Sabre’s decision to join the battle between American Airlines and its distribution channel underscores the need for fundamental change to long-standing distribution models, according to a leading air transportation analyst.
Henry Harteveldt, vice president and principal analyst for Forrester Research, advised both sides to cool their public rhetoric in the short term and get back to the work of negotiating new agreements.
But in the long term, he told Travel Weekly, changes in the airline distribution model are necessary and inevitable, and they will almost certainly mean less revenue for agents.
"What we see at the other end of this negotiating process will be vastly different, I think, than what we saw going in," Harteveldt said last week, after Sabre announced it would immediately downgrade its listings and increase its segment fees for American’s flights.
At the same time, Sabre said it would terminate its contract with American in August.
"Nobody works for free," Harteveldt said. "The airlines cannot afford to shoulder all the distribution costs anymore. … We need a new model that allows travel agents to sell the airline product profitably. But [agents] have to accept the fact that they won’t earn these segment rebates and overrides."
Getting to that point, however, could be a long and contentious battle, one that the Association of Retail Travel Agents says could both leave "travel agents in the crosshairs" and "up the creek without a paddle."
"The sniping and rhetoric emanating from this very public and troubling disagreement has to stop now," said Sally Watkins, vice chairwoman of ARTA, which supports Open Axis, an effort by airlines and ATPCO to open industry dialogue on these issues.
"Until we have open and transparent discourse on the underlying dispute, travel agents will continue to face an uncertain future as to distribution tools and all-important content access," she said.
The dispute began when American pulled its flights from Orbitz after Orbitz refused to use the airline’s new Direct Connect links. Orbitz’s controlling shareholder, Travelport, said that using Direct Connect would cost Orbitz more money while reducing the segment fees it could earn and the transparency of its search results.
Shortly after that, Expedia joined the fray, pulling all of American’s content from its consumer sites.
Last week, the stakes escalated substantially when Sabre joined the battle against American.
'Unproven and unnecessary'
In a letter to travel agents, Chris Kroeger, senior vice president of marketing for the Sabre Travel Network, said Sabre was taking the action to "protect what you have told us is important to you: full airfare transparency and the ability to efficiently operate your business."
The letter went on to assert that "AA’s stated plans regarding its 'Direct Connect strategy,' backed up by its recent actions, are an attempt to impose a costly, unproven and unnecessary system that would make it harder and more costly for you to operate your business and for your customers to comparison shop based on full and transparent fare information."
Kroeger said Sabre was "seeking a new agreement with AA that provides our customers long-term assurances of efficient comparison shopping."
Sabre said that while its online travel agency, Travelocity, opposes American’s actions, it had not made changes to its displays last week. Even so, Sabre said Travelocity was evaluating all options.
Both sides accused the other last week of pushing systems that are "anti-consumer" and "anti-choice.'
"Sabre’s actions are discriminatory and patently inconsistent with both its contractual obligations and its professed goal of ensuring full transparency for the benefit of consumers and travel agents," American said. "In contrast, the actions only serve to protect Sabre’s market position and attempt to force airlines and travel agencies to rely exclusively on its legacy systems that only lead to higher fares and fewer choices for consumers."
Despite the escalating stakes, most analysts expect the skirmish to be resolved quickly, at least for the short term.
A 'huge' decision
Sabre’s decision to join its competitors in fighting American’s direct-connect strategy is "huge," said Douglas Quinby, senior director of research for PhoCusWright. "This is not what I think American wants. They do not want to be suddenly so disadvantaged across what is still a very important distribution channel."
Still, over the longer term, this fight revolves around changing the basic technologies and processes involved in airline ticket searches and sales, which Harteveldt said are basically the same as the systems used in the 1970s.
American’s Direct Connect would in effect change the way agents and GDSs interface with the airline and the way searches are conducted. American says Direct Connect would enable the airline to offer customers better-customized packages, including items such as premium seats and other ancillary products, based on their past flying and buying history.
But opponents say the new American system would cut into revenue generated by segment fees and would reduce transparency in searches. Moreover, they argue that it would also require GDSs and travel agencies to spend money to upgrade their computer systems.
The Business Travel Coalition said that interim results from its survey of corporate travel managers currently under way indicate an "overwhelming rejection of AA’s attempts to change the distribution system model to its unique advantage while driving corporate travel departments’ costs up and undermining their ability to adequately service their travelers."
ASTA said its efforts to obtain information about the program from American "have largely been rebuffed. And, there is no tangible evidence that the claimed benefits of Direct Connect have been accepted by either customers or travel management companies."
Harteveldt said all the parties should tone down the public rhetoric and "sit down at the negotiating table and figure out a new model that will work for all involved."
"The airline model is no longer a financially acceptable or practical model for airlines in 2011," he said. "And the GDS companies have begun to work on selling these ancillary services. They need to do a better job of helping the airlines sell those."