1458 days ago
 

Direct connect dispute — American Airlines to pull flights off Orbitz Dec. 1

UPDATE: Barney Harford, president and CEO of Orbitz Worldwide, blasted American’s threat to remove its flights from Orbitz Dec. 1 as “a broad attack by American on the distribution landscape.”

Speaking during Orbitz’s third quarter earnings call, Harford says Orbitz continues to negotiate with American over the issue, but believes the airline’s actions are designed to fragment content, limit consumer choice and force travelers to bear American’s distribution costs.

Harford said GDSs play an essential role in negotiating with airlines on behalf of travel agencies and that a direct-connect approach would serve to fragment content. Although a public company, Orbitz Worldwide is controlled by Travelport, which operates the Galileo and Worldspan GDSs.

Harford said he was unaware if American is taking a similar approach with other online travel agencies.

The original story follows:

American Airlines apparently has expanded its direct-connect drive beyond the GDSs and taken it to the online travel agencies, specifically Orbitz.

In a regulatory filing, Orbitz says American notified Orbitz Worldwide that Orbitz.com and Orbitz for Business will no longer have the authority to ticket American flights beginning Dec. 1, 2010, Orbitz says.

The dispute, according to a source, revolves around American’s demand that Orbitz connect to AA Direct Connect for flight inventory and ancillary services, and consequent distribution economics. American wants to take control of its own merchandising through AA Direct Connect rather than have it handled by third parties, including OTAs and GDSs. Farelogix is contracted to handle direct-connects for American.

Orbitz says the airline notified it Nov. 1 that it will terminate Charter Associate and Supplier Link agreements with Orbitz Dec. 1.

The charter associate agreement had its origins when American and other major carriers founded Orbitz in 2001. It was due to expire at the end of 2013.

The charter associate agreement provides Orbitz with transaction payments, marketing support and nondiscriminatory access to seat availability for published fares. Also as part of the agreement, Orbitz pays a portion of American’s GDS costs.

The Supplier Link agreement, signed in 2004, requires Orbitz to book an agreed-upon number of flights through a direct-connect between Orbitz and American’s internal reservation instead of through a GDS.

American apparently is insisting that Orbitz connect directly to AA Direct Connect instead of through the current supplier link setup, a move that Orbitz is resisting because of the integration disruption, allegedly unproven track record of AA Direct Connect and unfavorable distribution economics.

Under the Supplier Link agreement, which American intends to terminate Dec. 1, the airline had to pay Orbitz a transaction fee for each ticket sold.

It looks like the Orbitz-American dispute is shaping up as a test case for American’s future relationships with OTAs, and it could have repurcussions for other airlines’ OTA contracts, as well.

Consider American’s notification to Orbitz as an opening salvo in their negotiations over the issue.

“For now, customers still can compare and purchase American’s fares on Orbitz and Orbitz-powered sites,” says Cory Garner, American’s director of merchandising strategy, referring to the Dec. 1 cutoff date. “American values its longstanding relationship with Orbitz and desires an agreement that works for both parties.”

Garner adds: “We continue to negotiate in good faith to reach a viable, mutually beneficial agreement with Orbitz. We believe it is important that our distribution channels be cost-effective and efficient. Consumers benefit when inefficiencies in the travel distribution marketplace are addressed.”

Orbitz also released its third quarter financial results today.

In the third quarter, Orbitz Worldwide’s net income increased 120% to $15.3 million on revenue of $194.5 million, a 4% jump.

Orbitz says the earnings growth was driven by gains in gross bookings, transactions and global room nights.

In the Orbitz Worldwide portfolio, eBookers was a particular standout.  Room nights at eBookers climbed 57% in the third quarter, compared with a year earlier, Orbitz says.

 
 
Dennis Schaal

About the Writer :: Dennis Schaal

Dennis Schaal was North American editor for Tnooz.

 

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  1. Purchase Mailing List

    I find that orbitz is just another player in the online monopoly that air carrier’s have with ticketing sites.

     
  2. American Airlines files legal action against Travelport | Tnooz

    [...] wants the court to declare that American’s intent to pull out of Orbitz Dec. 1 is not a breach of the July 2006 full-content agreement (officially the Preferred Fares Amendment) [...]

     
  3. Travelport sues American Airlines to protect Orbitz | Tnooz

    [...] to the Circuit Court of Cook County in Illinois by Travelport (48% owner of Orbitz), relate to a threat by American Airlines to block Orbitz from issuing the airline’s tickets from December 1 [...]

     
  4. Orbitz pushes program for travel agents | Tnooz

    [...] With all that’s going on, let’s hope that agents in the program will be able to book American Airlines on Orbitz beginning Dec. 1. [...]

     
  5. John Grace

    Unless this is one part of a larger strategy it is unlikely to help them fill under utiiized seats.

    I hope AA doesn’t think they can match SW in the exclusive website game.

    I love SW, but often don’t take the time to go beyond Orbitz-too much else to do!

    AA might have a joker or 2 to play…

     
    • Jeffrey Breen

      Hi John:

      I had the same thought myself and just blogged “Not available in stores” might work for Southwest, but American needs Orbitz (http://www.cambridge.aero/_blog/main/post/20101105_American_Orbitz/).

      JetBlue has an arguably stronger—or at least more focused—brand than American but it had to give up its attempt at a web-only strategy.

      But American needs to cut costs and has invested in a platform which can help them do so. They may have painted themselves into a corner.

      Jeffrey

       
  6. mandy

    I hope this will be settled soon as it might create problems with travelers.

     
  7. Pressure in the Middle « Just Getting Started

    [...] Airlines in its recent dispute with Orbitz as they push AA Direct Connect instead of going through traditional GDS systems.  [...]

     
  8. Tweets that mention Direct connect dispute -- American Airlines to pull flights off Orbitz Dec. 1 | Tnooz -- Topsy.com

    [...] This post was mentioned on Twitter by Dennis Schaal and James Craven, Tnooz. Tnooz said: LATEST: Direct connect dispute — American Airlines to pull flights off Orbitz Dec. 1 http://bit.ly/bVZtQC [...]

     
 
 

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