Mary Sanderson, spokeswoman for American, says that as part of a turnaround plan, the airline has identified lowering distribution costs as one of its objectives. “Right now, as we’ve been working with Expedia, the economics for these particular tickets are just not working out at this point,” Sanderson said. “We do believe having a wide variety of distributor lines is important, especially since American is a global carrier. Having said that, having that wide variety of distribution services can’t mean that you’re not cost competitive.” Reading this statement you would believe that American called the shots and decided that Expedia is too expensive.
Here is the other side of the story. Expedia in a prepared statement says the move “was the result of Expedia’s choice to cease processing AA bookings using the Worldspan GDS at this time”. Expedia says it made the decision “independent of any negotiation issues with AA”. Kind of changes the flavor quite a bit wouldn't you say?
Bottom line? Airlines are continuing to take back their product distribution. Last week we wrote about how Alaska Airlines is thrilled with their own web site's success. The news from Alaska is certainly not unique. Every ticket bought through an OTA (online travel agent) incurs a fee for processing which you only see when you are about to make the purchase. This fee even shows up separately on the credit card statement. Consumers are using the online tools available to find the lowest fare and then go to the airline's web site to make the purchase and save $5 per ticket.
The Internet is the shopping place for bottom fishing, and the lowest fare buckets sell first. That is why American can safely exclude its premium products from OTA sites. We expect to see the same action with other sites (maybe even Travelocity?). Other airlines are bound to follow American's lead. The Internet disintermediates any function that becomes unnecessary. And as matters stand, airlines do better selling their premium products than OTA sites.
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3 comments:
Your take on this story doesn't make sense to me. I would have thought that on the more expensive Business and First Class tickets, much more profitable for the airlines, the GDS fee would be less burdensome, not more. Even if Expedia sold only 1 First Class ticket a week, why wouldn't you as the airline let them list the fares?
Isn't it more likely that Expedia is doing this to show the GDSs that it can get American Airlines really annoyed with Worldspan any time it wants to, by disrupting Worldspan's claim to deliver for the airline broad distribution for its most profitable ticket offerings? This interpretation seems to square better with Expedia's announcement.
The airlines have two distribution goals. The first is to divert traffic and sales direct to their web sites as cheaply as possible, the second is to squeeze lower the GDS fees payable on the portion of traffic they aren't able to divert to their own sites.
In relation to the first goal the airlines' interests are opposed to those of an OTA like Expedia, whereas on the second, as in this case, their interests are aligned because the OTAs want to be able to list competitive prices.
The common factor is pressure on GDS margins - in the first case the GDSs are squeezed out from between the airlines and the customers, in the second their margins are squeezed by pressure from the airlines on one side and the OTAs (as here) on the other.
You make good points Meme chose. but we think AA will want to keep its best customer at close quarters. These are not "bottom fishers". They get much better service. AA wants to protect that relationship we think.
Does anyone know if AA signed a new agreement with Worldspan for full content?
If not, that will probably explain the inability by Worldspan to obtain full content.
Travelocity will not have such issues as Sabre signed up all the legacy carriers for full content.
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