More information is coming out about the ill-fated American Airlines and Orbitz Worldwide direct-connect negotiations, including the airline's allegations that talks turned sour in 2010 when it learned that a Travelport-Orbitz contract "expressly prohibited Orbitz from using American's new direct connection system."
The airline doesn't cite a specific contract clause leading to its conclusion that Orbitz would be barred by Travelport from using AA Direct Connect.
American Airlines' account of the behind-the-scenes drama in its negotiations with Orbitz was contained in American's complaint against Sabre and Travelport, which led to a temporary restraining order barring Sabre from biasing American's flights in the Sabre GDS.
In the course of negotiations between American and Orbitz, which were under way in mid-2010, "it became clear that Orbitz was unwilling -- or we now know unable -- to implement American's newest direct-connect technologies," American alleges. "Unbeknownst to American then, Travelport -- intending to replace Orbitz's [historical Supplier Link] direct connect bookings with more expensive Travelport GDS bookings -- had entered a contract with Orbitz that expressly prohibited Orbitz from using American's new direct connection system."
From Orbitz Worldwide's public disclosures about its subscriber services agreement with Travelport, it's clear that Orbitz has limited flexibility in entering into direct-connect agreements with airlines, although there does appear to be some wiggle room.
Without getting into specifics, an Orbitz Worldwide filing with the Securities and Exchange Commission, published March 3, 2010, states that an Orbitz-Travelport contract limits Orbitz's ability to enter into direct-connect agreements, and this could lead to partners terminating contracts.
The filing states:
Because our GDS service agreement with Travelport limits our ability to modify our existing agreements with the airlines or to enter into new, direct distribution arrangements, we may have limited flexibility to respond to developments in the airline industry, and we may be forced to forgo new partnering opportunities…. The limitations imposed by the GDS service agreement may place us at a competitive disadvantage and could negatively impact our business and results of operations.
Because we are limited in our ability to pursue alternative GDS options or direct connections with suppliers during the term of our GDS agreement with Travelport, any such actions by Travelport could make us a less attractive distribution channel to our suppliers, who could attempt to terminate or renegotiate their agreements with us, and could place us at a competitive disadvantage relative to other online travel companies.
However, in an SEC filing in July 2007 about Orbitz Worldwide's then-pending IPO, Orbitz outlined exceptions to its obligations to exclusively use Travelport GDSs, including Apollo, Galileo and Worldspan. Among them, were the following two exceptions:
• "where, with respect to a specific supplier, a material economic difference in the net compensation per segment to be received by us exists between a Travelport GDS and establishing a direct connection to a supplier; and
• "for Orbitz's existing Worldspan agreement, for so long as such agreement is in effect. Where an exception applies, we may use the content of a direct connect alternative provided that the Travelport GDS will have the right of first refusal to provide us with GDS services on substantially similar terms and conditions as offered by the particular supplier for the direct connection."
American alleged in its complaint against Sabre and Travelport, filed Jan. 10, 2010, that Orbitz long had a Supplier Link direct-connect agreement with American, dating to 2002, as Orbitz does with others among its founding airlines, but ever since Travelport's owners gained control of Orbitz Worldwide in 2006, they have been pushing Orbitz to process more of American's bookings through Travelport's GDSs.
This push toward Travelport GDS bookings removes Orbitz from "its roots as a cost-effective, direct-connect agency," American contends, referring to Supplier Link.
American views AA Direct Connect as a robust replacement for Supplier Link, one that would enable the airline to take charge of its own merchandising instead of leaving that largely to the GDSs.
American Airlines terminated its contract with Orbitz in November and, after a court fight with Travelport, and removed its flights from Orbitz leisure websites in December.
Prior to the breakdown of talks, it is unknown if Orbitz Worldwide rejected outright American Airlines' direct-connect proposals because of the constraints of the Orbitz-Travelport subscriber services agreement, or if, in Orbitz's view, American's proposals just didn't make economic sense.
In other words, if American's proposals had looked good for Orbitz's bottom line, might Orbitz have found away to accommodate AA Direct Connect within the parameters of the Orbitz-Travelport subscriber services agreement?
Another thorny issue for the major online travel agencies is believed to be the length of the Direct-Connect contracts that American is offering.
They are believed to be of relatively short durations, perhaps a few years, and there is apprehension that when these agreements expire, then American would seek to turn the distribution model upside down and begin charging the OTAs and GDSs for content instead of the GDSs charging American booking fees.
The GDSs and some of the OTAs, at least, are believed to be taking a bold stand against AA Direct Connect now as a means to head off an even larger fight down the road.
With the restrictions in Orbitz's contract, coupled with the GDSs viewing AA Direct Connect as a threat to their financial well-being, it's possible that American Airlines' flights could be absent from Orbitz websites for an extended period.
Meanwhile, in an email to travel agents Jan. 11, Sabre confirmed that -- under court order -- it suspended the display changes it made to American's flights in the Sabre GDS, adding, "That process is complete."