American Airlines began 2011 facing a growing backlash from distributors regarding its direct-connect intentions, but this week in a Texas court it won a 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 million.
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 contractual commitments.
"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 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 Airlines."
TMC sources speaking with The Beatsaid 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 Weigh In
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 participate."
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."
~ additional reporting by Jay Boehmer, Jay Campbell and Mary Ann McNulty