American Stops Selling Tickets Through Orbitz, and Orbitz Should be Worried

It’s time for yet another fun-filled fight in the world of airline distribution. In this episode, American and Orbitz can’t come to an agreement, so American has pulled it flights out entirely. US Airways flights go away on September 1. This isn’t the first time this has happened, nor will it be the last, but American comes from a position of strength now that it didn’t in years past.

American Fights Orbitz

There is a natural tension that has existed for many years between airlines and travel agents. It used to be that they loved each other. Airlines paid sizable commissions to travel agents, and travel agents were able to help airlines fill their airplanes. But as technology changed, airlines realized that it was easier and easier to distribute tickets directly to consumers. Commissions were slashed, and airlines started looking at travel agents more as a burden.

Online travel agents, in particular, have had a love-hate relationship with the airlines. See, online travel agents came on the scene as the internet took off. They provided a much-needed comparison service, and that attracted a lot of travelers in the early days, most of them price-sensitive. When airlines need to fill seats, it’s the online travel agents that can help with sheer volume. But airlines need less and less help just filling seats these days. That means they’re less reliant on online travel agents to fill the back of the bus, but they don’t want to cut the cord… if the price is right.

From everything I understand, this particular spat is really about economics and there’s not some underlying hidden issue. While published commissions have disappeared, agencies with heft like Orbitz still do get paid by airlines. They also get paid by the reservation systems they use. How does the reservation system get the money to pay them? They make the airlines cough it up. So really when someone books on an online travel agent site, the airlines are paying for it twice. The airlines have to look at the total amount and decide whether or not its worth the price to play.

Southwest long ago decided it wasn’t. You still won’t see a Southwest flight on any online travel agent site. It’s kind of funny considering Southwest is the largest domestic airline these days.

American thinks it can make sense at the right price. It likes selling through third parties because it does fill seats, but apparently what Orbitz wants too much. How could that change? Well, Orbitz could lower its rates, but there are other ways. It could try to improve the quality of the revenue it generates, though that’s pretty hard. Orbitz could, and should, start using direct connect technology to lower the cost to American.

Though it has been owned by Travelport (also the company that owns Apollo and Galileo reservation systems) for many years, Orbitz is breaking away from that. Travelport says it’s selling off its shares, and the agreement to run bookings through Travelport systems ends this year. Instead of working on direct connect (as, strangely enough, it used to do in the early days of its existence), Orbitz signed a deal with Amadeus. I’m sure Amadeus paid dearly for this, and again, where does that money come from? The airlines.

With apparently none of these things moving, American decided the only option was the nuclear option. It pulled its fares out.

Now, if you’re a traveler and you go to Orbitz, you aren’t going to see American or Southwest. That’s a pretty big chunk of the industry that you won’t see. Orbitz, however, is defiant. In a release, it said that there are “hundreds of airlines which are eager to capture the revenue American is choosing to forego.” There’s a big middle finger for you.

But is it really true? Sure, United and Delta can pick up some of the slack, but Orbitz becomes significantly less useful domestically. International is a different story, I suppose. That being said, if you really love using an online travel agent, then why not just use Expedia now? There is real risk for Orbitz.

There is also real risk for American, but it’s less than it probably would have been in the past. Before consolidation took hold, there were so many airlines out there you might not notice, as a consumer, that American had disappeared. But now, you’ll notice. At the same time, American has upped the percentage of traffic coming direct, so Orbitz really feels more pressure now than it would have in the past. The balance of power has shifted.

This only impacts the regular Orbitz consumer site, so there is no impact on the high dollar corporate market that uses Orbitz for Business. It also doesn’t create orphan travelers. If you had originally booked through Orbitz, you can make changes or get help directly from American. The airline is even waiving the phone reservations fee. That’s actually good news – the airlines tend to be much more helpful than online travel agents when it comes to changes.

In the end, it’s safe to assume they will come to some kind of agreement. After all, it’s in their best interests to do it. This time, however, American has more leverage than before, so you can expect that Orbitz will have to bend.

[Original arm wrestling photo via Shutterstock]


24 Responses to American Stops Selling Tickets Through Orbitz, and Orbitz Should be Worried

  1. JG says:

    One nitpicky thing: Southwest DOES use Orbitz for Business. I just started work at a big university that uses OFB for all employee business travel booking, and I was tickled to see that Southwest showed up in the grid of choices like the others.

    • DAB says:

      Southwest has long been willing to use the business side of the travel agents. The problem used to be (for my company) that you could only book what they call now their “Anytime” fares. Supposedly now our new site shows the cheap fares from WN, but if you are a business traveler booking two weeks out you aren’t getting the cheap fares anyway…

    • Kevin says:

      Southwest is also available through many other business travel booking sites. My company uses Carlson Wagonlit and we have access to Southwest and now volaris as well.

    • CF says:

      JG – Orbitz for Business isn’t an online travel agent. It’s a corporate travel agent. Yes, it has online tools, but it’s the same thing for any corporate travel agent. And yeah, Southwest does participate with corporate agencies, but as DAB noted, you don’t always see all the fares. Talking about online travel agents, you won’t see Southwest on any public-facing site.

  2. IO says:

    it is interesting to me that AA has fought Sabre and now Orbitz. Sabre started within AA and Orbitz started by the legacy airlines, including AA.

  3. A says:

    Yawn. For years I’ve only gone to the airlines own websites. I know where the airlines fly from my home airport so I know who is best for the route I’m traveling.

    • Noah says:

      completely agree. I look at flight options using hipmunk, then book direct (or work Amex portal). Frankly, for all travel, booking direct is a better option. Too many times, I’ve seen 3rd parties make mistakes, have trouble modifying reservations, and once, I received an upgrade on a hotel with no status simply because I booked direct vs. OTA and they were oversold.

    • aerodawg says:

      Yep, depending on which direction I’m going, I typically know which airlines will have the best flights, and if I don’t, there’s always Matrix….

  4. David SF eastbay says:

    A lot of time when this happens it’s to force one company to back down so the other company gets what they want. So AA could just be forcing Orbitz to back down and lower costs to what AA wants. But an airline like AA doesn’t need to be everywhere since they are so big and well known so not be in Orbitz wouldn’t really hurt them I would think.

  5. JA says:

    The only reason I use OTA on occasion is for the extra points or cash back. Otherwise, it’s not worth it because their agents agents are located offshore and not very useful in solving your issue.

  6. VC745D says:

    It only took me making the mistake once of booking through Orbitz (or was it one of others?) only to encounter a nightmare when changes needed to be made enroute. Such sites are handy for comparison shopping, but then it’s directly to the airline website. I’ve never not found the lowest fare on the big sites on the airline’s site… I’ve wondered how be so many sites like Orbitz could possibly have survived.

    • RJS says:

      I look at the various travel sites, too, and then – if at all possible – book direct with the airlines. That said, I sometimes can find better connections with the travel sites as the airlines tend to box you in with packaged “choices” for connections (which can result in excessive layovers).

  7. Arubaman says:

    Didn’t I recently read that Southwest is now, or soon to be, using Amadeus?

    • CF says:

      Arubaman – Southwest is using Amadeus for its reservation system internally. (Or they’re working on the conversion now.) But that’s a different issue entirely. Still, Southwest does work with global distribution systems for corporate travel purposes.

  8. Steve says:

    I have never flown southwest before. Living in Denver, I would certainly consider them, but it is a pain that their results don’t appear in a kayak search.

    Not being a current southwest customer, I almost never remember to check their fares. I probably would have at least tried them out if I could see their prices where I do all my other flight shopping. It has to hurt their growth opportunities at some point.

    • Yeah, the question for Southwest is when will people stop presuming they’re a low price carrier? By keeping their fares off the consumer OTA’s it makes it harder to compare, and in people’s heads WN’s marketing just takes hold: “They’re cheap!”

  9. I’m curious if there is some space for co-marketing. Say if Expedia was running an ad, for AA to provide the background images of planes, and pitch in a little to the budget.

  10. Bick R. says:

    In my opinion, http://www.google.com/flights offers more info, and less fluff than other resellers.

    I often have a specific date and time for flying, which also makes http://www.passrider.com especially useful for schedule information.

    • FT_Roy says:

      To be fair, that’s because Google doesn’t actually sell flights at all, they’re an informational resource that merely refers you to the airline’s website to book (a bit like Kayak in that respect, except I’m fairly sure they’re using the ITA Matrix to power their searches, instead of searching other OTAs). Since their game isn’t to sell the tickets, they don’t have the incentive to steer you towards certain flights like the OTAs might.

  11. Red Rock says:

    My money is on (and with) AA on this one………
    Domestic = no chance to book via Orbitz for AA itineraries when AA/US.com have it 99% covered.
    International = will look to Expedia, Amex (et al) for complicated itineraries going forward. i.e. I recently flew on PHX-PTY-BOG-PHX itinerary purchased on Orbitz due to AA.com’s ridiculous BOG-PTY booking options (via MIA conx) and lack of interline or oneworld options. Booked and flew AV on PTY-BOG thanks to Orbitz.
    Not sure how many of these “non standard/open-jaw” itineraries make-up Orbitz’s AA revenue today, but count my $1,500 Y/M bookings to the other onlines (or AA when possible) going forward…..

  12. Jeremy Anderson says:

    I think there is a weird evolution in buying plane tickets. First you use Travelocity and Orbitz. Then Kayak. Then you only use the ITA Matrix.

    I have found recently that low price is a joke. Buying from any carrier on the lowest price is going to get you a 9 hour routing fro SFO – PHX, via MSP. Or the flight I was trying to book the other day, which routed SFO-IAH like this: SFO-PHX-LAX-IAH

    • David M says:

      The best out-of-the-way discount that I’ve encountered recently is LAX-AUH-SYD on Ethiad. It’s just a little bit cheaper than LAX-SYD nonstop on Qantas, but it turns the already long 15 hour trip into a 32 hour marathon. The only person I could see going for it would be a FlyerTalker on a mileage run.

  13. Ted says:

    American Airlines and Orbitz settle the matter after three days. I am curious about the content in the letter of intent.

    http://press.orbitz.com/phoenix.zhtml?c=251693&p=irol-newsArticle&ID=1962226&highlight=
    http://hub.aa.com/en/nr/pressrelease/american-airlines-fares-available-on-orbitz

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