwests domestic customers have a low-cost carrier option available to them, and low-cost carriers continue to grow at a steady pace, said Tim Griffin, executive vice president of marketing and distribution. Since we compete with low-cost carriers on price, it is essential that we take steps to be competitive with them on distribution costs, where they currently have a clear cost of business advantage over Northwest.

Reservations, Airport Ticketing Fees

In an effort to reduce its distribution costs, beginning August 27, 2004, Northwest will charge a $5 Call Center Ticketing Fee for each domestic ticket purchased through one of the airlines reservations centers in the U.S. In addition, tickets for domestic travel purchased at Northwest airport locations in the U.S. and Canada will include a US$10/CAD$13 Airport Ticketing Fee. The charges will be non-refundable, and include domestic WorldPerks frequent flyer program award tickets. The $5 Call Center Ticketing Fee and US$10/CAD$13 Airport Ticketing Fee will be per ticket, regardless of whether it is one-way or roundtrip, for travel within the 50 U.S.

Since the fees only apply to new ticket issuance, no fee will be charged to discuss a new or existing reservation with an airport customer service agent or a telephone reservations sales agent.

Shared GDS Fee

Beginning September 1, 2004, Northwest will share part of the GDS expense with U.S. and Canada-based travel agencies that use a GDS to issue tickets by imposing a US$3.75/CAD$4.75 one-way, US$7.50/CAD$9.50 roundtrip per-ticket Shared GDS Fee, on tickets for travel within the 50 U.S.

Unlike many low-cost carriers, Northwest pays an average of $12.50 for each ticket booked through a GDS, and has absorbed 100% of that cost. In 2003 alone, Northwest paid approximately $180 million in GDS fees.

The airline stated that GDS' take a significant portion of the fees that they collect from airlines and give back up to one third of them to travel agents as an incentive for subscribing to the GDS services.

Since the airline does not incur the same GDS fees on tickets issued through Northwests WorldAgent Direct Web site, developed specifically for travel agents, tickets issued through www.worldagentdirect.com will not incur the Shared GDS Fee.

In addition, travel agents who issue tickets through lower-cost third parties that use technology to bypass GDSs, such as Orbitzs Supplier Link affiliate agency program, will also not incur the Shared GDS Fee.

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