Orbitz weighs in on American Airlines ruling [BREAKING]

by Tom Johansmeyer on

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]

by Tom Johansmeyer on

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]

Five perks business travelers MUST have

by Tom Johansmeyer on

If you’ve ever been a road warrior, you know that the following is true. Spending hours upon hours on a plane several times a week, every week of the year, even the smallest benefits can make a profound difference. It’s sad but true that happiness is measured in on-time arrivals and exit rows, but such is the nature of frequent business travel.

According to the latest Orbitz for Business / Busienss Traveler Magazine Quarterly Trend Report, what business travelers want is changing. During the recession, cost was paramount, as cash-strapped businesses put pressure on employees to keep expenses under control in a bid to protect profit margins. Now that economic conditions are changing, travel priorities are too.

Ancillary services are gaining importance, as passengers are looking for ways to be comfortable again, especially if looser travel budgets are resulting in more time on the road. According to IATA, the airline industry is likely to pull in an aggregate $8.9 billion in profits from ancillary services this year, indicating that the money is likely to come from somewhere.

Let’s take a look at the five things the white collar travel folks are beginning to crave:1. A seat in the aisle: this isn’t surprising; everyone wants the chance to stretch out, even if it means the risk of getting slammed by the beverage cart.

2. Priority access at the security line and early boarding: hey, nobody wants to wait, right?

3. Airline lounge or club access: if you’re going to be stuck in an airport, you might as well enjoy it.

4. A seat at the front of the plane: boarding isn’t the only priority – business travelers want to get off quickly, too.

5. Extra leg room in coach: sense a theme here?

Like the opportunity to keep one’s dignity while flying, baggage check didn’t make the top five. Though among the most used ancillary services for leisure travelers, it came in sixth for business travelers, likely because frequent fliers have learned to avoid checking their bags at all costs. Interestingly, the least-used ancillary services are priority standby for an alternative flight and internet access, though I expect the latter to increase as it becomes more widely available.

American Airlines and Orbitz tangle over fees and booking process

by Tom Johansmeyer on

Do you use Orbitz to book flights on American Airlines? Well, your online travel buying habits may have to change. American is getting tough with Orbitz – and other online travel agencies – about how they do business together. For now, you can keep buying tickets on American via Orbitz, but a change could come as early as December 1, 2010.

The rhetoric is already high, as you can see in a recent Bloomberg report. Barney Hartford, the CEO of Orbits, said, “This is a broad attack by American on the travel distribution landscape.” The airline wants the likes of Orbitz to pull flight and fare info directly, rather than through a global distribution system.

So, is this all saber-rattling, or are American’s threats to pull out of Orbitz real. Bloomberg reports:

American can’t afford to pull its content off all the global distribution systems, and its conflict with Orbitz is a “private negotiation that suddenly became public,” said Jay Sorensen, president of aviation consultant Ideaworks and a former marketing director at Midwest Airlines.

Sorensen said he doesn’t “see an agenda here for American to remake the travel industry.” He indicated that this is part of a prudent negotiating strategy but noted that Orbitz may call the carrier’s bluff.

There’s a lot at stake – hundreds of millions of dollars, in fact. American has paid nine-figure sums to companies like Sabre and Galileo to gain access to online travel agencies and wouldn’t mind bypassing them and saving a few bucks, it seems.

So, will negotiations turn into a game of “chicken” as the end of the month approaches? Let’s wait and see how this develops.

[Via USA Today, photo by Deanster1983 via Flickr]

Taxes could make discounted hotels more expensive

by Tom Johansmeyer on

If your next hotel stay is more expensive than you expected, blame the government. State and local governments, still reeling from the recession, are looking for any source of revenue they can grab. And, they’re next target seems to be online travel agencies.

Online booking sites, such as Expedia and Orbitz, negotiate a rate with hotels for available inventory, market it up a bit and pass it along to the travel-buying public. The business model is pretty straightforward. The problem comes down to which room rate should be used to calculate state and local occupancy taxes. At least 40 lawsuits have been filed over the issue, as local governments have rewritten ordinances to try to add a bit more to the coffers.

There’s a lot at stake, according to a USA Today report. Approximately $1 billion a year is perceived to be lost by state and local governments.

Yet, is it really lost? The online travel agencies are paying the hotels, and according to Andrew Weinstein, spokesman for the Interactive Travel Services Association:

“Occupancy taxes are based on the rate the hotel sets and receives,” he says, “not the profits, fees or commissions of its partners. … The facilitation fees are no more part of the hotel rate than the taxi that takes the guest from the airport or the tip they give the bellhop.”

How do you feel about this issue? Leave a comment to let us know if it’s what the hotel gets or what the occupant pays that should matter for tax purposes.

[photo by Howdy, I’m H. Michael Karshis via Flickr]