American Airlines began 2011 facing a growing backlash from
distributors regarding its direct-connect intentions, but this week in a Texas
court it won an order forcing Sabre Travel Network to temporarily cease certain
retaliatory actions. Sabre had accused AA of breaching contractual commitments
related to "full content" and last week began biasing the carrier's
content in shopping displays, rescinding segment-fee discounts and moving to
end its AA distribution agreement in early August, a month earlier than the
Sept. 1 expiration date.
AA is in several other commercial disputes. Its fares were
not available through Orbitz (by AA's choice) or Expedia (by Expedia's choice).
While Orbitz for Business customers now must rely on less-efficient phone calls
to book AA tickets, clients of Expedia's Egencia corporate travel unit can
"book AA fares as usual," according to an Expedia press official.
Meanwhile, Travelport in non-U.S. markets raised AA's booking fees and,
according to the airline, has been biasing against the carrier in Galileo and
Worldspan GDS displays.
These and other distributors characterize AA's
direct-connect strategy as unfair to consumers and costly to agencies. Because
it bypasses global distribution systems, the direct connect eliminates
comparison shopping, forces agencies to adapt their systems and raises
questions over distribution economics, critics argued.
According to court documents filed by AA against Sabre,
Sabre Travel Network senior vice president Chris Kroeger in a memo dated Jan. 5
told American director of distribution strategy Cory Garner that the carrier
had violated two provisions of the parties' distribution agreement: the carrier
"has marketed a program offering Direct Connection alternatives to GDS
subscribers" in ways not permitted under terms of the deal and also
"failed to provide full content to Sabre."
On the first point, according to Garner's written deposition
filed with the court this week, "Until five days ago, Sabre never objected
to the propriety of American's statements, responses, and explanations about
our direct-connection system."
On the latter point, Kroeger last week said that AA's
full-content violation relates to AA's Boarding and Flexibility Package, the
fee-based bundle including priority boarding, discounted change fees and free
standby that is not available to travelers using agencies that book AA tickets
through global distribution systems. "That is a fare in our view,"
Kroeger said, "and our commitment to our customers is to provide full
fares and access to all components of the fare. That's what our customers are
looking for and that's the area that American has withheld."
In court documents, AA argued that Sabre's actions, which it
took last week, were "irreparably and unfairly harming American's business
and reputation by eliminating countless sales that American would have earned
and by misleading the public into believing that American's services either no
longer exist or are not competitive with options offered by competing air
carriers." The airline also claimed that by rescinding discounts on
per-segment fees, Sabre would push up AA's annual distribution costs by $157
In his deposition, Garner added that "corporate
customers have expressed irritation and even anger towards American because of
the delays and difficulties caused by Sabre's conduct. These corporate
customers likely will choose to book on airlines other than American. I am
aware of a corporate account that has threatened to stop doing business with
American because of Sabre's biasing."
The court sided with AA, for now disallowing Sabre from
biasing against the carrier in GDS displays. "We are gratified that, after
a contested hearing, the court has granted American's request for interim
relief, to be in effect until the court considers American's request for longer
term relief," according to an AA statement. "American intends to
vigorously pursue its litigation against Sabre, including seeking damages for
other violations of our agreements."
Tangling With Travelport
AA's suit in Texas also listed Travelport as a defendant.
Specifically, the carrier seeks clarification on its "right, obligations
and status" under Travelport's Preferred Fares agreement and a declaration
that its decision to terminate a deal with Orbitz does not breach any of its
"Defendants hope to coerce American into abandoning its
efforts to modernize and streamline the costly legacy system for distributing
American's travel data," the carrier wrote.
In a separate but related case, a Cook County, Ill., circuit
judge in December denied a temporary injunction sought by Travelport that would
have stopped AA from inhibiting ticketing through Orbitz. "Although the
motion for a preliminary injunction was denied, the case will continue on its
merits until the request for a declaratory judgment is adjudicated,"
according to Travelport.
That case already produced some interesting information, as
reported by BTN sister publication The Beat. For example, AA for its new
direct-connect model is considering "a ticket-based compensation model
versus the GDS segment-based compensation model," according to testimony
from AA managing director of distribution and merchandising strategy Bridget Blaise-Shamai.
In other words, AA pays the per-ticket distribution incentive to agencies,
replacing the per-segment fee that airlines pay GDSs and typically is shared
with agencies and corporate accounts. The per-ticket incentive hypothetically
could be augmented by revenue sharing on ancillary service sales.
Blaise-Shamai explained that the incentive would be paid
regardless of how many segments are on an itinerary. "In direct
connect," she added, "if revenue gets canceled, we're not going to
pay for it. If an itinerary gets changed, we're not going to pay for it. In the
current model, we pay for it even if it doesn't turn into revenue for American
TMC sources speaking with The Beat said they weren't sold when they heard some of the
details, noting that the AA-paid incentive likely would not offset lost GDS
income and new costs necessary to integrate AA's solution. Moreover, the
sources indicated that AA hadn't made any long-term commitments whereas GDS
agreements with travel agencies are typically three to five years in length,
and sometimes as long as 10 years.
Meanwhile, AA, according to Blaise-Shamai, asked Travelport
for "the same commercial terms" as another major airline—most likely
Southwest—that was using the Travelport Universal API to connect while more of
the cost is borne by agency subscribers. She said that Travelport was not
interested and blamed AA for creating "this beast," meaning the GDS.
TMCs, Industry Groups
While some TMC executives stated opposition to AA's direct-connect
plans, many simply wished they and their customers were not victims caught up
in the AA-Sabre spat.
Travel Leaders Group, for example, issued a statement
expressing concerns that agents would no longer have all fare options at their
fingertips. "Unfortunately, travel agents using Sabre are currently caught
squarely in the middle of a fight not of their own choosing," according to
the company. "It is absolutely critical to consumers that consumers
continue to have unimpeded fare information no matter the channel through which
they choose to book travel."
Two vocal opponents of AA's direct connect, the American
Society of Travel Agents and the Business Travel Coalition, this week
reiterated similar concerns and conveyed plans to launch a "coalition"
advocating for airfare and optional service fees transparency. The Open Allies
for Airfare Transparency group would endorse the principle that "all
airlines should make their complete fare and ancillary fee information
available through every distribution channel in which they choose to
The coalition also would "strongly oppose efforts by
airlines to strong-arm TMCs, corporate travel departments, travel agencies and
online travel companies to use direct connect or any other booking systems or
technologies that do not meet their clients' needs."
Meanwhile, GDS operator Amadeus is neither involved in any
legal action against AA nor has it announced actions against the carrier, but
the GDS operator warned that "should any development occur that breaches
[our U.S. airline content] agreements, Amadeus will take the actions we feel
appropriate and in the best interest of our customers and our business."
The company added that "the direct connect model only promotes
fragmentation, raises costs, and creates inefficiencies across the travel
industry distribution chain."
Jay Boehmer, Jay Campbell and Mary Ann McNulty contributed
to this report.