American and Expedia Make Up as the Reservation System Model Crumbles

This hasn’t received a lot of attention amidst all the holes in airplanes and American's Victory over the GDSessmoke in cockpits, but there was a huge development in American’s fight with the third party reservation system providers (aka the GDSes) yesterday. In my eyes, American has won a huge battle and the GDSes are going to be scrambling. For the customer, it should be a good thing.

American announced that it had reached a deal with Expedia to start displaying fares and selling tickets from the airline again. That’s good news for Expedia, the airline, and for customers. What was announced in the second paragraph, however, is not good news in the short term for the GDSes by any stretch. But they’re the only losers here.

Expedia said it plans to access American’s fares, schedules, and customized travel products and services via American’s direct connect link by using aggregation technology provided by a GDS.

Wow. One of the big online travel agents has now decided to go with American’s direct connect model. That alone is a big deal. Priceline had agreed before, and that was big, but getting Expedia is a bigger deal, by far. If American can get Expedia to go along, then this could be like dominoes for other airlines in their dealings with Expedia. The ones that have the capability will be knocking at Expedia’s door as soon as the contract is up asking for a similar thing to help bring costs down. That crack in the door is going to grow quickly.

But what’s really interesting is that a GDS is going to provide the aggregation technology. Today, it’s the GDSes that provide the link between the online travel agent (actually, any travel agent) and the airlines. Each GDS charges the airline a big chunk of change when a booking is made, and that’s been the bread and butter of the GDS industry. But now, American is taking back much of the control.

The booking will be done with American via the direct connection, but Expedia won’t be dealing with this itself as Priceline did. Instead, it is going to have a third party handle the connection and then deliver it in a properly formatted way to Expedia. Companies like Farelogix have built systems to aggregate like this, but Expedia is going with a GDS to do it. So Expedia can link to that one GDS and that GDS will do the work to integrate American and presumably, eventually, other airlines. It’s a big win in the long term for the GDSes because it means that they will still have a place in the purchase flow, whereas I’m not convinced they would if they continued to push back on change. But in the short term it will mean pain.

It wasn’t announced which GDS was involved, but it couldn’t have been Worldspan or Galileo. Those two are owned by the same company that owns Orbitz and are generally believed to be behind the fight between American and Orbitz. Had one of those GDSes decided to become this aggregator, then we probably would have heard about a deal with Orbitz as well. That means it’s either Sabre or Amadeus. Amadeus has been working on this technology so it wouldn’t surprise me if they were the ones behind it. But Sabre would be a very interesting possibility as well.

Now, despite the lobbying you’ve heard from a lot of different groups out there, this should be a good thing for you the customer. If anything, the airlines will now be able to show you more info about fees and charges to make it a better purchase experience. (That will be up to Expedia but they will now be able to offer it in ways they couldn’t before.) You also again have the option to buy tickets for American on Expedia, so that’s good as well. For Expedia, it gets American back. For that one GDS that did the deal, it’s the beginning of a big change. It’s good to see one of these companies stepping up to participate in the future as opposed to fighting it so vehemently as many have done so far.

10 Responses to American and Expedia Make Up as the Reservation System Model Crumbles

  1. Wow, this is a big move. The one question I have is who is paying who? I’m curious if AA ate some crow and was willing to give the GDS a (smaller) cut to get back on Expedia.

    • CF says:

      Well, we’ll probably never know the full details there. But I don’t think this has anything to do with the GDS. Once Expedia decided to go with direct connect, then I’m sure it was a matter of finding a GDS that was willing to facilitate it. The cost for that has to be far less than using the GDS to do booking or otherwise AA never would have done it.

  2. Evan says:

    Most importantly, this deal is public acknowledgement that Direct Connect does not disrupt fare comparisons, the primary attack the GDS and agency world used to push back on Direct Connect. Additionally, one GDS is stepping up to do the integration, so again, the “it’s too technologically costly” argument is also rightly debunked.

    Sure, we all knew this anyways. But in the future, that lobby is going to have a hard time making a case since now it’s clear the only obstacles are business model related.

    Additionally, other airlines that weren’t up to the technological task of Direct Connect may re-think that position if they have a GDS partner to help them implement it with regard to agency integration.

  3. Guess AA will have to changed the banner ads I see on websites about them not being on expedia and you can only get their low fares at AA.com.

    • Update – That was fast, I just saw a banner AA ad on yahoo.com and now it only said about sale fare…. ‘not on orbitz, only at AA.com’. They already removed expedia off the ad.

  4. Darren says:

    Expedia uses the Sabre GDS in the U.S., fyi.

    I’ve been following this potential industry changer, too, having worked in the industry previously, and now simply a traveler & blogger. :-)

    • CF says:

      Good point – they also use Amadeus in Europe. I’m sure we’ll find out who it is eventually, but I could see it being either one of them. Fun to watch, huh?

  5. AA must be wanting back in Expedia since a lot of people must check there before going to aa.com. And since AA/AE are adding a bunch of new service to LAX someone must have told them southern californians must use expedia a lot…..lol

  6. Pingback: Travel News for April 5th 2011 through April 6th 2011

  7. Chris says:

    The misleading part of your statement and irony of it, “Each CRS charges the airline a big chunk of change when a booking is made” do you have a clue what a single booking fee is for a single segment? I assure you, its not “big” and in fact, the total cost per booking is less with a CRS.

    What about cars, hotels, tours, cruise, other content. What about midoffice, backoffice, reporting. You guys think you have all of the answers but many many peices are missing just like G2 and ITA from a few years back. It amazes me the comments that are made from people that only understand a small part of the big picture.

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