Airlines vs. Orbitz and Expedia: Why the Battle Matters

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The current battle between some airlines and online travel agencies (OTAs) like Orbitz.com may seem irrelevant to your life, but it shouldn’t. It can make the difference between whether you pay exorbitant rates–or reasonable ones.

Some history: Back in December, American Airlines pulled its listings from Orbitz.com. The goal, according to American, was to point travelers to AA.com for direct bookings and to encourage travel agencies and ticket clearinghouses to obtain inventory using a tool called AA Direct Connect, rather than through global distribution providers.

In a show of solidarity, Expedia pulled American fares from its own site and from Hotwire.com, but the companies later reached an agreement to get those listings back online.

The OTAs have argued that American’s moves are nothing less than a blatant attempt to control fares and inventory �� a de facto airfare increase �� by bring their airfares in house and reducing the number of outside vendors.

Learning From History

In hard economic times, hotels had been approached by companies like Expedia with an offer they couldn’t refuse. The deal was simple: The OTAs, which have big audiences and broad reach, sell the hotels’ unsold rooms at a discount. Some revenue, the argument went, was better than none, and after all, an unsold hotel room was revenue the hotel could never recoup once the sun rose each day.

Most hotels took the offer, and gladly. But before they knew it, the OTAs were selling almost ALL their inventory, and this was really eating into hotel profits. Intercontinental was the first hotel to declare war, and threw out Expedia in 2004. (They have since reconciled).

In the airline business, the same principle applied when airlines couldn’t fill their planes. But in the last year, the airlines have shrunk capacity at the same time that demand has increased. That intersection of decreased capacity and increased demand now means that most airlines are filling about 87 percent of their seats �� in effect, flying their planes full, and they don’t need to discount. If they don’t need to discount, they don’t need the OTAs discounting for them.

Hence the turf battles. Until recently, airlines allocated tickets to different OTAs at different prices based on capacity and demand.

Not long ago, I priced a Washington, D.C., to New York shuttle flight on US Airways Web site �� the 8 a.m. departure. It was $303 each way. Delta had also matched the fare for its 8:30 a.m. departure. Then I went on Orbitz and found the US Airways 8 a.m. departure for $53! Obviously inventory that hadn’t moved on Orbitz. Guess how I booked my ticket?

This is exactly what the airlines don’t want.

And while Expedia is now back in the AA fold, Orbitz is still the odd man out.

American Airlines has now filed an anti-trust lawsuit against Orbitz, and its primary stakeholder, Travelport Ltd.

AMR Corp., the parent company of American Airlines, is claiming in its suit that Orbitz is trying to control airline ticket distribution. Ironically, that is also Orbitz’s argument against American’s decision to prohibit them from selling American flights.

The Net Result

For Orbitz, its U.S. leisure and business traveler business has taken a hit and its stock has suffered. For business travelers, airfares are definitely on the rise, exclusive of fuel surcharges.

It stands to reason that with fewer sellers of American tickets, and with increased demand, business fares have nowhere to go but up.

Under the current model, global distribution systems charge the airlines a booking fee to schedule seat availability for hundreds of airlines and to distribute the information to travel agencies.

By cutting out the middleman, the airlines are hoping to bypass global distribution system fees.

Then, there’s the pending ITA, and Google deal, which could effectively undercut sites like Orbitz and Travelocity by listing flight information directly in their search results.

Additionally, online travel Web sites make a good portion of their revenue selling hotels and car rentals along with airfare. Google could capture some of these