At the turn of the New Year, Expedia, the country’s most visited Online Travel Agency (OTA), pulled American Airlines flights from their site after American pulled themselves out of Orbitz, another OTA. In a rare show of solidarity with a competitor, Expedia didn’t like the cards being dealt to Orbitz, namely sign up for a direct-connect platform to access American’s flights & fares, or else “bu-bye.”
As of yesterday, however, American’s flights are back for sale on Expedia after signing a letter of intent committing to access American’s products via a modified direct connect technology in the next 12 months.
The technology in a nutshell bypasses the traditional Global Distribution Systems (GDSs) used by just about every travel agency (online or brick & mortar) out there. The GDS systems are rather archaic, and were initially developed by the airlines to facilitate ticket sales. The airlines pay fees to the GDSs on a segment basis, ranging anywhere from around $3 to upwards of $6 per reservation depending on the amount of flights in an itinerary, among other factors. Compound that by the sheer volume of reservations out there, and you can imagine how high these distribution costs are to the airlines.
It’s was a bold move by American to spearhead a potential industry changer in the way airline tickets are sold, and as the months have progressed, they really haven’t backed down. I would imagine the other airlines are peaked with interest, and are quietly appreciative of American’s first strike in shaking up a controversial legacy & costly booking system.
You still cannot book American on Orbitz, however, where the situation is a bit different. Travelport, the operator of Apollo, Galileo & Worldspan GDSs, has the largest controlling share of Orbitz, so their hand pretty much dictates how Orbitz proceeds. As it is, they provide incentives to the OTA by keeping American’s flights off-sale and by refusing to sign a direct-connect contract with the carrier.
While I can’t blame American or any airline in wanting to reduce distribution costs, it really comes down to how it impacts the traveling public. My subjective analysis would be that if most people price shop across multiple OTAs and/or airlines, the impact is negligible. Reality, however, might show a different result, and it has been the claim by GDSs that direct connect technology will do nothing but hurt consumers ability to choose and reduce transparency to the lowest fares.