Why American Wants to Go Around the Reservation Systems

A lot has been written about American’s fight with Orbitz, Expedia, and now Sabre, but I still don’t think that it’s been made very clear for “normal” people. Why can’t you book American on Orbitz and Expedia? What does Sabre have to do with you, the traveler? In the end, there shouldn’t really be an impact on travelers, but the current fighting is putting a temporary wrench into things. It will pass, eventually.

The first thing to understand is that this fight is NOT with retail sites like Orbitz and Expedia. Yes, they are now involved and do not currently show American’s flights, but it’s not their fight. The real fight is between American and the reservation systems (known as global distribution systems, or GDSes) that retail agencies like Orbitz use to make bookings. (It’s no coincidence that the company that owns two of those systems also owns Orbitz – see why they’re involved?)

Here’s the current lay of the land when it comes to airlines bookings.

Current Airline Distribution

As you can see, when you book with an airline directly, you eliminate the middleman, the GDS. That middleman, of course, costs money and the airlines pay for it, so airlines like when you book direct. But that’s not the only reason they like when you book direct. The airlines are also unhappy that the middlemen haven’t been very progressive at including ancillary fees (bag fees, priority boarding, etc) in the reservation process to make them easier to sell. They really want there to be a shopping cart, something that is ubiquitous everywhere else on the web today. In addition, they want the ability to be able to vary those fees for frequent fliers. If you’re an elite member, they don’t want to try to charge bag fees, for example. The GDSes just aren’t providing this quickly enough, so it’s time to fight.

But the airlines (at least, the legacy airlines) know that you aren’t going to just go straight to the airline to book every time. That’s good for your basic leisure traveler, but what about complicated itineraries involving many different airlines? Or what if you have a corporate travel agent that books everything for you? The retail sites and travel agencies are still important. The airlines just want to change how they exchange data with those companies.

With data transfer being so cheap and easy today, what the airlines are proposing, and American is taking the lead with, is that they set up a direct connection to cut out the GDSes. That saves money for the airline and it provides the ability to better sell their ancillary products in the process. Makes sense. So here’s what they want.

GDS Setup Proposed

You’ll notice that there are now a lot more lines coming directly from the airline reservation systems. In reality, there is an XML data connection that the airlines will have sit on top of their systems (I spoke in depth with Farelogix about this, one of the companies that creates these). That connection will then be offered directly to the agencies, retail sites, and even the GDSes. Why the GDSes? They aren’t just going to to go away. Let’s say you need to go from LA to Mfuwe, Zambia. To get there, you might fly American part of the way, but you’ll need to fly on Proflight Zambia from Lusaka. You think they’re going to have a direct connection set up? Yeah right. They’ll still rely on the GDSes, at least for awhile.

But as you can see, I’m not just talking about the GDSes as the intermediaries but suggesting there could be others. If the GDSes wanted to get with the times, they could corner the market on being the intermediary. They could collect direct connections, combine it with traditional connections, and all would be good. They would just have a new way of connecting with the airlines, they would be able to handle the new “merchandising” that airlines have gone to in the last few years, and the costs would drop dramatically. But since they’ve been mostly fighting this (I think Amadeus may be the most open to it), that opens the door for others to step in.

Sure, the big online travel agents and corporate agencies could afford to take the direct connections and do the development work themselves, but not everyone can afford that. What about the little guys? For that, Farelogix (they aren’t alone) has actually created a basic front end system that an agency can download and use with ease. The agency just needs to get the airlines with direct connections to open the spigot and they’re ready to go. Farelogix can even integrate with the GDSes so that they can mix flights from those systems along with direct connections so that it’s all easy for the user to see in one place. As you might imagine, the GDSes don’t like this, so they won’t let most agencies actually mix their results like this. But technically, it’s completely possible.

Can you really compare all these different feeds? Yep. There are a lot of scare tactics being used out there to make people think that a direct connection is going to mean that every airline will offer information differently and you’ll never be able to compare. That’s bull. The big legacy carriers have actually created the Open Axis Group which has a standard airlines can use. (No, I don’t recommend using “axis” in any name when people are fighting.) That makes it easy to start integrating new airlines into a single interface as they create direct connections.

It’s just like you see on sites like Kayak or Fly.com. They take data from multiple sources and display it for you in one interface. The only difference is they don’t do the booking – they send you to each site to do it. This new fight just takes it one step further.

In the end, it’s the reservation systems that stand to lose the most here, and you as a consumer don’t stand to lose anything. If anything, you stand to gain when these new systems start allowing for more robust shopping cart capabilities to help you buy everything you need before you go.

28 Responses to Why American Wants to Go Around the Reservation Systems

  1. Pingback: Tweets that mention Why American Wants to Go Around the Reservation Systems - >> The Cranky Flier -- Topsy.com

  2. What every happens, not everyone will be happy or come out ahead. For years now they airlines have wanted everyone to book directly online with them, but they themselves can not meet the needs of all travelers. Not everyone can or wants to fly one airline or one alliance so other portals need to be available. And since you can combine different airlines fares, being able to book an entire trip in one system will almost always be cheaper as one ticket then buying bits and pieces of your trip from 2 or 3 different airlines websites.

  3. Milind says:

    Does anyone else find it ironic that American Airlines is fighting with Sabre over this, considering that Sabre was actually started by American Airlines? Especially because back in the day, American used its control of Sabre to prevent travel agents from finding other airlines’ flights?

    • Kate says:

      Good vanilla explanation of the IT behind reservations systems. Yes, it IS ironic, considering all the lawsuits over display bias from the early 80′s, and the reason the GDSs came into being in the first place.

    • CF says:

      Absolute irony. If you said this to someone 20 years ago, they’d have looked at you and laughed.

  4. Timothy says:

    This is playing out like kids fighting in a sandbox. Of course if the airlines weren’t piling on all these fees (and making almost all their profits from them), they wouldn’t be trying so hard to squeeze more revenue out of them by going direct. So the presumed bad guys are always going to be the airlines since Orbitz has the appearance of making our lives easier, while American has the appearance of trying to ream us every way they can. What an ugly mess regardless.

  5. Wow, Brett, thank you so much for such a straightforward explanation of this massive clusterjunk. It’s indeed an aggressive move by American and stands a good chance to succeeding, but they probably should have spent some time & money on their website before undertaking this battle. It kinda sucks. I personally find it cumbersome to use.

  6. bakednudel says:

    I agree with you about the aa.com site. I use it exclusively because I don’t fly all that much and they have a direct to London from RDU. I’m saving the FF miles. Unfortunately, their vaunted “changes” to the website haven’t added much functionality.

    And WHY do you have have to do a search for “current travel alerts” to find this important info? That at least should be a big red button on their home page!

  7. Sanjeev M says:

    Does this move have any effect on consolidators? I know consolidators are not a big player in the US Market but many people use consolidators all the time for international travel.

    (Not like AA has any substantial international prescence to Asia except the one ORD-DEL)

    • I’m guessing here but consolidators make their block purchases with the airlines directly, although the bookings might be handled through the GDSs (GDSs have what they call “private fares” which aren’t shown to the general public.) I can see American or another airline insisting on direct connect in an instance like this, or simply asking that the consolidator pay for the GDSs costs if they’re not willing/able to direct connect.

    • CF says:

      What Nick said. With consolidators, they are given net rates and the consolidators put their own markup on top of that. Right now, the airlines still pay the GDS fees, but it wouldn’t surprise me to see them tell the consolidators to either use a direct connect or pay the fees themselves and include that in their markup.

  8. Isn’t it running afoul of anti-trust law by the GDSs preventing Farelogix from integrating results in with the GDSs? Since this is done on the travel agent’s computers it seems that the travel agent would have the right to do what they want to do with the data as long as it stays in their office.

    • CF says:

      I don’t know that anyone has challenged it in court, but I’m sure they’re confident they can do this without any anti-trust violations. The data isn’t owned by the travel agent, so I would think that they can get away with this. Then again, I have no clue what would happen in court.

  9. koroleon says:

    The article doesn’t really explain why Orbitz and Expedia have taken action against AA, it only criticizes the GDSes.

    • Sanjeev M says:

      Orbitz and Expedia are trying to use their heft and size to keep the status quo and consequently limit the exposure to their current business model. They fear that if every airline did something like this then the costs and effort to direct connect or use XML for each airline would be too much, which I believe is what Cranky is saying is not that costly.

      They are secondary to the main issue, being that the fight is Sabre (GDS) vs. AA.

      For more about Orbitz and Expedia, look at Cranky’s posts on BNET.

    • CF says:

      True, I may address that a later date because it’s not the primary fight here. As for Orbitz I think being owned by the same company that owns GDSes has a major impact. Expedia would seem to be a little tougher to decipher since it’s independent. In the end, it’s a money game. There are incentives given to agencies that use GDSes and American needs to match those somehow. If it doesn’t then Expedia will definitely balk, and has.

  10. XML direct connections are definitely the way of the future, but Open Axis is not. Once IATA finishes developing an international standard, I think we’ll see more progress.

  11. Great article, by the way!

  12. Al says:

    This is a helpful explanation of the economic rationale for American’s Expedia/Orbitz move. But I’m not sure their own system is up to the task. That, or they are deliberately directing searchers to higher fares or poorer routings.

    I’ve been a loyal customer for 10 years (Elite for past 5) who always buys tickets directly from the website. In the last few months, I have found some serious errors when searching for connecting and multi-city itineraries, in particular. I request AM departures and they come up with crazy itineraries leaving Green Bay in the evening, connecting to a morning flight in Chicago. Ten choices, all with that as the first flight. And when I search it a different way, several times I’ve found a better fare with the connections I originally was looking for.

    I’ve encountered this with enough different searches that I think that their reservations system is just failing, or worse, that they’re trying to hide the most economical options assuming that people will just settle for what they find on the initial search. I never encountered this before the big decision to drop Expedia and Sabre. The whole thing has undermined my confidence that AA has my best interests at heart. Maybe I should be shopping for a new “main” airline carrier.

    They still do have the most generous mileage program tho. Anybody else seen problems like this?

    • CF says:

      It’s funny, because the strange routings you’re seeing actually have nothing to do with American’s reservation system. American contracts with ITA Software for its website search and that is just ITA’s engine on steroids. AA just needs to tweak the query so it doesn’t return such weird results. I remember when we implemented this at America West long ago. It was originally bringing up flights from Phoenix to Vegas with a stop in New York because ITA considers absolutely everything. It’s up to the airline to make sure the query is returning the right results for customers.

  13. Al says:

    CF, Thanks for your comment. Suggests my observations are correct. AA should have been tweaking the software long before they put it before the public, as it’s the face of the company now more than ever. It’s noticeably worse lately. Just tonight I searched a multicity trip including a LAS-LAX leg, and what came up was a $1700 total trip cost, with that leg routed through dfw. Searched differently, it was $1200 routed on a nonstop las-lax. I never had this problem before. If ITA software is on steroids, AA will have to take the responsibility for the roid psychosis it’s causing.

  14. Rob Lipman says:

    I think the MAIN reason airlines want to drive people to their own sites is to keep them from doing intelligent shopping. American won’t tell people asking for a 5:00 PM flight from Newark to Chicago that Continental has a flight for $100 less. And the Airlines really don’t want to lose a single BIS (Butt in Seat), regardless of marginal cost or profitability of selling that seat on a particular routing. After all, once I fly another airline, would I come back? (Answer – they are all pretty much the same on the domestic front; some slightly better… so we’ll come back to the airline that treats us best! Oh! Unless another carrier costs $10 less and I won’t get an upgrade…)

    • Well if American wanted to stop people from doing intelligent shopping they’d do what Northwest did and pull all of their fares from all sites. Not even the meta-agregators like Kayak have access to Southwest’s fares, they only show the schedules.

  15. Pingback: American and Expedia Make Up as the Reservation System Model Crumbles - >> The Cranky Flier

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