Is American Airlines making a “reckless rodeo bet”?

American Airlines’ decision to pull out of Orbitz has triggered a war in the travel industry, as airlines and online travel agencies vie for ownership of the customer. The latest step was Expedia’s decision to minimize the exposure of American Airline options in searches on its site, likely a play to reduce the risk of a move by American to pull out of Expedia, too.

According to a statement by the Business Travel Coalition, this could erode American Airlines‘ standing in the market further. In addition to losing visibility on a major booking site, the airline will lose the additional sales that come when a visitor to an online travel agency leaves the site to book directly with the airline.

Says Kevin Mitchell, chairman of the Business Travel Coalition, said, “American is making a reckless rodeo bet that it can rope its best customers like calves and then push and pull and kick them toward aa.com and Direct Connect.” He continued, “Online consumers may not even know American’s flights are missing. The ones who will gain the most here are American’s competitors United, Southwest and others. They should be thankful for this early Christmas present.”
Striking a somewhat alarmist tone, Mitchell noted that American Airlines Direct Connect “takes the consumer problem of hidden airline fees to a much darker and dangerous place for consumers.”

While this may be a bit extreme, there are clear implications of the shakeup, especially for bargain-shoppers and occasional leisure travelers.

The fact that Expedia appears to have come to the defense of its competitor, as Mitchell stated – “Expedia’s decision to support the consumer and its competitor Orbitz underscores the enormity of the economic damage American Airlines’ Direct Connect plans could have on consumers due to lessoned [sic] price transparency and impeded comparison shopping” – should be taken within the context of what could happen to Expedia’s business if it didn’t implement this defensive measure.

The real impact of this is pretty simple: customers loyal to the American Airlines brand will continue to buy from American Airlines. Those who are searching for the cheapest fares will balance their behavior between visiting online travel agencies and airline websites.

American Airlines may not have made a “reckless rodeo” bet, but is making a statement about the future of its business. The airline is betting on its own brand, and the online travel agency community is responding.

[photo by ReneS via Flickr]

When airlines pull out of travel websites, who loses?

It’s been a busy week. The action with airlines and online travel agencies has been brisk, and in the end, it affects you as much as it affects them. Sure, there’s plenty of money involved for the travel sites and the airlines, but in the end, it all comes down to what you experience during the buying process. These changes – with American Airlines and Orbitz and Delta and CheapOair – will have an effect on you and on which airline you fly next.

Doubtless, the numbers are big. Orbitz generated $800 million in revenue by selling flights on American in the first nine months of 2010, though some of it came from ancillary services. While CheapOair’s revenues from Delta aren’t available, let’s not lose sight of the fact that it’s the largest airline in the United States, so the impact can’t be trivial.

Are the airlines eyeing all that business and trying to claim it for themselves? There’s a flaw in that thinking, according to the Business Travel Coalition. In a statement released last night, it noted that American Airlines may lose some of the revenue it books through Orbitz, and you’re the reason why.

The dynamic is pretty straightforward. According to data from travel industry research firm PhoCusWright, the BTC says, 87 percent of travelers turn to the internet when they start shopping for tickets. Also, around 28 percent of the would-be travelers who visit online travel agencies wind up buying their tickets on the airlines’ websites instead.In practical terms, let’s say you’re looking for a flight, and you go to Orbitz. On Orbitz, you notice options from American Airlines. There’s a one-in-four chance, roughly, you’ll just go to American’s site to buy your ticket.

Now, what happens if you don’t see American on Orbitz (or Delta on CheapOair)? Well, you may see a flight on United, and go to that airline’s website to make your purchase. That’s a lost opportunity for the airline that pulled out of the online travel agency.

As Kevin Mitchell, BTC chairman, puts it: “American acts as if it’s the country’s biggest airline when it’s really number four and falling. Consumers may not even know American’s flights are missing. The ones who will gain the most here are American’s competitors who will enjoy feasting this Christmas on turkey served up by American. Delta, United, Southwest and others should be grateful for this early Christmas present.”

He adds: “American’s decision to immediately pull its flight information from Orbitz shows that it has near-zero interest in preserving an open and transparent marketplace. It is an outrageous act that will negatively impact consumers nationwide who are in the midst of comparison-shopping for their holiday travel. Moreover, American is tacitly acknowledging that if a consumer booked an American flight on Orbitz, and now needs to change it, she will need to work through American Airlines. That’s a recipe for huge consumer confusion and frustration right in the heart of the holiday season.”

The same, of course, could be said about Delta in regards to CheapOair, though on a much smaller scale, given that CheapOair forecasts 2010 total revenue of $1.2 billion (compared to $800 million in revenue related to American Airlines alone for Orbitz).

So, it all comes back to you. The airlines want you. The online travel agencies want you. This is why the battle for the consumer is intensifying. And, with fares on the rise and economic conditions stabilizing, the stakes are getting higher. For the airlines, direct ownership of the consumer certainly has its perks, but it also comes with a handful of risks. They may be serving business up to the competition, as Mitchell said.

Airlines and online travel agencies are king some pretty big bets on how you will book your tickets. Ultimately, however, the decision is entirely yours.

[photo by cliff1066 via Flickr]

Which BIG airline just pulled out of three booking sites?

As you’ve read here on Gadling, the battle between airlines and online travel agencies is poised to heat up. For the past few years, a dismal economy has sent many bargain-hunters to online travel sites with the hopes of finding fantastic deals and minimizing the pain in their wallets. Yet, with the travel market and the broader economy showing signs of recovery, airlines‘ brand power will gain momentum, and customers with more cash at their disposal will favor convenience and recognition over saving a couple of dollars. A battle for your money and your loyalty is brewing.

And, it’s just intensified.

Last month, American Airlines and Orbitz tangled over fees and the booking process, with the airline threatening to yank its inventory from the travel site, a threat on which it made good. After a temporary restraining order was issued, a judge ruled yesterday that American could pull its inventory from the online travel agency and ordered Orbitz to stop selling American Airlines tickets and displaying its fares.

Now, Delta‘s getting in on the action.

The airline has yanked its inventory from a handful of smaller online travel agencies, Aviation Week reports, including CheapOair, OneTravel and Bookit as of last Friday. So, if you’re hunting for cheap tickets on these sites, you won’t run into Delta any more. Aviation Week observes that it appears to be “part of a partial shift in its distribution strategy,” and notes that it seems different from American’s move with Orbitz.For Delta, the decision looks like it’s part of an effort to consolidate around larger online travel agencies, while American is targeting agencies directly, rather than using an intermediary to reach another intermediary.

While the means may be different, the objective appears to be the same. With a shift in the economy, airlines have a bolstered position in the marketplace, and this is likely to give them a bit more weight in dealing with online travel agencies and in reaching consumers directly. For American, it seems like a play to reduce costs and increase efficiency – as it is for Delta (though through different means). Ultimately, however, Delta wants more direct action from consumers, which reduces its sales costs and increases profits, which is what differentiates its decision from that of American.

According to a statement by Delta in Aviation Week, “Delta is being more selective in our use of online travel sites in the future as we continually work to improve our online distribution strategy.” The company adds, “We continue to make significant investments in delta.com to make it an industry-leading travel site, and we believe that delta.com will become the preferred online site to book travel on Delta.”

A representative from CheapOair was not available for comment.

I asked Douglas Quinby, Sr. Director, Research, at travel industry research firm PhoCusWright, his thoughts on Delta’s decision, and his reply was pretty striaghtforward: “The only surprising thing about this move is that it has taken this long.” He explained, “U.S. airlines have impressively restrained their appetite for growth (i.e. capacity) on the back of a (more or less) recovering economy. With clear control of their inventory, airlines have already started rationalizing distribution, and the weakest links are first to get snipped. American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!”

So, what’s the net effect of all this? Do the actions of Delta and American suggest that we’ll be paying higher fares in the future because of behavior that doesn’t benefit the consumer? My bet is that the average fare buyer won’t see a whole lot of difference, especially given the share of sales already owned by the airlines via their own websites. The infrequent leisure traveler, especially, is losing an alternative … though it’s one that won’t be as important in a recovering economy.

[photo by boeingdreamscape]

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 Orbitz.com 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 Orbitz.com 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 Orbitz.com 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 Orbitz.com 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 Orbitz.com 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]