Sabre tells clients of American Airlines drop, booking war is scorching

Sabre and American AirlinesOkay, we all saw this coming. The battle that was expected between airlines and online travel agencies as a result of improving market conditions has reached a high level of intensity, centered on American Airlines (with Delta playing a supporting role).

The situation is running deep, as both American and Delta have stepped back from online travel agencies (though for slightly different reasons). American Airlines is eager to push its Direct Connect system, which is what led it to pull out of Orbitz. Expedia, seeing the early stages of a trend, dropped American Airlines, likely as a defensive move to prevent a surprise later. Delta pulled out of three smaller online travel agencies – CheapOair, OneTravel and BookIt – to consolidate its distribution channel and focus on a core group of partners.

This has led to incredible amounts of uncertainty and angst in the airline and travel sectors, as the escalation has been swift and unconstrained. We’re past the early stages of the conflict between the two sectors. A month ago, Douglas Quinby, Sr. Director, Research at PhoCusWright, told me that things were just starting to percolate. Now, he explains, “[W]e saw the tip of the iceberg back in November, when American said it intended to pull its fares and schedules from Orbitz. We are now starting to see more and more of the iceberg,and it is a big one.”

Specifically, global distribution system Sabre has announced that it is terminating its relationship with American Airlines. This is ironic, of course, as the idea for Sabre was hatched on an American Airlines flight in 1953 by American’s president, C.R. Smith and IBM senior sales representative R. Blair Smith. Six years later, they made it a reality (Sabre spun off from American Airlines parent company AMR completely in 2000 following a 1996 IPO).

Quinby continues, “[W]ith Sabre’s escalation, the pressure clearly has to be building on American. What’s next is a near-term compromise that will result in an uneasy truce (with the potential for further escalation before we get there).”
But, that might take a while to reach, as you can see from Sabre’s recent message to its clients, revealed to Gadling yesterday. The company says:

Sabre has taken a set of actions to protect what you have told us is important to you – full air fare transparency and the ability to efficiently operate your business. As part of these actions, we have changed some of our availability and shopping displays to support airlines who value the transparency and efficiency of the proven system our customers use to serve travelers.

Sabre adds:

We have also initiated termination of our global distribution agreement with AA. We have provided AA notice that accelerates the termination date of our current agreement to the extent possible, culminating in early August. We are seeking a new agreement with AA that provides our customers long-term assurances of efficient comparison shopping.

AA’s stated plans regarding its “Direct Connect strategy,” backed up by its recent actions, are an attempt to impose a costly, unproven and unnecessary system that would make it harder and more costly for you to operate your business and for your customers to comparison shop based on full and transparent fare information. Based on AA’s actions, in addition to the steps noted above, we have also given notice that we are eliminating the substantial price discounts AA has enjoyed consistent with its prior long-term commitments to provide full content and support efficient comparison shopping for our agency and corporate customers.

It’s clear that the escalation is continuing, and Sabre isn’t the only player using heated language. In a statement on its website, American Airlines countered that Sabre has “taken a set of punitive actions against the airline and its customers, despite the fact that American has met all its obligations and continues to work in good faith with Sabre.” And, it has lobbed at Sabre the same “anti-competitive” accusation that the online travel agencies leveled at American. For good measure, American adds:

Sabre’s actions are discriminatory and patently inconsistent with both its contractual obligations and its professed goal of ensuring full transparency for the benefit of consumers and travel agents. In contrast, the actions only serve to protect Sabre’s market position and attempt to force airlines and travel agencies to rely exclusively on its legacy systems that only lead to higher fares and fewer choices for consumers.

In a message to members of its frequent flier program, AAdavantage, American said:

While there is much misinformation circulating on these matters, rest assured that tickets for travel on American Airlines and American Eagle – including all international and domestic classes of service – are widely available through a number of outlets, including American’s own website, AA.com, which features our Lowest Fare Guarantee. Tickets, fares and schedules are also available through American’s reservations agents, thousands of travel agencies in locations worldwide, other online travel agencies such as Priceline.com, and travel search engines such as Kayak.com. For more information, please visit AA.com.

There are rumors circulating that Priceline has signed on for American’s Direct Connect program, but nothing has been confirmed – a smart move given how volatile the disputes are getting between American and the other online travel agencies.

Of course, the actions by Sabre have led many to wonder if Amadeus, another global distribution system, is going to jump into the fray. This seems likely, Quinby told me by email: “Amadeus has a pretty small presence in the U.S. so they may sit this one out (with a good bowl of popcorn!)”.

Here’s the Sabre message in full and unedited:

Dear Sabre Customer,
This is to notify you that Sabre has taken a set of actions to protect what you have told us is important to you – full air fare transparency and the ability to efficiently operate your business. As part of these actions, we have changed some of our availability and shopping displays to support airlines who value the transparency and efficiency of the proven system our customers use to serve travelers. Specifically, we have made changes in the Sabre . system that alter the order in which some of American Airlines’ flights appear in availability and shopping displays. The display changes do not apply for points of sale in the EU or Canada due to specific regulations in those markets.
We have also initiated termination of our global distribution agreement with AA. We have provided AA notice that accelerates the termination date of our current agreement to the extent possible, culminating in early August. We are seeking a new agreement with AA that provides our customers long-term assurances of efficient comparison shopping.
AA’s stated plans regarding its “Direct Connect strategy,” backed up by its recent actions, are an attempt to impose a costly, unproven and unnecessary system that would make it harder and more costly for you to operate your business and for your customers to comparison shop based on full and transparent fare information. Based on AA’s actions, in addition to the steps noted above, we have also given notice that we are eliminating the substantial price discounts AA has enjoyed consistent with its prior long-term commitments to provide full content and support efficient comparison shopping for our agency and corporate customers.
We understand that some customers may have concerns regarding the potential impact of these actions on their operations. I want to assure you we decided to take these actions only after very careful consideration of the negative impacts AA’s plans would have on your business and ours. We have a track record of acting in the best business interests of our customers and doing what is necessary to grow the value of the proven and successful system that enables travel agents, corporate travelers and consumers to efficiently and cost-effectively comparison shop.
Sabre is taking these actions as part of our efforts to obtain a new agreement with AA that provides long-term assurances to our customers who prefer to continue using a proven system that provides significant value to both suppliers and buyers of travel. We are committed to delivering this value to our customers for the long term, and we will take the necessary steps to accomplish that objective.
Sincerely,
Chris Kroeger
Senior Vice President, Marketing
Sabre Travel Network

And here’s the message to AAdvantage members, in full and unedited:

Dear Thomas Johansmeyer,

As a valued AAdvantage member, we want to clarify what you may be reading in the press. As a result of a commercial dispute, over the past several weeks there have been changes to how we sell our tickets. American Airlines last month removed its fares and schedules from Orbitz.com, and effective January 1 Expedia.com stopped offering American Airlines fares on its website. Additionally Sabre, a company that distributes airline fares and schedules, made it more difficult for travel agents to find and select American’s flights by moving our fares lower in the display order than they normally would be listed.

While there is much misinformation circulating on these matters, rest assured that tickets for travel on American Airlines and American Eagle – including all international and domestic classes of service – are widely available through a number of outlets, including American’s own website, AA.com, which features our Lowest Fare Guarantee. Tickets, fares and schedules are also available through American’s reservations agents, thousands of travel agencies in locations worldwide, other online travel agencies such as Priceline.com, and travel search engines such as Kayak.com. For more information, please visit AA.com.

We are committed to working with all distribution channels, including traditional travel agencies, online travel agencies and global distribution systems. We will keep you informed of important updates on these developments.

Thank you for giving us the opportunity to address this matter. We appreciate your business very much and look forward to welcoming you aboard soon.

Sincerely,

Maya Leibman
President
AAdvantage® Loyalty Program

Sabre pushes American Airlines down, “all out war” [BREAKING]

Sabre and American AirlinesAnd, the developments just keep coming. The latest in the airline booking battle is that global distribution service Sabre has given American Airlines a bit of a shove nudge. According to a statement from the Business Travel Coalition, “Sabre took steps to protect the interests of an independent travel distribution system from American Airlines’ (AA) attempt to impose a new model that heaps huge new costs on the travel industry and diminishes comparison shopping for consumers.”

Specifically, Sabre has downgraded offerings from American Airlines and elimited booking fee discounts. Also, according to the Business Travel Coalition statement, Sabre has “delivered notice of termination of its agreement with AA.”

With this move, which the BTC says “began with AA’s unprovoked assault on Orbitz late last year,” the situation is not a skirmish “but rather an all out war for the future of both airline and all travel distribution in the U.S. and around the world.”

This is the latest move in a battle over brand and customer ownership, which you read first on Gadling a month ago.”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 shift costs and impose their wills on consumers and the other participants in the travel industry,” said BTC Chairman Kevin Mitchell.

He added, “Single-supplier direct connect proposals, like the one advanced by American Airlines, can significantly increase costs for all distribution participants and 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.”

According to a BTC survey of corporate travel managers, 98 percent do not support the American Airlines Direct Connect strategy.

“Since the U.S. global distribution system industry segment was deregulated in late 2003, the strategic interests among GDSs, travel agencies, travel management companies, corporate travel managers and consumers have evolved into near-perfect alignment,” Mitchell explained. “Because the airline industry is one where competitors often follow one another, it is of paramount importance that corporate travel managers, individual supply chain participants, including the associations that represent them, stand up and very clearly communicate to the airlines what their distribution system requirements are.”

American Airlines is talking to Expedia and Orbitz (about the WRONG stuff)

American Airlines talks to Expedia and OrbitzAmerican Airlines isn’t giving up. Despite having pulled out of Orbitz and been booted by Expedia, the company says it’s still talking to the two online travel agencies and is hopeful for a resolution. According to Dow Jones, these are “active discussions” and that American Airlines is “comfortable” with booking results.

Nonetheless, American is still betting on Direct Connect as its preferred way to distribute inventory. Dow Jones explains:

“Ultimately we will see all travel agency volume going through Direct Connect,” Garner said, referring to the American distribution system at the heart of its dispute with parts of the industry. That would include the GDS providers, whose contracts with American are due to expire later this year.

What makes this interesting is the fact that American isn’t backing away from its primary reason for pulling out of Orbitz … which triggered the defensive move by Expedia. So, the words strike me as vapid, since the major issue isn’t being addressed (at least not in public).

There is a rumor that Priceline has signed on for Direct Connect, but all involved are keeping their lips sealed.

Can travel booking sites endure the airline onslaught?

airline and travel booking sitesAmerican Airlines wanted out of Orbitz … and then it was bounced by Expedia (preemptively, it seems). Delta wanted out of CheapOair … and OneTravel … and BookIt. Nobody knows what’s next, but it appears that something is on the horizon, given the magnitude of change in the airline/online travel agency landscape over the past few weeks. I wrote a month ago that a “brand war” was brewing, a sentiment that has since been echoed by other media and research organizations.

So, as the battle intensifies, it’s natural to ask one simple question: should online travel agencies actually exist?

Specifically, a comment by Delta’s Glen Hauenstein on Tnooz caught my attention:

“We look at it very much like an Apple store versus Best Buy. You can buy components or Apple products at both. Your experience in an Apple store is obviously quite different than it is at a Best Buy store. That model is what we think about when we think about Delta.com.”

This remark, delivered by Hauenstein at a Delta investor event, is seductive for its simplicity. Ithas everything the airline needs to look cool and in control. It aligns itself with the most innovative retailer on the planet, contrasts itself with a passé business model and makes the strategy look viable. In pulling out of CheapOair, OneTravel and BookIt, Delta creates the appearance of exclusivity and style (at least acceding to Hauenstein).

This would not bode well for the online travel agency sector, as the Delta play would indicate that owning the customer itself is far superior to sharing the customer with an intermediary. And doubtless, this is true: having the customer create a relationship with your brand is always best. The problem, unfortunately, is that this approach isn’t viable. There will always be bargain-hunters, comparison shoppers and lovers of alternatives who are natural online travel agency customers.Now, let’s return to Hauenstein’s retailer analogy. It actually fits, though not as he intended, particularly because Delta is not a premium alternative in the manner of Apple relative to Best Buy. Its product is a commodity, just like the products offered by the vast majority of airlines. Rather, we’re looking at a single-brand retailer (e.g., The Gap) relative to a major discounter (e.g., Wal-Mart).

Let’s dig into this a little bit. There’s something about the online travel agency model we can learn from the retail sector.

With the National Retail Federation’s “Big Show” in New York right around the corner, Deloitte’s Global Powers of Retailing report is bound to hit the world soon, and it will show, I suspect, that Wal-Mart is once again the largest retailer in the world. Doubtless, Target, Tesco and Carrefour will be in the top 10 as well. You won’t find Apple, The Gap or J.Crew, though. And, this is a situation that hasn’t changed much in more than a decade.

The vast majority of customers in the retail space want choice. That’s why they go to Macy’s and malls and big-box retailers. Of course, the travel consumer’s behavior is quite different. Most still prefer to book on the airlines’ websites – 62 percent, according to travel industry research firm PhoCusWright. Nonetheless, that leaves a considerable chunk of the market available to online travel agencies, and it indicate that roughly a third of the travel-buying community wants easier access to choice than the airline websites afford.

Also, the market share number can be deceiving, as Motley Fool explains:

Last year industry researchers at PhoCusWright said the global distribution system used by Orbitz, Expedia, and Priceline accounted for two-thirds of all airline passenger revenue, or $81 billion, in 2008. Losing a good portion of that money to the airlines will crimp the OTAs business, which they see as a threat to their future, but in the escalating rhetoric and use of force by both sides, it may be that all parties end up pouring more resources into a conflict that neither one really wants to fight.

The airlines do have a considerable negotiating position. The industry just recorded record profits, and with all the additional fees introduced, there are new revenue streams which seem to carry disproportionate large profit margins. A recovering market reduces price sensitivity among travel buyers, which leads to less bargain-hunting, also an advantage for the airlines.

Yet, what the airlines need to understand is that these factors are not absolute. Bargain-hunting behavior will continue. Consumer demand for choice – and the ability to evaluate options – will not recede in favor of unconstrained brand loyalty. The airlines may be in control, but the grip is not one of iron.

It’s pretty clear that the situation will get uglier over the next few weeks. I’m reminded of an email I received from Douglas Quinby, Sr. Director, Research at PhoCusWright, “American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!” But, I don’t think a heightened level of intensity will necessarily lead to the decimation of an industry. The online travel agencies are here to stay: they aren’t going anywhere. The dynamic between these sites and the airlines, though, appears to be changing, and we’re just witness to growing pains.

Lies, discrimination and combat: American Airlines claims sales increase post-Orbitz

American AirlinesYesterday, American Airlines announced that it was thanking its customers for their continued loyalty to the airline. It was a fairly predictable move, following the airline’s decision to pull out of Orbitz … which was followed quickly by Expedia’s making it more difficult to find American Airlines fares.

At the same time, the company engaged in a bit of chest-thumping – again, expected in this environment – claiming that overall ticket sales are up year over year since December 21, 2010, when it yanked its flights from Orbitz. Two days later, according to the statement, Expedia.com began discriminating against American’s flights and schedules by listing them lower in the search display than those of other airlines.”

“Our results to date show that consumer choice is alive and well and that our customers continue to have thousands of options to purchase American’s competitive fares and convenient schedules,” said Derek DeCross, American’s Vice President and General Sales Manager. “It is also clear to us that other online travel sites and traditional travel agencies are capitalizing on this market opportunity to gain business. Beyond that, we want to thank our customers and travel partners for their continued loyalty and support. We appreciate your business.”The airline says it’s committed to a wide range of distribution channels, as DeCross added, “Traditionally, airline products have consisted of different flavors of airfares. In the future, however, we envision the world of travel evolving into a much wider variety of products and services beyond fares. Our direct connection will help travel agencies help their own customers by giving them access to customized choices and delivering the best value to travelers. We do not envision a future in which we only sell to our customers through our own branded website. Our goal is to have broad distribution channels and choices for our customers, with our products and services delivered efficiently and without unnecessary costs flowing through the process.”

Okay, so that’s one side of the story. Fortunately, the Business Travel Coalition has weighed in with some comic relief another perspective. In a dramatic statement, written in a style I’ve only seen offered seriously by the Korea Central News Agency, the coalition says, “American Airlines’ (AA) press release distributed this afternoon [referring to December 29, 2010] regarding increased bookings since it pulled its fares out of Orbitz, and had its fares presentation downgraded in Expedia, has a hole in it large enough to fly an Airbus 380 through.”

According to the Business Travel Coalition, the bump in sales is attributed to the fact that American Airlines emailed a special offer to Orbitz customers that included a 20 percent discount on fares purchased before the end of the year on aa.com – which, if nothing else, is a savvy marketing move. Expedia customers received a 15 percent discount with the same timeframe.

Of course, the statement ratchets up the intensity a bit, saying these “targeted sales initiatives [were] instituted just after the combatants’ actions were taken.” Gotta love it: “combatants.”

In fairness, I characterized the struggle using war imagery as far back as December 6, 2010, when it was clear that a significant struggle between the airlines and online travel agencies was brewing.

So, the Business Travel Coalition continues, “In such a price-sensitive environment for consumers, discounts of this magnitude no doubt increased AA’s bookings likely masking the true negative impact of its actions and business predicament. Indeed, these discounts represent the price AA now has to pay to maintain market share.”

And now it’s time for the reality check: everybody’s posturing. And, it’s obvious. American is eager to show that it made the right move in a contentious marketplace that’s only going to become more so. The Business Travel Coalition has made its near-term mission the push for American to return to the online travel agency fold in a manner consistent with the rest of the industry. Both sides want to show that they’re right, and we get to watch.