In bankruptcy, American Airlines plans to honor its travel agency and global distribution agreements, according to court documents filed this week that offer a rare public glimpse into the carrier's agreements with agents.
Among other details, the documents show that a model in which the travel agency pays the airline's GDS bills, a setup that some have called the "wholesale model," is still in play with American Express.
American's plunge into bankruptcy and subsequent restructuring permit the carrier a chance to re-evaluate and potentially restructure the terms of its agreements with debtors, suppliers, service providers and workers.
However, in the near term, parent company AMR asked the court to enable AA to "honor pre-petition obligations" for agreements with bank settlement plans, other airlines, GDSs, fare-filing firms and travel agencies, among others.
AMR currently owes $50 million to travel agencies as part of various incentive agreements, according to court documents. AMR has requested from the court "authority to pay all" of those debts.
Similarly, AMR expects to honor GDS debts, as it owes about $12 million "pursuant to the GDS participation carrier agreements."
Even as the carrier has been at odds with some aspects of the travel distribution structure, AMR noted that travel agents generated 65% of AA's worldwide air passenger sales volume in the past year.
As such, AMR noted the "continued support of travel agents is essential," as is the carrier's ability to pay them for services rendered.
AMR noted its agreements with travel agencies take several forms. Perhaps the most common entails what AMR called "incentive agreements," through which agencies "earn additional compensation for reaching certain ticket sales and share goals," according to court documents. AMR noted that for the first 10 months of this year, AA generated $8 billion in revenue through such agreements.
AMR also has engaged in "ticket broker consolidators agreements," which include deals with American Express and Travelocity, according to court documents.
"These are agreements in which the participating travel agency agrees to pay the debtors' GDS fees in exchange for access and authority to sell [American's] fares that are available over the Internet," according to a bankruptcy court filing. "These agreements substantially reduce the debtors' GDS fees."
Additionally, AA deploys "block seat agreements" through which "certain travel agencies have the right to sell blocks of [American's] seats on certain flights," according to court documents. "The travel agencies are then entitled to either utilize a negotiated fare or earn an incentive bonus based upon their sales pursuant to the block seat agreements."
The carrier also noted that it participates in "general sales agent override agreements" through which AA would make an agent "their exclusive sales agent in a certain geographic region."
Doing so enables AA to sell tickets in foreign locations that are not normally serviced by the carrier. As of Oct. 31, AA owed about $1.6 million to agents with such agreements, which generated $335 million in revenue in the first 10 months of 2011.
American also referred to "standard commission agreements," through which "travel agents deduct commissions when they sell airline tickets." The travel agent then remits the balance to AA, either directly or indirectly through ARC or other settlement plans. AMR did not disclose the proportion of sales each of those models comprised.
Noting that "almost all travel agents in the United States subscribe to GDSs," AMR also highlighted AA's dependence on GDSs.
"If an airline does not have access to the GDSs, travel agents, in order to book tickets on the debtors' airlines, would have to independently look up the flight, call the debtors, write the ticket manually and complete the related accounting unassisted," AMR noted in a filing, making no mention of its direct-connect technology as a viable alternative to that manual scenario. "The amount of effort involved in completing such a reservation makes it not feasible for travel agents to sell tickets on unlisted airlines."
Though it was not immediately clear if the court granted the motion, AMR in court documents expected the judge to bless its request to honor its pre-bankruptcy agreements with GDSs, agencies and others, as courts in the Southern District of New York where AMR has filed "consistently have declined to interfere with corporate decisions."
This report appeared Wednesday in The Beat.