American Airlines fight is about cost and control

Cost and control are at the heart of the disputes between American Airlines and its one-time travel partners Orbitz, Expedia and Sabre Holdings, industry and company executives say.

If American is successful, online travel agencies such as Orbitz and Expedia and global travel distribution systems like Sabre would move from selling airline tickets to marketing a customized travel experience — from an airline ticket to an early boarding preference, on-board Internet access, meals, rental car, hotel and other services, industry officials said.

But American’s success would have a downside, which could include higher costs for travel agencies, online travel sites and travelers, and bankruptcy for smaller travel providers, industry officials said.

“It would not be a good deal for the travel industry as a whole,” said Greg Spears, CEO of Spears Travel/Travel Leaders in Tulsa. “Anything that diminishes access to content — fare information — is not good for the travel industry. Anything that diminishes access by consumers to multiple airline choices in the long run is going to raise prices.”

During the last 15 years, as the Internet evolved from an electronic encyclopedia to an all-purpose resource, airlines went from enthusiastic supporters to passive partners, industry observers said.

Today, when travelers shop for an airline ticket on the Internet, they are presented an array of choices based on fares and schedules.

“There’s a lot of transparency in the system, which

is why airlines have trouble raising fares,” said Alex Eaton, president of World Travel Service in Tulsa. “In the beginning, the airlines thought the Internet would create a lot more opportunity to sell tickets. But it also created a lot more transparency in the system. The market drives fares.”

American wants to alter the travel industry from an airline ticket commodity transaction to a customized travel experience, company officials said.

“We can’t do that today because of the technology limitations at the GDSs (global distribution systems),” said American spokesman Ryan Mikolasik. “This battle is partly about costs, but it’s also about control — what we are able to show and sell customers. Airlines … want to be able to differentiate their products.”

Critics of American’s approach include online travel agencies, GDSs and business travel and consumer groups. They say American wants to cut costs by eliminating the GDS connection and fees and steering travelers and online travel agencies to AA Direct Connect, a direct link into American’s host reservations system.

AA Direct Connect enables travel agents or travel websites to get access to American’s booking, ticketing, post-ticketing service transactions and shopping, American executives said.

Moving travelers and travel websites to AA Direct Connect gives the company the ability to design special packages and deals that could be displayed to potential customers using the online travel agencies, said Bob McAdoo, senior research analyst for AvondalePartners LLC.

“(American’s parent) AMR wants flexibility in how it sells and prices seats with ancillary services,” McAdoo said in his research report, issued Thursday. “As Southwest Airlines sells Business Select fares, combining the seat with early boarding, free drinks and extra frequent flier credit, AMR would like the ability to package its fares with these or other services. Such bundling is not possible through the OTAs or any other distribution outlets that flow transactions through the GDSs.

“AMR can offer the bundled product on (its website) AA.com. However, less than 30 percent of AMR’s customers buy through AA.com.”

The irony of the situation facing American and Sabre today is hard to miss for travel industry veterans.

Sabre, the world’s largest travel reservations company, was developed at American in 1960 to automate the handwritten passenger reservations system of the 1950s.American and IBM jointly developed a Semi-Automated Business Research Environment, or Sabre, to electronically manage revenue, pricing, flight scheduling, cargo, flight operations and crew scheduling.

In 1976, Sabre was installed in a travel agency for the first time, company records show.

By the time AMR spun off Sabre as an independent company in 2000, more than 40,000 travel agents worldwide used Sabre, news reports said.

Two of the travel agencies in Tulsa that use Sabre are Spears Travel/Travel Leaders and World Travel Service, said Spears and Eaton.

Although Sabre, Orbitz and Expedia have downgraded or removed American’s flights and service offerings from most of their displays in response to the ongoing battle with the airline, Spears and World Travel retain access to the full array of American’s flights and services, Spears and Eaton said. But the dispute troubles them, they said.

“Eventually, it could change the way we do business,” Spears said. “If we have to access information from different (airline) systems, as far as efficiency and our ability to serve the customer, it’s going to make it more costly.”

Eaton said he hopes “existing distribution channels — the Sabres of the world” — are successful.

“If you think about a world in which every airline has its own distribution channel, the fragmentation of fare information would be staggering,” Eaton said.