American Airlines officials have said that distribution is the carrier's fourth-highest cost after fuel, labor and aircraft ownership and maintenance, but legal expenses must be creeping up there, too, as the company is again suing key distributors. In a complaint filed Tuesday in U.S. District Court of Northern Texas, AA is going after the fundamentals of global distribution system-travel management company financial relationships in accusing GDSs--specifically Travelport--of monopolistic behavior.
Travelport issued a statement indicating it would "vigorously defend against [the] ludicrous and meritless antitrust lawsuit. In unsuccessful negotiations and now in litigation, AA seeks to limit consumer choice in shopping for fares and to limit consumer access to other relevant data. Travelport believes this lawsuit is merely another attempt by AA to gain bargaining leverage through litigation. AA's unfortunate choice to litigate frivolous positions, rather than engage in fair and constructive negotiations, leaves Travelport with no alternative except to defend these claims vigorously and to take all appropriate legal action."
Also named as a defendant in the suit, Orbitz Worldwide issued a press release early Wednesday morning calling AA's claims "baseless" and "the latest in a series of tactics to force Orbitz to adopt an airline ticket distribution model that limits consumer choice and inhibits competition. American Airlines made the decision to play the role of the marketplace bully and pull its fares from Orbitz. Having failed to force Orbitz to adopt unproven technology that does not meet the needs of our customers, American Airlines is now resorting to groundless litigation in a desperate attempt to revive an unsuccessful strategy. The unfortunate truth is that American Airlines is attempting to deprive consumers of the ability to compare prices across competing airlines. Orbitz will defend itself with vigor."
Among many other issues, the lawsuit revisits the series of events that led to AA's split with Orbitz and consequential "retaliatory actions" by Travelport, including doubled fees and display bias.
But what's new in the lawsuit is AA's argument that the marketplace of Travelport users is a "relevant product submarket," and that Travelport is a monopoly provider in that submarket. Using antitrust law language, the claim is that Travelport has violated the Sherman Act through pricing actions and decisions to exclude other technology alternatives.
The Department of Justice at least preliminarily pursued a similar case against Sabre after Sabre in January 2009 removed Farelogix from its authorized developer program. The Justice Department never commented on those actions, and it's not clear what became of them. This week's suit claims Travelport made the same move against Farelogix. "On Dec. 28, 2010, after American terminated Orbitz' ticketing authority, Travelport terminated its third-party developer agreements with Farelogix because it concluded that Farelogix was not 'aligned' with Travelport, presumably due to its cooperation with AA Direct Connect," according to AA's complaint. "Other software developers have been told that under their agreements with Travelport they are not permitted to work with Farelogix or AA Direct Connect."
AA also claimed that Travelport exercises monopoly power over American because corporate travelers rely on the travel agencies using GDSs for their bookings. "Because travel agents continue to be the dominant channel for selling airline tickets, especially to business travelers, and because travel agents continue to rely almost entirely on a single GDS to serve specific corporate customers, from the standpoint of airlines such as American, different GDSs are not substitutes for one another. As a practical matter, each GDS controls the ability of network airlines to access a discrete, but critical, group of travelers whose business is essential to those airlines' competitive and financial viability."
AA said about 51 percent of its revenue is "generated by brick and mortar travel agencies, and another 10 percent to 15 percent is generated by online agencies."
"If American wants to sell tickets to business travelers who rely on a travel agent that subscribes to one of Travelport's GDSs, it has no choice but to participate in that GDS or risk losing a substantial number of those ticket sales," company attorneys wrote. In the absence of true GDS alternatives, an airline's introduction of its own alternative tends to result in "immediate and significant harm from the loss of ticket sales by travel agent subscribers to the GDS," according to AA, which also cited DOJ and Department of Transportation commentary about GDS market power.
AA attacked as anticompetitive the "most favored nation" provisions commonly found in airline-GDS deals--which require participating airlines to offer the same content through GDSs as they do in other channels--as well as what AA called "exclusionary terms" in GDS-agency deals that require or financially incentivize many agencies to use only one GDS. "The payment of incentive fees under the GDS-travel agent contracts, and penalty fees for missing minimum volume commitments, creates a powerful disincentive for a travel agency to shift bookings from one GDS provider to another or to less costly non-GDS alternatives," according to the claim. "Some Travelport subscriber agreements include provisions that prohibit travel agents from aggregating information obtained from a Travelport GDS with information obtained from any other source, such as AA Direct Connect. Anticompetitive prohibitions such as these have the effect of significantly impeding the introduction of an effective competitor to GDSs, which in turn allows Travelport and other GDS providers to maintain monopoly power." AA specifically pointed to the relationship between Orbitz and part-owner Travelport.
AA also argued that the reactions by GDS companies and online travel agencies to its Direct Connect program have harmed progress of that initiative.
"After observing defendants' unlawful conduct, travel agencies that either had agreed or were in active negotiations with American to implement AA Direct Connect informed American that they feared retaliation from Travelport or other GDSs if they continued to work with American. As a result, defendants have significantly impeded American's ability to compete in the provision of airline booking services to travel agents."
The lawsuit asks the court to declare that Travelport's conduct violated the Sherman Act and certain provisions in Texas law. It also seeks "a permanent injunction forbidding Travelport from threatening or engaging in unlawful retaliatory conduct against American;" permanent injunctive relief "to create market conditions capable of dissipating Travelport's unlawfully maintained monopoly power;" treble damages; punitive damages; and reimbursement of attorneys' fees.
The article originally was published in The Beat.