Five reasons why you’re wrong about American Airlines and the booking battle

Everyone seems to think this is about the passengers. It’s not. In true airline industry fashion, nobody cares about the customer.

Okay, now that I have your attention, an analyst note from Avondale Partners was sent to me last night. While most people don’t get excited about this sort of thing, I have to admit that I still do. Nerdy, maybe. Insightful … in this case, it definitely is.

The analyst note gets to the heart of the matter pretty quickly. What’s the deal with American Airlines and the online travel agencies (e.g., Orbitz and Expedia)? Well, here it is in five straightforward points:

1. It’s the economy, stupid: remember that saying? Well, it holds true here. According to Avondale Partners, many press accounts of the dispute “confuse the relationships of the players and miss the underlying economics driving the dispute.” Stop thinking about people and start thinking about how American can save up to $9 per ticket in fees.

2. American will lose before it wins: according to Avondale Partners, “AMR [the airline’s parent company] eventually prevails.” But, it’s going to take some time. Along the way, the analyst note explains, the airline will lose some of its online travel agency customers to its competitors. However, it continues, “should pick up the spilled traffic, given current loads.”3. Ultimately, it’s a break-even: AMR will wind up with the same amount of traffic it has now, Avondale believes, but it will come at lower net costs. Translation: for the same amount of passengers, American will make more money. For a business, that’s never a bad thing.

4. “I like to watch”: that seems to be what the other airlines are thinking. Avondale Partners believes they’ll jump on the bandwagon. As it is, Delta has already pulled out of three smaller online travel agenciesCheapOair, OneTravel and BookIt – though for slightly different reasons. When big, bold moves like this happen, you better believe that everybody’s thinking about it.

5. And, the folks with the most risk are …: it isn’t American Airlines, apparently. Rather, Avondale believes that Travelport and Sabre “have the most to lose,” though stock prices for online travel agencies, according to Avondale, “should continue to suffer from the press.” Translation: this won’t be fun for any of the parties involved for quite a while.

Here’s the full report:

Analyst Note From Avondale Partners Re AA Distribution, 1-6-11

Orbitz weighs in on American Airlines ruling [BREAKING]

American Airlines is out of Orbitz as of today. This ends a legal tangle with Travelport that was initiated back in November when the airline announced its intention. According to a statement from Orbitz, “It is unfortunate that as of December 21, American Airline flights will no longer be available on our and Orbitz for Business sites. We are confident that our consumer value proposition remains strong. Orbitz Worldwide has access to more than 400 airlines globally and sells tens of millions of air tickets each year.”

The statement explains that American Airlines tickets and “associated ancillary products – including destination services, car, hotel and insurance – booked on our and Orbitz for Business sites accounted for approximately 5 percent of Orbitz Worldwide total revenue for the nine months ended September 30, 2010.” While American Airlines does not account for 5 percent of the online travel agency‘s revenue directly, the lost ticket sales comes with an additional loss of revenue based on customer behavior.

Orbitz believes that it will be able to generate enough ticket volume with inventory from other airlines to recoup most of what it is losing in regards to American and that it will “still continue to earn most of the associated ancillary revenue.” Further, Orbitz says it is still seeking an arrangement with American.

From the fourth quarter of 2009 through the end of the third quarter this year, Orbitz generated $800 million in sales for American airlines, which shows just how much was at stake in this relationship.

The full unedited statement from Orbitz is below:

“It is unfortunate that as of December 21, American Airline flights will no longer be available on our and Orbitz for Business sites. We are confident that our consumer value proposition remains strong. Orbitz Worldwide has access to more than 400 airlines globally and sells tens of millions of air tickets each year.

[“]Revenue earned on American Airlines tickets and the associated ancillary products – including destination services, car, hotel and insurance – booked on our and Orbitz for Business sites accounted for approximately 5% of Orbitz Worldwide total revenue for the nine months ended September 30, 2010. In the near term, we believe that most of this ticket volume will be replaced by other airline suppliers, and that we will still continue to earn most of the associated ancillary revenue.

[“]Orbitz Worldwide is one of the largest travel companies in the world. We will continue to seek an arrangement with American Airlines to distribute American’s tickets on and Orbitz for Business. For the most recent four quarters that we have announced — from the fourth quarter of 2009 through the third quarter of 2010 – Orbitz Worldwide generated over $800MM of sales for American Airlines.[“]

[photo by

Judge sides with American Airlines in Orbitz pullout [BREAKING]

The verdict is in! In the legal battle between Travelport and American Airlines over the latter’s decision to pull its inventory out of Orbitz, Judge Martin Agran decided in favor of American Airlines. Orbitz has been ordered to stop selling the airline’s tickets and displaying its fares.

American announced last month that it would be withdrawing its inventory from Orbitz as early as December 1, 2010 in a bid to streamline its booking operations and trim some cost. This is a clear outcome of the change in economic conditions, as airlines have gained more negotiating power relative to online travel agencies as a result of the slow recovery. Customers with more disposable income don’t have to hunt as hard for bargains, putting the booking sites at a disadvantage heading into 2011.

According to a statement by the Business Travel Coalition:

While the outcome unfavorably impacts Orbitz customers and Orbitz For Business corporate clients, by reducing fare searching, booking and servicing efficiencies, travel professionals the world over have recognized that this lawsuit represents merely the opening skirmish in the larger battle for the future of the open marketplace for travel.

Business Travel Coalition Chairman Kevin Mitchell explains, “The stakes in this conflict are clear: either an improved airline industry and distribution marketplace centered around the consumer, or one that subordinates consumer interests to the self-serving motivations of individual airlines endeavoring to impose their wills on consumers and the other participants in the travel industry.” He adds “Single-supplier direct connect proposals, like the one advanced by American Airlines, can cause massive fragmentation of airfares and ancillary fees depriving consumers of the ability to compare the total cost of air travel options across all airlines.”

Unsurprisingly, the business travel community isn’t thrilled with American’s move to pull out of Orbitz. In a recent survey, the Business Travel Coalition found that 94 percent of travel managers say that “access to all airfare and ancillary fee information is either indispensably important or very important for their corporate managed travel programs.” And, 98 percent oppose the American Airlines strategy of disintermediation via the Direct Connect initiative.

The consumer side of the travel world is also less than thrilled with this legal development.

The Consumer Travel Alliance released a statement opposing American’s decision, as well. Charlie Leocha, the organization’s director, said, “At its core, this dispute has nothing to do with business agreements, legal arguments, or distribution technologies. This is simply a heavy-handed attempt by American Airlines to prevent consumers from easily searching and comparing its fares against those of other airlines. In short, the only ‘direct connect’ American really seems to want is a ‘direct connect’ to consumers’ wallets.”

Ratcheting up the intensity, he continued, “American appears to have no idea why we fly. We fly to get from point A to point B in the most convenient and cost-effective manner possible. We don’t fly to be manipulated by proprietary airline reservation systems that limit our choices, prevent comparison shopping, and hide the real cost of travel.”

Keep in mind that these reactions are to the American Airlines strategy and not to the legal decision.

So, what does this mean for you? Well, if you don’t fly American or use Orbitz, your world doesn’t change at all. If you do use Orbitz, it looks like you won’t have access to flights on American Airlines. American Airlines loses access to the Orbitz customer base, which likely consists heavily of bargain-hunters and occasional leisure travelers … not the stuff on which you build a business, frankly. With consumers becoming more comfortable spending again – not to mention the loosening of corporate travel budgets, which is arguably more impactful – airlines are back in the driver’s seat. If you buy because of brand loyalty to American, your world won’t change – likewise Orbitz.

UPDATE: Click here to see what Orbitz has to say about the ruling.

[photo by boeingdreamscape via Flickr]

Microsoft and Travelport Make Travel Services Dream Team

Microsoft has collaborated with the travel technology company Travelport before. The two giants of their respective industries teamed up to create the pricing system that was first used on Expedia and is now used by all of Travelport’s clients. Think Microsoft’s profit power has been impressive for the past couple of decades? What about Travelport? The company flies below the radar in terms of brand recognition, but their searching and processing services are used by more than 63,000 travel agencies per day.

A new deal inked by Microsoft and Travelport would expand the alliance. The two giants would work on a comprehensive set of tools and services for travelers, travel agencies and internet ticket booking sites. Theoretically, at this point anyway, the development of better price searching technology could lead to lower travel costs for travelers and more chances for profit from travel agencies.

Microsoft exec Geoff Cairns had big things to sat about the relationship with Travelport:
“In bringing together Microsoft’s rich, interactive technologies with Travelport’s deep marketplace of travel content and informed choice, we are creating a completely innovative solution for the travel industry. This will improve the traveller experience with a new level of personalization and change how suppliers, TMCs, and OTAs reach travellers.” Too good to be true? Time will tell.