As the expiration of its content agreement with Sabre looms and a marketing agreement with the GDS already expired, American Airlines last week alerted agency and corporate customers that beginning in September it would charge $3.50 per segment on transactions booked through nonpreferred distribution channels, which—barring new agreements—include Sabre and Amadeus.
Meanwhile, Galileo and Worldspan—the two GDS operators that have struck new content deals with American Airlines and are among its preferred distributors—have introduced or said they would introduce optional programs for agencies. While Worldspan would not disclose details, Galileo said its program protects subscribers from new airline booking charges while providing "full content." In introducing opt-in programs, the GDSs follow Sabre's move last month when it launched a fee-based program that assures full content from its signed carriers, while offering immunity from any new service charges they may introduce.
Following the expiration late last month of a 10-year marketing agreement, under which American agreed to promote the use of the Sabre GDS, the airline has been positioning itself in marketing messages and corporate advisories that without a contract it would push volume through other channels. Last week on its Web site, American detailed its plan. Preferred channels include the Galileo system, one of two optional products forthcoming from Worldspan, as well as alternatives G2 SwitchWorks and Farelogix. Sabre already has signed contracts with the other Big Six carriers, but American, the largest, is holding out for better economics, sources said. An American spokesperson last week said, "We are not in current discussions with Sabre" on the GDS contract.
In addition to Sabre, American has yet to sign new terms with Amadeus. The carrier kicked up dirt when the two GDSs formed an agreement to leverage each other's distribution systems should a carrier not participate in one—and since has turned up its threats of withdrawal from one or multiple GDSs
(BTN, March 20).American's current content deal with Sabre is set to expire at the end of this month. If a deal is not reached by that time, the carrier and GDS would operate under a 30-day extension as they work to strike new terms. According to Sabre, once the contract expires, "the underlying contract will be the governing contract. This contract is a standard 30-day rolling participating carrier contract."
"I was told two weeks ago by both American and Sabre that they were locked in a room with lawyers and they weren't coming out until they had a deal. Well, that didn't happen," a mega TMC executive said last week. "American is playing big-time hardball."
Whether the carrier is posturing to gain the terms it wants from Sabre or whether it will implement its new policy, agency sources and travel buyers aren't sure. Yet, American last week gave U.S.-based agencies and corporate travel departments details of its "Source Premium Policy," which segments distributors into two categories: "Competitive Booking Sources" and "Other Booking Sources."
"Travel agencies that use Competitive Booking Sources to create bookings will have access to full American content," American notes on its site. The carrier said customers electing to use other distribution sources "will be required to bear a portion of the cost of content distribution via these sources."
Travel management companies and corporate buyers expressed dismay on a conference call with American last Wednesday, sources said. "They heard from a lot of small agencies, saying basically you just put us out of business," said one participant. "A lady got on the call and said she had 200 people to put on a flight for American and basically told them, 'I'm done with you guys.' "
Paul Ruden, senior vice president for legal and industry affairs at the American Society of Travel Agents, said travel agents have big decisions about whether to opt in to new GDS programs. However, given a lack of disclosure by several GDSs on financial details of opt-in programs and the unresolved deal between American and Sabre, there is not enough information to make those decisions, he said.
"I think everybody expected that this would be a more orderly, open and welcoming process," Ruden said. "Instead, travel agents feel they are caught in the middle in a battle between the airlines and GDSs. They don't like it and they're right not to like it."
Sabre last month introduced an optional fee-based program that gives subscribers access to the full airfare content of signed carriers and immunity from airline service charges imposed by those carriers
(BTN, June 19). However, some TMC executives questioned the program's worth sans a contract with American—the largest U.S. carrier and a heavy user of Sabre.
Despite its initial grumblings about the Sabre opt-in program, Galileo last week introduced a similar program called Content Continuity. The GDS said the move is "in response to structural changes underway in the marketplace." The program mimics Sabre's in that U.S.-based subscribers "agree to certain financial terms" for guarantees of full content—the GDS is the first to sign with all the legacy carriers (see story, pg. 8)—and immunity from service fees introduced by participating carriers, including American. Galileo said the program will go into effect Sept. 1, one month after Sabre's is slated to launch.
"Content Continuity delivers the best of both worlds as it addresses the significant and immediate challenges faced by our supplier partners, providing airlines with market-competitive distribution savings and delivering our travel agency partners efficient access to the full content they require while protecting them against airline service fees," said Kurt Ekert, senior vice president of supplier services for Travelport, which owns Galileo.
Meanwhile, sources said Worldspan would follow Sabre and Galileo with a similar opt-in program, as the Worldspan has promised "two new optional products to introduce into the marketplace." American Airlines' move further fuels the speculation, as it plans to impose its $3.50 charge on bookings made through one of the Worldspan products but not the other.
"Worldspan understands that its customers need certain information to make informed decisions," the GDS said in a statement last week. "Given recent market developments, Worldspan has expedited its plans to announce the details of its new optional products." The GDS plans to announce those details late this week.
Whether or not Galileo and Worldspan will gain marketshare from Sabre—the dominant GDS in the United States—hinges on Sabre's ability to come to terms with American, sources said. While American last Thursday said it is not currently in discussions with Sabre, the GDS said it would continue to work toward an agreement with the carrier.
ASTA's Ruden said, "Sabre accounts for something like half of American's bookings. It's hard to imagine that they will not reach some kind of agreement at some time. They're sort of staring each other down right now. Because American made their policy effective on Sept. 1, there is still time for change."
"Tuesday at lunch at NBTA, (Sabre CEO) Sam (Gilliland) and David Cush (American Airlines senior vice president of global sales) are going to stand up and say, 'Oh my golly. We just worked everything out and what we talked about the other day is null and void. It takes two great companies to come together to make this work and yada, yada, yada.' Then everybody's going to be real happy and walk out," said Sabre-using Wal-Mart director of global travel services Duane Futch. "If that doesn't happen, then we're all in deep trouble."
If new terms with are not forged, American said it would submit monthly invoices to agencies, which will tally the $3.50 charges applied by booking segment, "including passive segments, using the billing data provided to American by the GDS."
"It's $3.50 per segment, so with four segments it's up to $14 a ticket," Wal-Mart's Futch said of American's proposed charges. "Then you throw on your GetThere charges with Sabre on top of that. There are companies out there that are going to take a substantial hit and going to have to think twice about whether or not they want to have corporate travel departments or agencies that have to determine if they want to stay in business."
Furthermore, American continued threats that it may "withhold content" from non-preferred channels, "particularly if an other booking source fails to display American content on neutral terms as compared with other airlines."
"For example, if an agency uses an Other Booking Source to create a PNR for a single passenger to travel from DFW-LAX-DFW, this booking counts as two gross flight segments," American notes in the terms of its policy. "Then, if the agency cancels the final flight segment (LAX-DFW), the agency would be charged only for creating one net booked segment."
American said that if a payment is not made within 30 days, the carrier will "deduct the outstanding balance amount from any payments due from American to the agency."