American May Be Turning the Tables in Its Feud With Orbitz
As American (AMR) continuing its fight with the reservation systems and some online travel agents, the airline has really stepped up its efforts to prove that its model works and it can survive with those who don't follow along. So far, both sides seem content with their positions. That conviction will only become stronger as time passes.
Before its recent earnings call, American announced two big deals. The first is that Priceline (PCLN) began using American's direct connect system, which bypasses the third party reservation system providers. The second was with smaller Vegas.com. The first is a big deal.
Cost savings for airlines, no change for consumers
One of the arguments perpetuated by the reservation systems is that a direct connection would make it harder for travelers to compare fares across the airlines. But guess what? Anyone can now see the results of using direct connect by going to Priceline. The verdict? Nothing changes.
American's flights still show up in Priceline just as they did before. It's just that the source of the data is different. American is happy because it costs less to take a booking than it did before. Priceline is happy because it has the same results it had before, and I'm guessing American probably did something to sweeten the pot for Priceline to lead here.
From Priceline's perspective, the cost to get this up and running was minimal. From the company's 3rd quarter 2010 conference call:
I don't believe that operating expenses required to continue to connect with them in ways that are acceptable to the airlines is going to have any significant impact on our CapEx or anything of that nature. There is an opportunity cost there because as the IT resources, we have dedicated to that product we're working on things like back-office connections, they are not working on innovation that's customer facing and could ultimately help drive the business to grow faster.So there is a cost in that tech resources could be doing other things, but I imagine that future direct connect integrations would be made much easier assuming they use similar formats. And that is the general thought.
But for American, the airline is still missing in several distribution channels including Orbitz and Expedia. That means the airline has to find a way to replace those bookings, and it's pushing hard by offering discounts on other channels. The latest is with Kayak.com, the metasearch site that allows people to compare offers and then book directly.
For the next couple of weeks, American is offering a 10 percent discount for those travelers who fly during the low season, before March 9, and come in via Kayak.
In its fourth quarter earnings call, American said this about the impact of losing some of its distribution channels.
What I can share with you is that as we look out to the remainder of this quarter, our bookings are in line with last year.That's all well and good, but if it requires heavy discounting to get people onboard, then it's not exactly a victory. Of course, if the thought is that early discounting will help change consumer behavior so that American can stop offering such discounts in the future, then that's perfectly fine.
At this point, nobody is backing down. Sure, Sabre and American have agreed to suspend legal action until June 1, but that's just a temporary measure. While it's always possible that this will get resolved amicably, the longer the different parties stick to their guns, the harder it will be to make the case to come back on either side.
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