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As Sabre Enters War Over Flight Bookings, American Has to Find New Strategies

The battle between American Airlines (AMR) and its distribution partners turned into an all-out war this week when Sabre announced it would pull American's flights from its reservation system in August.

Other airlines are watching closely, and hoping that if American wins some battles, the entire industry will be able to cut its distribution costs dramatically.

But while the battle rages, leisure and business travelers will get hit in the crossfire. They're already discovering that they can't find American flights on sites like Orbitz and Expedia. With Sabre's move, travel agents and corporate travel bookers, too, will feel the pain.

Who gets what when you book

American's skirmish with distributors had been confined to retailers like Orbitz and Expedia. But they were just pawns in a larger battle. At issue is the long-time booking system for airlines, which looks like this: Sabre and other reservation systems act as intermediaries, skimming several dollars for each flight segment. Expedia and Orbitz, too, use intermediary third-party reservation systems to handle booking. All of this raises costs that American and others would like to cut.

American started this battle when it told Orbitz it wanted to skip the use of third-party reservation systems and instead use a direct connection precisely to eliminate those middlemen.

Orbitz, whose parent company also owns Travelport, the owner of two reservation systems, balked. American responded by pulling its flights out. Orbitz rival Expedia, not happy with what it was seeing, took the initiative by kicking American out of its search results.

No more status quo
With Sabre opening a new front in the war, and signaling a scorched-earth approach, it's increasingly unlikely that the airline reservation system will revert to the status quo. In the long run, the likes of Sabre will be the losers, but I'm afraid American may have made that bet before it was ready.

The airline could lose a fair bit of business, given that Orbitz and Expedia do sell a lot of American tickets. At the same time, American says it hasn't seen any dent in demand lately. And it's been moving aggressively to move customers to its own website, AA.com, where costs per booking are lower. It's sent discount coupons out to travelers to encourage that behavior.

And it recently launched a sale on Priceline, undoubtedly to try to boost its business there to make up for the loss elsewhere. With Orbitz and Expedia seeing so much turbulence due to their contracts with American expiring (the whole reason this fight is happening now), Priceline doesn't anticipate any upset.

Squeeze on travel agencies
Among customers, business travelers -- the high-dollar clients that use travel agents to make bookings -- will feel the biggest impact. With Sabre now striking back at American (ironic since American is the one that gave birth to Sabre back in the day), many number of agencies and corporate customers will have no good way to book those flights.
Forced to work through AA.com, travel agencies will find that they have less flexibility. Agents serve their clients by being able to manipulate flights and booking classes. Say a company wants to book an executive on an American flight, connecting to a United flight. That will be much harder if they're limited to AA.com. (American actually offers some of this in a limited fashion on its website, but it doesn't provide a full range of options. And I imagine that functionality will disappear if Sabre so chooses.)

That's why I'm not convinced American will win out -- and why we haven't seen United (UAL) and Delta (DAL) jump into the fray. While United and Delta won't see their contracts up for another couple years with the reservation systems, you would think they would at least start adding pressure in order to make things change. But so far, they aren't, at least not publicly. For the moment, they're staying on the sidelines, ready to pick off customers who leave American.

Needed: a real alternative
If there was an alternative to the reservation systems that simply wasn't being used because of inertia, then a move like this would provide the necessary jolt. But there isn't, at least not that I know of. Companies like Farelogix are working on solutions, but I haven't seen anything yet that's a true, ready-to-implement alternative to the reservation systems.

If American can roll out a true alternative soon, it could make reservations systems irrelevant. Or American could stare down the middlemen, and get drastic reduction in rates. If neither scenario occurs, the airline will have to figure out to survive the way it's operating now. Or go back, hat-in-hand, to the reservation systems.

There's little doubt that all airlines are rooting for American right now. High distribution costs have long been a complaint at every carrier. If American can come out of this war better off, then the others will enjoy the spoils as well. If not, it may set the fight back for several more years.

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