Can airlines survive without online travel agents serving as a major distribution source for tickets? We're about to find out.
On the point of a sword
Global distribution system Sabre Holdings, which operates the online travel agent Travelocity, announced that it's standing shoulder-to-shoulder with Orbitz (NYSE: OWW) and Expedia (Nasdaq: EXPE) in the brewing war over how travelers access fare information. Come August, Sabre will drop American Airlines parent AMR (NYSE: AMR) from its service. Even before then, American's fares will fall to a lower position from where they are currently displayed, and the airline will also have to pay higher fees to display them.
The rift between American and the OTAs is growing wider, and as the tensions mount, travelers will wait to see who'll blink first. If priceline.com (Nasdaq: PCLN) sided with its peers -- which it's been reluctant to do thus far -- American might have to stand down.
From Hell's heart, I stab at thee
American's argument is that it wants the GDS middlemen to access fare information directly from its in-house reservation system. By having passengers book directly with the airline, American would be able to upsell them additional services or upgrades, while lowering its own costs. Airlines have become profitable in recent months largely as a result of the many ancillary fees passengers have paid.
Sabre says it's already capable of handling many of those features, and it's unnecessary to change the current system. If travelers were forced to book through individual airlines, they'd lose the ability to compare costs, fees, and services across the industry. The GDS providers have a global view that travelers are able to access; individual airlines don't have that capability.
American argues that its demands are more about customer relationship management than anything else. The GDSes provide a layer between the airline and customer that American wants to pare away. A more direct relationship with passengers will enable it to customize and personalize fares and services.
Stabbed in the back
Delta Airlines (NYSE: DAL) prevented BookIt.com, CheapOAir.com, and OneTravel.com -- three smaller industry players -- from accessing its seat inventory last month, and the fault lines in the industry continue to widen.
Southwest Airlines (NYSE: LUV) and JetBlue Airways have shown that airlines can survive without the OTAs, but they don't have the global business that American, Delta, or United Continental (NYSE: UAL) do. American generates a lot of its revenue through corporate travel management firms that book fares via the GDSes. After making its first profit in two years, losing that business would be a hard pill for American to swallow.
Turning swords into ploughshares
While American needs to control its costs, it seems increasingly unlikely that it can completely forgo the relatively efficient distribution system Sabre, Travelport, and the other GDS services operate. The growing solidarity against American's plan indicates that this particular knife can cut both ways.
