American Air holds ground in travel agent spat
An American Airlines jet touches down at the airport in Port-au-Prince February 19, 2010.
Credit: Reuters/U.S. Navy/Oscar Sosa/Handout
By Kyle Peterson
(Reuters) - American Airlines sparred with third-party ticket sellers on Wednesday in an ongoing battle over distribution costs and methods as one key provider of airfare data vowed to stop offering the airline's flight information.
Privately held Sabre Holdings Corp operates a global distribution system that provides information on airfares to travel agencies like Travelocity. The company said it would end its distribution deal with American in August -- a month before the end of its contract.
The company said it would discontinue price discounts on American Airlines tickets that have stimulated sales. The airline is also at odds with online travel agency Orbitz Worldwide and last month stopped selling tickets on Orbitz.
American is trying to get travel agents to adopt a "direct connection" technology that would let customers shop based on various ancillary services rather than fares, which is the primary basis for the typical online travel agency comparison.
"For a number of months, American Airlines has taken actions in an attempt to impose a costly, unproven and unnecessary system on agencies and corporations," Sabre said in a statement.
"We believe these actions are harmful to our agency and corporate customers, as well as consumers, making it harder and more costly to comparison shop," the company said.
American fired back, saying Sabre's moves were "punitive actions" that come even though the carrier has met its obligations to the distribution service.
"Sabre's actions are discriminatory and patently inconsistent with both its contractual obligations and its professed goal of ensuring full transparency for the benefit of consumer and travel agents," American said in a statement.
Online travel agency Expedia Inc also has dropped American Airlines tickets from its listings, charging that the airline's new commercial strategy is "anti-consumer" and "anti-choice."
The actions set the stage for what could be a protracted dispute between airlines and third-party distributors. American Airlines, a unit of AMR Corp, is leading the charge because several of its key distribution contracts expire in 2011.
"It is kind of an inflection point for the industry as a whole," said Morningstar analyst Warren Miller. "American Airlines is obviously trying to take a more aggressive stance with respect to how they distribute their inventory of seats and how they get those in front of the eyes of consumers."
American says the publishing methods and pricing currently used by many travel agencies are outdated and do not reflect the increased reliance by airlines on sales of ancillary services like bag checks, meals and priority seating.
It is an omission that prevents carriers from offering the lowest prices, said AMR spokesman Ryan Mikolasik.
"We remain in talks with both Orbitz and Expedia," he said.
U.S. airlines, hard hit in recent years by an economic downturn and volatile fuel costs, have sought to lower their distribution costs -- fees, credit card commissions and agency commissions -- which Mikolasik said is about $800 million a year for AMR.
"It's a substantial cost that we believe can be reduced," he said. "We can't do that with today's systems."
Last month, AMR won a court battle with Orbitz, which is 48 percent-owned by Travelport LP, allowing it to pull its flights from Orbitz.
Of the three publicly traded online travel agencies -- Expedia, Orbitz and Priceline -- only Priceline still carries American Airlines fares.
A Priceline spokesman said the company remains a business partner of American and declined to say why it has not aligned itself with Expedia and Orbitz in the matter.
Some in the industry believe Priceline has agreed to use American's direct-connect technology. On its website, Priceline features a tag that says: "We shop all the major airlines, including American Airlines. Expedia and Orbitz don't."
AMR's shares gained 47 cents, or 5.8 percent, to $8.57. Shares of Expedia, which was raised to "strong buy" from "buy" by Standard & Poor's research, gained $1.01, or 4.1 percent, to $25.43. Orbitz rose 11 cents, or 2.1 percent, to $5.30, and Priceline's shares gained $24.22, or 5.9 percent, to $433.60.
The Arca airline index closed up 1.64 percent on Wednesday after a report from US Airways Group that its average load factor, a measure of how full planes are, was up 1.5 percentage points from a year earlier in December. US Airways also said it expects to post a profit for 2010.
(Reporting by Kyle Peterson, additional reporting by Abhinav Sharma in Bangalore and Karen Jacobs; Editing by Matthew Lewis, Maureen Bavdek and Steve Orlofsky)
Credit: Reuters (www.reuters.com)
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