Amadeus Terminates Services to Air Astana Based on Disputed Breach

Air Astana, the major air carrier of Kazakhstan is seeking injunctive relief from courts in Spain to require Amadeus GDS to reconnect its services whilst a dispute over contract terms goes to arbitration.

Air Astana believes the action taken by Amadeus at 10.30 CET Friday, 21 January 2011 was against the contractual and Spanish common law principles. It also considers that Amadeus' behaviour during the negotiations for a new contract and in terminating the current Participating Carrier Agreement has been coercive.

Air Astana claims that by cancelling the agreement with 15 days notice Amadeus has sought to take advantage of the lack of immediate alternative for distribution in many markets to pressure Air Astana to accept a new agreement on Amadeus’ terms, and in doing so has shown a complete disregard of consumers' rights and interests.

Air Astana has copies of all reservations made on the Amadeus GDS in its own reservations system and should passengers or Agents need to adjust existing bookings, they can do so by calling Air Astana Call Centres.

The distribution contract in place between Amadeus and Air Astana was cancelled after Amadeus alleged a breach of the terms of the agreement. Air Astana strongly refutes the alleged breach, filed immediately for arbitration, and requested the termination be rescinded in accordance with the terms of the contract between the parties. When Amadeus refused, Air Astana filed for injunctive relief.

Given the nature of the termination and the behaviour of Amadeus during the negotiations, Air Astana has not ruled out the possibility of further legal action.

Air Astana is a joint venture between Kazakhstan’s sovereign wealth fund Samruk-Kazyna (51%) and BAE Systems PLC (49%). It operates 22 aircraft on 24 domestic and 27 international routes.

Q&A with Air Astana

Q. What Services does Air Astana buy from Amadeus? Air Astana buys Distribution Services and Airline IT Services (Inventory, Reservations and Departure Control) from Amadeus. Also, the Air Astana Internet booking engine is supplied by Amadeus.

Q. What Market share does Amadeus have? In 2010, the share of travel agency bookings through Amadeus in Kazakhstan was in excess of 90%, and in its 2010 IPO Prospectus, Amadeus claims market share of 68% in Western Europe and 71% in Central and South-eastern Europe to the end of 2009.

Q. What is at the heart of the dispute between Amadeus and Air Astana? The Distribution Agreements between Amadeus and Air Astana are governed by a Participating Carrier Agreement which covers basic service commitments, contractual terms and standard pricing, and a so-called Full Content Agreement by which Air Astana exchanges a promise of providing all fare and seat content to Amadeus subscribers in return for discounted prices. The Amadeus-Air Astana Full Content Agreement expired on 31 December 2010 and Air Astana and Amadeus were negotiating new agreements.

Q. What triggered the termination by Amadeus? Since July, Air Astana has been renegotiating all GDS contracts with suppliers: Abacus, Travelport, Sirena the Russian GDS, and Amadeus under the umbrella of a Supplier Purchasing Quality programme called the Competitive Booking Source Programme. Its objective is to ensure that Air Astana receives the best value for money from its Distribution Partners. Those GDSs that offer Air Astana a good product, fair contractual terms and competitive prices are rewarded with a designation as a Competitive Booking Source (CBS). And as a CBS, a GDS would win for its Subscribers the right to receive full commissions for the sale of Air Astana’s domestic fares.

The negotiation process was conducted in full accordance with national purchasing rules and without any form of discrimination against any supplier. At this moment in Kazakhstan there are two GDSs designated Competitive Booking Sources: Abacus and Travelport.

Since 1 January and the failure to reach agreement on new Full Content contracts, Amadeus has been charging Air Astana at a rate several times higher than that charged by competitors for all bookings made in Kazakhstan. This is very costly and a significant increase that under Kazakhstan Government pricing rules cannot be funded by fare increases. Therefore, since 1 January, travel agents have been asked to make a choice about the cost of the booking fees that they introduce to the supply chain: if they book with a CBS, there are no additional costs to Air Astana, and the agent can earn the full commission. On the other hand, if they book on a non-CBS, the additional distribution cost incurred by Air Astana must be funded from the commissions that would otherwise be paid to them by Air Astana.

Amadeus believes they do not have to offer competitive prices and contractual terms in order to qualify for CBS status, and that if they are not awarded CBS Status by Air Astana that action is discrimination against Amadeus and its subscribers. Air Astana disagrees. Rather than wait for the disagreement to be arbitrated as provided for in the contract, Amadeus summarily terminated the existing contract.

Q. What do the Travel Agents have to say about the CBS programme? The programme was announced in July 2010 for implementation from 1 January 2011 and Air Astana took the opportunity to explain to agents the pricing structures charged by the different GDS vary and the magnitude of these distribution costs. The travel agents understood why we wanted to ensure that the best value for money channels had the best chance to succeed in the market. The agents understand and support our goals.

Q. Amadeus claimed that Air Astana are adding an unnecessary cost to the travel agent and to the consumer. What do you have to say to this? The travel agents are intelligent enough to know this is untrue. Air Astana has not increased any fares since the first of January and it hasn’t added any costs to the travel process. On the other hand, the Amadeus price for bookings in Kazakhstan has gone up very substantially. Travel agents now know the approximate cost of booking a non-CBS and are able to avoid it if they wish. It is the travel agent’s decision which booking tool to use and we trust the travel agents to make the right cost decisions for themselves and for the consumer.

It must be noted that the above Q&A session was conducted with Air Astana and not Amadeus.

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