American Airlines upends online ticketing
01/23/2011 12:00 AM
01/23/2011 12:51 AM
Nearly nine years ago, in March 2002, the airlines stopped paying commissions to retail travel agents — and dealt a mortal blow to what was once a thriving segment of the travel industry. More than 20,000 travel agencies proceeded to go out of business, and travel's retail sector hasn't been the same since.
Something of the same order may — I stress the word "may" — have happened in recent days, but this time the victims are not tiny retail travel agencies, but three giant operations: Expedia, Orbitz and Travelocity, otherwise known as online travel agencies (OTAs), which sell billions of dollars worth of tickets each year. Within the past month, American Airlines has announced it will no longer permit its airfares to appear on Orbitz.com. Then, following an angry exchange of press releases and official statements, Expedia (the first of the OTAs) announced it would retaliate against the injury to its colleague Orbitz by taking all American Airlines prices and tickets off Expedia — it apparently felt compelled to do so because of American Airlines' action against Orbitz.
Although American Airlines still has a yet-to-expire contract with Travelocity, it seems only a matter of weeks before its prices and tickets will disappear from Travelocity, too. Consumers will soon have to go directly to American Airlines' own website to ascertain its prices and to purchase American Airlines tickets, or else they will have to find American Airlines' prices by going to one of the aggregators who simply reveal prices but do not sell tickets, like Kayak (www.kayak.com), Momondo (www.momondo.com) or Dohop (www.dohop.com).
Various explanations have been offered for these dramatic developments. Initially, American Airlines announced it was leaving Orbitz because Orbitz had refused to include luggage fees and other supplemental expenses in the prices it announced. Other representatives for the parties have wandered all over the lot in offering other strange (and inherently incredible) explanations. A well-known industry analyst ascribed these actions to me as tactics aimed at obtaining better contract terms for American Airlines. Apparently, according to this gentleman (who admitted he was speculating), American simply wants to reduce the amount of money it pays to the various airfare search engines for selling its tickets. He also believes American Airlines' action is a colossal mistake that will cause it to lose hundreds of millions of dollars in sales.
By contrast, an American Airlines spokesman has announced that, through its own website, American Airlines is now selling a record amount of tickets each day — more than it had sold when it was still dealing with Orbitz and Expedia.
My own speculation is that American Airlines has embarked on its departure from the search engines for the same reason it decided nine years ago to cease paying commissions to travel agents. To me, this is an extremely shrewd move to get rid of expenses totaling hundreds of millions of dollars a year — namely, the payments that American Airlines makes to Orbitz, Expedia and Travelocity. It apparently feels that the public can be taught to go directly to American Airlines to buy tickets, or — at least — that it can be taught to consult the aggregators (Kayak, Momondo and others ) that simply reveal what the prices of all the airlines will be (after which the consumer can go to American Airlines' website).
If American Airlines succeeds in this maneuver, and if the other airlines then follow its lead, it will rather spell the end of Orbitz, Expedia and Travelocity, or result in a dramatic reduction in their size, leaving them to confine their sales to tour packages, hotel rooms and car rentals.
In other words, I believe that American Airlines has adopted a nuclear option — the most drastic effort of which it is capable (to eliminate the major online travel agencies), and not simply a bargaining maneuver aimed at forcing the airfare search engines to negotiate more favorable terms. Whether I am right or wrong, a titanic struggle has been launched that will have a major effect on the way in which we, as consumers, ascertain which are the lowest-price flights to choose for our next trip.
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