Among other things, 2003 will be known as the year that global distribution system bypass took off. According to Orbitz's late-November Securities and Exchange Commission filing, its Supplier Link technology handled 40 percent of Orbitz's air transactions in September. Carlson Wagonlit Travel claims it is processing 20,000 transactions per month with its direct connection via Navitaire—a chunk that Business Travel News estimates is worth to GDS companies well more than $2 million annually in lost revenues.
Meanwhile, although they are not as aggressive in air, Expedia and Travelocity both claim to be making progress on hotel direct connections. Orbitz is seeking the same.
These developments do not come without some consternation on the part of GDS firms. Partly in response, Cendant and Sabre are taking on these distributors with corporate agencies of their own, while Worldspan has been less vocal about its similar program. Amadeus, meanwhile, is taking an altogether different tack on pricing
(see story)."We need to move our relationships with GDSs more into a granular pricing scheme where we pay for the resources we consume, because it's fairly bundled today," said Carlson Wagonlit Travel chief information officer Loren Brown. "Some are more receptive than others, but that's the direction we're heading."
US Airways is the newest participant in both the CWT and the Orbitz direct programs. A Northwest Airlines official last month said 88 percent of that carrier's Orbitz bookings are delivered through Supplier Link, but Northwest joined American and Continental airlines in limiting their use of the program to accommodate other participating carriers.
The trio, which is among the five Orbitz owners, including Delta and United, made the adjustment because Orbitz's contract with Worldspan requires Orbitz to book 16 million quarterly car and air segments with the GDS provider. If it falls short, Orbitz must pay Worldspan $1.78 per segment on the difference.
Alaska and America West airlines earlier this year
(BTNOnline, June 30) protested what one of them called the power Worldspan was wielding over Orbitz to limit Orbitz's expansion of Supplier Link.
Addressing the alteration agreed to by American, Continental and Northwest, Orbitz said, "After a phase-in period in 2004, all participating carriers would be provided access to Supplier Link segments without limitation, starting in 2005, except that we would maintain the ability to scale back Supplier Link transactions to all participating carriers on a proportional basis as necessary to ensure the delivery to Worldspan of our segment obligations. We have agreed that we will make compensatory payments to airlines, including our founding airlines, to the extent they would have processed tickets through Supplier Link, but are unable to do so because of the imposition of this ratable reduction. However, these payments would be limited, in the aggregate, to $3 million in 2005, $4 million in 2006 and $5 million in 2007 and in each subsequent year."
"Supplier Link just doesn't make any GDSs jump for joy," according to Orbitz chairman, president and chief executive Jeff Katz.
Further seeking to make room for both Orbitz's and Worldspan's interests, Orbitz's owners recently altered the company's Certificate of Incorporation to preclude Orbitz from declaring Worldspan in breach or default of—or to "terminate or attempt to terminate"—its agreement with Worldspan without approval by each of the owners.
The move follows a public spat between the pair over what Orbitz said was a service issue
(BTN, Oct. 27). The alteration and other related restrictions "may adversely affect our ability to resolve our dispute with Worldspan in a manner advantageous to us," Orbitz said.
Worldspan's relationship with Expedia on air and car appears to be more congenial, though.
"When it comes to air, car, cruise, etc., as of now we don't have any announced plans to do direct connections, and we have a Worldspan partnership that works very well for us," said Expedia CEO Erik Blachford. "Direct connect is something we are working on in the hotel area, and we are already live with companies like Hilton and Hyatt. We're hoping it takes some of the overhead out of the channel, and everyone recognizes that it needs to move from an analog to a digital world."