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American vs. Orbitz: How the Fight Could Change Travel Sales

Last month I said I doubted that American (AMR) would actually pull its fares out of Orbitz. I was wrong. After Orbitz lost its legal fight for a temporary injunction, American took its flights and left Orbitz in the dust. This move could be the beginning of a major change in the way air travel is sold.

The fight is really centered around American's desire to bypass the reservation systems that sites like Orbitz use to make bookings. American wants to ditch those systems and their high costs, forcing online and offline travel agents to use a "direct connect" model instead.

This model would allow agencies to access American's content directly via a connection with the airline's reservation systems. American likes this for a couple of reasons. First, it cuts costs over the current system, which uses third party reservation systems. (And those reservation systems charge American every time a flight is booked.) Second, it lets American deliver a lot more content to the agencies than the reservation systems offer today.

American: Let's eliminate the middleman
Airlines are trying to get away from the "price and schedule" mentality and offer all sorts of add-ons and upsells. American's effort to eliminate the third party reservation systems will accelerate that.

Orbitz became the guinea pig for this strategy. It balked at American's efforts, probably at least partially because it's owned by the same company that owns a couple of those reservation systems that American wants to make obsolete. It hoped that it could win a game of chicken with American, but so far it's losing.

Now when travelers go to Orbitz, they won't see any flights on American. That's a big hit for a site that needs to offer all options to be relevant to its users, and in turn that could really play into American's hands. If Orbitz loses its relevance, then users will flee to sites that have American along with the other airlines.

The corporate-travel battleground
The more important battleground, however, is with Orbitz for Business, a corporate travel booking service. Orbitz for Business is for companies that want to manage their travel in one place. Orbitz for Business customers are the higher dollar business travelers that American really wants to court. So American is taking a risk here.

Will those companies start using other airlines instead? Or will they just find a way to continue to book American because they still have a relationship with the airline? That's what remains to be seen, and it's probably the closest thing to leverage that Orbitz has.

How this will play out
There are two ways American can succeed here. In one, Orbitz would agree to do a direct connect. In the other, American would do a direct connect deal with an Orbitz competitor in an effort to force Orbitz out of business. That would be a big gamble, but if it worked it would pay off handsomely for the airline in the form of lower costs and better upsell opportunities. And other agencies would have to go along.

If it doesn't work, though, American would have to crawl back to Orbitz to get back on the site -- and then Orbitz could name its price. This is a big deal in the airline distribution world. And it could result in a change in who really controls the distribution process after the dust settles.

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