UPDATE: Barney Harford, president and CEO of Orbitz Worldwide, blasted American's threat to remove its flights from Orbitz Dec. 1 as "a broad attack by American on the distribution landscape."
Speaking during Orbitz's third quarter earnings call, Harford says Orbitz continues to negotiate with American over the issue, but believes the airline's actions are designed to fragment content, limit consumer choice and force travelers to bear American's distribution costs.
Harford said GDSs play an essential role in negotiating with airlines on behalf of travel agencies and that a direct-connect approach would serve to fragment content. Although a public company, Orbitz Worldwide is controlled by Travelport, which operates the Galileo and Worldspan GDSs.
Harford said he was unaware if American is taking a similar approach with other online travel agencies.
The original story follows:
American Airlines apparently has expanded its direct-connect drive beyond the GDSs and taken it to the online travel agencies, specifically Orbitz.
In a regulatory filing, Orbitz says American notified Orbitz Worldwide that Orbitz.comand Orbitz for Business will no longer have the authority to ticket American flights beginning Dec. 1, 2010, Orbitz says.
The dispute, according to a source, revolves around American's demand that Orbitz connect to AA Direct Connect for flight inventory and ancillary services, and consequent distribution economics. American wants to take control of its own merchandising through AA Direct Connect rather than have it handled by third parties, including OTAs and GDSs. Farelogix is contracted to handle direct-connects for American.
Orbitz says the airline notified it Nov. 1 that it will terminate Charter Associate and Supplier Link agreements with Orbitz Dec. 1.
The charter associate agreement had its origins when American and other major carriers founded Orbitz in 2001. It was due to expire at the end of 2013.
The charter associate agreement provides Orbitz with transaction payments, marketing support and nondiscriminatory access to seat availability for published fares. Also as part of the agreement, Orbitz pays a portion of American's GDS costs.
The Supplier Link agreement, signed in 2004, requires Orbitz to book an agreed-upon number of flights through a direct-connect between Orbitz and American's internal reservation instead of through a GDS.
American apparently is insisting that Orbitz connect directly to AA Direct Connect instead of through the current supplier link setup, a move that Orbitz is resisting because of the integration disruption, allegedly unproven track record of AA Direct Connect and unfavorable distribution economics.
Under the Supplier Link agreement, which American intends to terminate Dec. 1, the airline had to pay Orbitz a transaction fee for each ticket sold.
It looks like the Orbitz-American dispute is shaping up as a test case for American's future relationships with OTAs, and it could have repurcussions for other airlines' OTA contracts, as well.
Consider American's notification to Orbitz as an opening salvo in their negotiations over the issue.
"For now, customers still can compare and purchase American’s fares on Orbitz and Orbitz-powered sites," says Cory Garner, American's director of merchandising strategy, referring to the Dec. 1 cutoff date. "American values its longstanding relationship with Orbitz and desires an agreement that works for both parties."
Garner adds: "We continue to negotiate in good faith to reach a viable, mutually beneficial agreement with Orbitz. We believe it is important that our distribution channels be cost-effective and efficient. Consumers benefit when inefficiencies in the travel distribution marketplace are addressed."
Orbitz also released its third quarter financial results today.
In the third quarter, Orbitz Worldwide's net income increased 120% to $15.3 million on revenue of $194.5 million, a 4% jump.
Orbitz says the earnings growth was driven by gains in gross bookings, transactions and global room nights.
In the Orbitz Worldwide portfolio, eBookers was a particular standout. Room nights at eBookers climbed 57% in the third quarter, compared with a year earlier, Orbitz says.