You may have read that American Airlines is suing a company called Travelport which, among other things, is the parent company of Orbitz. Airline distribution can be arcane, so I thought I’d sum up what’s going on here:
A wee bit of background: Airlines distribute their seats to travel agencies through intermediaries called Global Distribution Systems (or GDSs), of which Travelport is a major player (Sabre is another you may have come across). As it stands now, airlines pay GDSs to to make their seats available to travel agents to sell. GDSs will often share that fee with the travel agent. Airlines used to pay travel agents directly for every sale, but 15 years ago that system was modified; airlines still do pay commissions to larger travel agencies, but travel agencies now also charge consumers for booking tickets.
Airlines believe they pay GDSs too much for what they do, so American has come up with a solution: they say they want travel agents to connect directly to the airline without going through a GDS. I say that “they say” they want that because they don’t really want that; they just want lower GDS fees. GDSs are deeply entrenched into the airline business — American Airlines used to own the GDS Sabre, for example, though they are in their own legal battle. American says that GDSs cannot allow them to sell tickets the way they want (by upselling various products, for example). GDSs say of course they can do that (though there’s some debate around that).
So why is American suing? They say that Travelport, which owns Orbitz, is acting as a monopoly by (and I admit this is a bit odd) raising GDSs fees so high and offering such a poor customer experience (by not allowing American to sell ancillary products) that American had no choice but to pull their fares off Orbitz.
American, in a separate situation, has approached some travel agents and told them that if they do not connect to American directly (and bypass the GDS) the agency will be forced to pay a $5.50 per-segment fee to the airline for the right to access their seats through the GDS.
It all boils down to this: who is going to pay the fee. The best analogy is probably Ticketmaster, which is an intermediary between artists/venues and customers. With Ticketmaster, customers pay the fee. They’re not happy about it, but they have no choice in most cases. With airlines, the carriers pay the fee, and they’re not happy about it. They’d like the travel agents to pay the fee (or, in turn, the end consumer). They don’t want to come out and say they want consumers to pay the fee, so they focus on the direct connection issue. However, the airlines need the GDSs, because they’re tied in with corporate travel agencies, which buy a good chunk of the business class tickets out there. Those tickets pay the bills. So while the airlines are complaining about distribution costs and wanting to eliminate the GDSs, they are really just posturing — they just want lower fees. Which, after a few months of back-and-forth is what they’ll get (and what they’ve gotten when this issue arises every 5 years).