American Airlines Is Right
Time To Move Travel Into The 21st Century, Only One Decade Late
The travel industry is riveted by the chutzpah of American Airlines. By forcing Orbitz and Expedia to delist AA
flights, they are taking a hard stance on the
future of distribution. The media storm sug-
gests a standoff of epic proportions:
One of the largest suppliers vs. two
of the largest agencies in the world,
and now Sabre is in the fray also.
But what is really going on here?
Is this about fees? Is it about con-
trol? Is it about technology costs? A
little of each, of course. But let me
say what everyone is thinking deep
down inside but few want to admit:
American Airlines is right. Expe-
dia, Orbitz, Travelport and Sabre
For the online travel agency and
global distribution system worlds,
this is about protecting legacy, anti-
quated, unfortunate business mod-
els from technology that can cheaply and
directly provide for us. This is like a tobacco
company lobbying against anti-smoking ef-
forts because it’ll hurt their profits, even if
it’s good for the public. (No, I don’t work for
American. I don’t even fly them much.)
The industry is in an uproar because AA
wants them to build new technological in-
terfaces to work with Direct Connect. They
are upset that TMCs won’t get GDS fees if
they go this route and the commis-
sions that AA will pay them are uncer-
tain. They claim that it is bad for the
consumer, because it prevents apples-
to-apples comparisons (really?) and
other unsubstantiated complications.
The truth is American has been
talking about this for years. They have
established the API in conjunction
with Farelogix, the Open Travel Alliance (and Open Axis Group), with
many other carriers and industry players.
They have been setting the stage that this
is the future of distribution and that they
want agencies to connect to them directly
rather than through an intermediary, so it
makes no sense to me that when they finally put their foot down and say that it’s
time to follow through, the travel technology community raises its voices in surprise,
confusion and downright fury.
Let me quote Michael Strauss of Pass
Consulting from a recent TNooz article:
Of course, he said that only after admit-
ting that “it is challenging for us to promote
direct connects” for at least the near term.
We all know the truth, right? We’re just not
collectively brave enough to act on it. That’s
BY EVAN KONWISER
a recipe for massive external disruption. If
we can’t do it, someone else will.
Agencies need to realize that they are distributors of travel inventory and, whether
they like it or not, they are at the behest
of the supplier. Southwest doesn’t want
OTAs booking for them, so they don’t allow it. If American wants OTAs to continue
to distribute their tickets, which I’m quite
sure they do, then they’ll make the business model work for the agencies. Putting
agency revenues at risk is not a sustainable
strategy for a supplier who wants that distribution channel. And if they don’t want
the distribution channel, it’s their prerogative and the onus is on the OTA to deliver
The GDSs need to realize that their core
business model is at risk. (Actually, if they
haven’t realized it yet, it’s too late.) Amade-
us has been diversifying into broader IT so-
lutions for years. Sabre is a heavily diversi-
fied company, but the GDS is its gold mine.
Travelport, well, it’s getting there also, and
its Universal API could be the “GDS 2.0”,
creating less cash but playing a core role
in travel distribution that will allow it to
monetize other parts of the value chain.
Of course the current GDS is a cash cow,
but just like tobacco is watching their core
model disappear, GDSs also need to evolve.
Simply saying no to the likes of AA won’t do
pletely destroy their underlying business of
film and film processing. Even when they
did have products, competitors had better
ones. In fact, one of Kodak’s first implemen-
tations of digital photography was to license
it for a Nikon camera. (See Motorola, Nokia
and digital phone technology for a similar
story.) By 2006, Kodak was the number-
three player in digital cameras, with both
Canon and Sony eating their lunch. They’ve
also not mitigated the impact of reduced
film processing and have cut employees.
When I look at Travelport’s list of reasons why Direct
Connect is bad, I think of a Blockbuster executive
telling me that consumers want to always be able to
go to their local store for a movie.
it. In the history of technology, it is invariably the companies that are first willing to
put their core model at risk to innovate in
the value chain that survive disruption, not
the companies that put up walls.
If you don’t believe me, let’s examine Netflix vs. Blockbuster. Netflix put up streaming video as a free resource for subscribers,
thereby making their core DVD business
almost irrelevant and putting their core
revenue stream at risk because the company knew the future is in streaming, not
DVDs. Now Netflix has an opportunity to
monetize the new model first, surviving the
disruption. Blockbuster held onto its brick-and-mortar stores even though we knew
the future wouldn’t include them. Why? Because they made so much money and they
thought it was a competitive advantage.
Turns out, not so much. Now they’re in big
trouble, aka bankruptcy.
This is not an isolated phenomenon. Try
Kodak. They invented the first digital cam-
era in 1975. What did they do with it? Not
much for decades, because it would com-
tion their businesses to lead this revolution,
not respond to it.