US Airways isn’t exactly coming to American Airlines’ rescue in the latters battle with Expedia, Orbitz and the global distribution systems.
A US Airways official said the airline agrees with American Airlines’ desire to lower distribution costs, but US Airways intends to take a more “pragmatic approach.”
“But while we agree with American in principle, we perhaps take a slightly more pragmatic approach then they do on how we’re going to get there,” said Derek Kerr, US Airways’ chief financial officer.
Kerr said US Airways is willing to see its distribution costs decline incrementally, and doesn’t need to see them plummet overnight.
“And we are willing to see those costs come down incrementally and work with our partners as they try to rework their businesses — be those partners online travel agencies, brick and mortar travel agencies or GDSs,” Kerr said. “And we are willing to do that particularly so long as they are making progress towards changing their systems to allow us the flexibility to sell new products.”
US Airways wants to sell its ancillary service, such as Choice Seats, through all channels, but it is difficult for the online travel agencies, brick and mortar travel agencies and GDSs to change their technology to enable it, Kerr conceded.
He said the $30 to $40 million in annual ancillary revenue that the airline may garner from selling Choice Seats in its own channel could be $300 million if the airline can offer them through all channels.
US Airways signed a multi-year content deal with Expedia a few days ago, pledging to work with the GDSs to get Choice seats on Expedia.com.
“… We agree with American that costs can come down to reflect today’s technology landscape and over time they need to come down dramatically,” Kerr said. “But in the short term we are willing to make incremental progress in that regard as long as our distribution partners are willing to start changing …” the model to “expand their flexibility to sell ancillary products,” Kerr said.
Kerr’s comments came during the airline’s conference call Jan. 27 about its fourth quarter 2010 financial results.
During the call, Scott Kirby, US Airways president, was asked about the airline’s views about the Google-ITA Software deal.
US Airways is a longtime customer of ITA Software.
Kirby says US Airways was among the first of ITA Software’s airline customers and “we’ve got great technology and like dealing with them.”
US Airways would have no objection to Google’s acquisition of ITA Software as long as the airline can be assured that the dynamics of the relationship won’t change in the future.
“More of the objections are coming from the online travel agents than from the airlines,” Kirby said.
If American Airlines is willing to forgo around $2 billion of fares annually sold through Expedia and Orbitz, they must believe they can earn higher margins on a smaller % of those same fares sold on a direct basis. Does anyone know the fee structure agreement between the major airlines and the major web-based market resellers like Expedia and Orbitz?