American Airlines’Stance In Distribution Dispute Is Perplexing
BY ROBERT POLK
COOWNER AND CEO
POLK MAJES TIC TRAVEL GROUP
As co-owner of a large regional trav- el management company, I have watched with great interest the ongoing battle between American Airlines and the online travel agencies.
I have watched with increasingly
great interest as the battle has now
spread from the OTAs to Sabre. As
this battle moves closer to our TMC
doorstep, I cannot help to think I
must be missing something.
Here is what I see and here is what
has me completely perplexed:
• AA decides to build a direct
connect and starts to market its ad-
vantages to anyone who will listen.
[Polk Majestic Travel at press time
has not been solicited by AA.]
• As best we can tell, AA’s goal is to
have as many reservations as pos-
sible go through its direct connect.
We think this goal is important
to AA because they want to lower
global distribution system fees and to have
more control of our/their customer.
AA certainly has the right to pursue this
and any other goal it thinks is in the best
interest of its airline and its shareholders.
What perplexes me is the following:
• According to The New York Times, citing
a UBS research note, “legacy” airlines re-
ceive 25 percent of revenue from bookings
made through their own websites. Only 17
percent of revenue comes from OTAs
like Orbitz and Expedia, where consumers head for bargain-basement
fares on their vacation flights. A whopping 53 percent of revenue comes from
offline travel agencies or TMCs like
Polk Majestic Travel Group. In general,
bookings from TMCs have the heaviest
concentration of business travel transactions that are high-touch, close-in
and time-contingent, and thus often
come with higher fares.
• I have no way of knowing, but I cannot believe the GDS cost the airline incurs
when a sale is made is substantially greater
than the cost of a sale made on its website,
once all airline technology costs—
including hardware, software and support—are
totaled. And when you factor in those high-touch, high-fare business travel transactions, it appears the ticket sold by a travel
management company is a bargain and of
greater benefit to the airline, even if they
have to pay the GDS fee.
• If this is the case, would it not be in the
airlines’ best interest to not only preserve
the more valuable TMC distribution model,
but also to do all possible to enhance it?
So the real reason for American starting
this war has to be something other than
• Does AA want to do away with TMCs
altogether and force all ticket sales to its direct connect? If this is the case, is AA prepared to handle all of the support that goes
along with selling airplane tickets? When
the East Coast was hit with the Christmas
blizzard, none of the airlines was prepared
to handle the call volume. If you were to
have called several airlines during this time,
a recorded message informed you they were
busy and suggested you call back later. The
computer then hung up on you. This is not
customer service, and Corporate America
will not stand for this lack of service.
• Does AA want all TMCs to book all
AA tickets through its direct connect? This
makes the most sense, but it raises all sorts
of questions. Would a TMC charge more to
book travel outside of the GDS? My guess
is yes because there is simply more labor
direct-connect bookings? If you booked
AA on the outbound flight and returned on
United, how would this transaction be han-
dled? What about changes, voids, exchang-
es, car and hotel bookings? If the AA direct
connect model spreads, will TMCs have
150 airline direct connects? What about
the Airlines Reporting Corporation? Will
agencies have to settle with 150 different
airlines each week? Who is the merchant in
a direct-connect transaction?
The GDS system works for all parties involved. What
perplexes me is the great lengths airlines are willing
to go to save a small amount of money on those
transactions that make them the most money.
involved. Would Corporate America pay
this increased fee, or would some percent-
age just look for another preferred airline?
How would agency online transactions be
performed? Would Cliqbook, Rearden and
others do the programming to allow AA
GDS is simple. The GDS system works for all
parties involved. What perplexes me is the
great lengths airlines are willing to go to save
a small amount of money on those transac-
tions that make them the most money.
use alternative distribution channels, and
limited development of new airline products
for the traveling public.
From an airline perspective, things are all
about maintaining a competitive advantage.
If a large network carrier sees its primary
distribution channel becoming less and less
competitive, yet continues to compete against
carriers with significant profit margins with
the ability to innovate faster by using alterna-
tive distribution channels—there is no choice
but to take action. Airlines are quickly realiz-
ing that only relying on the GDSs puts them
in the loser’s club. The capability gap between
the GDSs and other channels is growing.
There is pressure to jump to alternative distribution channels, especially knowing that if
you don’t jump now, it will only be more difficult to catch up later. The large network carriers have awakened (some sooner than others)
to do something about this.
So, we find two parties doing what is in
their best interests, which are no longer
aligned. GDSs now have to compete with
new distribution alternatives that give air-
lines distribution options. It is not about the
GDSs looking out for the air traveler and
travel agents. The airlines make their money
by selling their products to the air traveler
and have more at risk by not meeting their
needs than the GDSs do. This is about air-
lines finding new ways of meeting the chang-
ing demands of the traveling public. They
have to continue to innovate and find dis-
tribution partners who will help them to so.
Hopefully the GDSs will wake up and work
with the airlines to meet their needs. If the
GDSs won’t help them, then airlines won’t
use them because they now have effective
alternatives. After all, the airline is the cus-
tomer and it is their choice. ■
GDSs Must Meet The Needs Of Its True Customers: Airlines
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