There is a battle brewing between American Airlines and some of their distribution partners. For starters, I want to say that American has been a good partner of ours for many years and they have not currently brought the U.S. based full service travel management companies (TMCs) into the fray. The current fray is between one of their online distributors (Orbitz), one of their reservation technology partners (TravelPort) and some of their non-US based travel agencies.
So why do I care? We use two of Travelport’s GDSs to book most of our airline reservations on behalf of our corporate clients. Depending on where this goes; we could become stuck in the middle of the fray.
This is a very complex industry dispute, which I won’t attempt to explain in detail. This BTN article describes an overview: AA, Travelport Mobilize for Air Distribution War.
The “short of it” is that the airlines have been trying to reduce their costs by reducing or eliminating their distribution costs for many years. The Internet has helped them become successful in bringing much of their ticket distribution in-house, with their own web-sites. The airlines pay TravelPort and the other the global distribution systems (GDS) to manage their airline seat inventory and provide travel agencies the content which we need to take care of our mutual corporate customers. The airlines have been successful in reducing their GDS costs during the past 4-5 years and American would like to reduce them even further.
The questions are:
- Haven’t we reached a fair equilibrium in the cost/benefit relationship between airlines, GDSs and TMCs? Most industry people seem to think so.
- Are “hard ball” tactics the best way to negotiate with your marketing/distribution partners?
- Why has American selected weak economic times to take on their marketing and distribution partners?
I would hope that we are generating a benefit to them by selling their seats to our corporate clients. The economy is still weak and they are a bit of an underdog right now in the airline merger game. We are seeing the two larger domestic airlines strengthen their commitment to TMCs, as their marketing distribution partner. I hope that American is not going down a different path; that this is merely political posturing and eventually everyone will “hold hands and work together” in these difficult economic times.