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Does A Distribution System War Loom?December 6, 2010 By: George Dooley
One immediate consequence of American Airlines' new Direct Connect distribution policy has been the creation of confusion and uncertainly among U.S. travel agents – including multi-million dollar travel management companies – who view AA’s Direct Connect model as an attempt to eliminate choice, drive up prices and fragment an industry.
Bill Tech, president and CEO of Omaha-based Travel and Transport, told Travel Agent that despite repeated meetings with American executives, that confusion remains.
“All travel agents are directly impacted by AA’s actions to various degrees including their productivity, staffing and profitability,” Tech said. “Is this an attempt by American to force the GDS to lower costs or to force a permanent change in airline distribution? Will the industry lose all the gains made in technology?”
Joining Tech in his concerns is Al Hess, president of Salt Lake City-based Hess Travel, who said he believes greater clarity is needed: “AA clearly wants to reduce its GDS costs. But in the process it is creating collateral damage. It is not helpful to the industry or to consumers, for that matter.”
Hess also questioned whether the federal government would need to get involved.
John Lewis, president of Raleigh-based Travel Management Partners is also opposed to AA’s move: “ First, to almost any industry knowledgeable observer this is an attempt to shift costs across to the travel community as well as to corporate America. Second, I think any reasonable person would question the logic of any agency or corporation who would need to perform direct connects to all the carriers. What’s next? Hotels? Cars? Cruise lines? Tour operators? Charter services?"
Lewis added: “It’s a bit ludicrous to think that your business is entitled to free distribution costs. Airlines have bolstered false numbers for years as to the cost of transacting business across their own web sites in order to try to build a case against the GDS’s. Let us not forget who built the GDS’s in the first place.”
Jim Wells, president of Exton, Penn.-based World Travel, Inc, joined in the debate, telling Travel Agent: “We have been watching and analyzing American Airlines' position on Direct Connect since the conversations began. Not only do we have financial and operational interests in their proposed new model, but we have a responsibility to our corporate clients to advocate on their behalf for a solution that will be collectively the best end result for all involved.”
“That being said, I do understand that technology has aggressively become the enabler for many industries to revisit their distribution models. However, in most instances, and I'll use Google (search) as a prime example here, suppliers across multiple industries are striving to achieve full aggregation of product and an inclusive, rather than exclusive, platform,” Wells said.
While praising American’s historic contributions to the industry, Wells said: “ World Travel does not and cannot support the Direct Connect model as is it being presented. A Direct Connect model is an attempt to eliminate choice, drive up prices and fragment an industry.”
Wells, Lewis, Hess and Tech are not alone in their concern. Canadian and European travel agents have raised questions about American’s policy, as has the Business Travel Coalition (BTC).
“American wants to unilaterally change the distribution system where travel agencies and the consumer would pay American for fares and ancillary fees content and more consumers would be driven to aa.com where they would pay higher prices," said Kevin Mitchell, BTC chairman. "There are many, many more aspects of the Direct Connect program that are not in the best interest of an independent distribution system and the consumer." .
American has countered with various statements. The company noted that Travelport GDS recently notified American of “dramatic booking fee increases” for bookings made in markets outside the United States using the GDS's owned and operated by Travelport (Apollo/Galileo and Worldspan).
“These GDSs have become significantly more expensive to American than all other booking platforms in the affected international markets. To the extent that agencies particularly value the service of one of these GDS’s, American has asked them to absorb their cost premium to American, known as the Booking Source Premium, to the degree necessary to bring the net cost of such GDS’s reasonably in line with the cost to American of other GDS’s,” the company said.
American said its goal is to provide all travel agencies access to its content through the distribution source of the agency's choice, at sustainable costs for American. To achieve this goal, the airline has continued to make its fares broadly available through all GDS’s worldwide, it said. AA is also offerings additional information on its Booking Source Premium at www.aa.com/agency.
Additional information on American's direct connection can be found at www.directconnect.aa.com.
American and Travelport are also locked in a legal battle over AA’s right to block Orbitz from selling AA’s tickets. Travelport, in turn, is suing AA arguing that pulling out of Orbitz would be a breach of contract. Travelport has a 48 percent interest in Orbitz.
Travelport won a temporary restraining order in an Illinois court that blocks AA from ending its agreement with Orbitz until a hearing is held later this month.