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]

Exclusive Insight: Why hotels lost ground online

Yesterday, you probably saw that hotels are getting hit pretty hard by online travel agencies, as customers have been hunting for deals aggressively. The latest data from PhoCusWright puts branded hotel websites at 54 percent of the online channel, down from 59 percent two years ago. And a few weeks ago, we took a look at the competition between online travel agent and airline brands as we head into a travel market recovery.

Well, it looks like hotels are going to stage a similar comeback as the economy improves.

I reached out to Douglas Quinby, Senior Director, Research, at PhoCusWright yesterday to find out a bit more about the supplier/online travel agent dynamic in the hotel space.

Quinby wrote to me by email, “The interesting thing about this shift away from branded hotel websites to OTAs over the course of the recession – and this has happened with airline sites too – is not that hotel brands are not important, but that those travelers who care most about hotel brands, the frequent leisure and business travelers and true brand loyalists, were the ones that pulled back the most.”Essentially, hotels’ best customers started to stray, as cost became increasingly important given prevailing economic conditions. It isn’t surprising, of course: when you have fewer dollars, each comes with greater gravity.

Quinby continued, “When money is tight, price becomes more important, and the OTAs have deftly outflanked the recession by focusing on that infrequent leisure travel and what they care about most: deals!”

As business travelers come back into the market, it seems, the share of total travel spending going to the suppliers will again increase, as corporate travel budgets get a little looser and those making the buying decisions get a bit more freedom again. Quinby notes that this goes for frequent leisure travelers as well, with both categories leading to “improving performance in supplier websites.”

There’s no doubt that online travel agencies will need to increase their brand investments to compete effectively with hotel suppliers in 2011. Let the games begin!

So, how do you book hotels: with a branded hotel website or an online travel agent? Leave a comment to let us know!

Hotels get beat up on the web as online travel agencies score deals

Hotels were doing a great job of selling online before the recession hit. But, thanks to a healthy dose of innovation and greed, the global economy has been in rough shape, forcing those still traveling to hunt for deeper discounts and bigger deals. Unsurprisingly, this led to relatively strong market conditions for the online travel agent sector, particularly in the hotel space. For the hotel companies themselves, however, it’s been a bit rough.

According to travel industry research firm PhoCusWright:

The economic downturn has erased prerecession gains for hotel branded websites, as market pressures increase reliance on online travel agencies (OTAs). With occupancy still below 2007 levels and sluggish ADR [average daily rate] growth, OTAs will grow at twice the rate of hotel websites in 2010.

This follows proactive measures by hotels to improve their websites, with noticeable improvements leading to a 59 percent share of the online channel, according to PhoCusWright. Now, the suppliers are looking at a drop in share to 54 percent for 2010, with “similar growth patterns in 2011 and 2012 as hotels gain more control over OTA inventory.”

The battle of the brands, involving travel agents and their suppliers, is being engaged in the hospitality industry as well as the airline sector, it seems.

So, where do you think you’ll find your next hotel deal? Take the poll below to let us know!