Online travel purveyor Orbitz (NASDAQ:ORBZ) continues to cross swords with Sabre Holdings (NYSE:TSG) in an ongoing duel that threatens to eat away at Sabre's profitability.
According to Crain's Chicago Business, Orbitz is in negotiations to sign up two more airlines to its direct ticketing system, known as Supplier Link. Under the plan, the company displays fares from participating airlines and reportedly charges carriers a flat fee of $4 per ticket sold. The arrangement is unique in that it bypasses the global distribution system (GDS), which has traditionally served as the middleman in transactions between airlines and ticket buyers.
Sabre just so happens to operate the industry's largest GDS. The business line is part of the Sabre Travel Network unit, which accounted for roughly 74% of the company's revenue in the first quarter. Traditionally, GDS has been a steady business, but in recent years, airlines have been pressuring providers on transaction charges, which reportedly range from $12 to $17 per ticket. In fact, Orbitz was formed in 2000 by AMR Corp. (NYSE:AMR), Northwest Airlines (NYSE:NWB), Continental Airlines (NYSE:CAL), Delta Air Lines (NYSE:DAL), and UAL (OTC BB: UALAQ.OB) in an attempt to sidestep GDS providers.
Orbitz's low fees and drive to sign up new airlines will no doubt continue to create turbulence for Sabre. In fact, new regulations on the way would allow Orbitz to market Supplier Link to travel agents, who until now have been reliant on GDS. At the moment, Supplier Link's market share is fairly minimal, but if Orbitz can continue to undercut Sabre's pricing, the sky may be the limit.
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Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
