Travel Weeklys Technology E-letter: April 5, 2006

AOL AND TRAVELOCITY renewed and expanded their partnership April 1 for two years, with an optional third year. Although Travelocity has been the exclusive reservations engine for AOL Travel since 1999, the new agreement was somewhat of a surprise. Thats because AOL invested $2 million in metasearch engine Kayak in 2004, taking a minority stake, and has been promoting Pinpoint Travel, the Kayak-powered comparison-shopping engine that Travelocity shuns. But, with the new agreement, AOL claims that the partnership has deepened. The new agreement has the relationship evolving from an exclusive distribution partnership to a strategic technology relationship, said Jeffrey DeKorte, vice president and general manager of AOL Travel.

TRAVELOCITY will continue to be AOLs exclusive, integrated online travel agency, the air, car, hotel, package and cruise provider for AOL properties, according to DeKorte, but, the new pact will have Travelocity using its travel and technology expertise to make AOL Travel more comprehensive, integrating editorial content and user-generated reviews and blogs, personalization features, MapQuest maps, RSS (Really Simple Syndication) alerts and video. AOL also gets the right to integrate Pinpoint Travel beyond AOL search functionality and into AOL Travel, officials said. We want to make a way bigger bet on the travel category, and some of the things that you need to make that bigger bet are really innovative products that Travelocity has added into their mix, said David Lebow, the executive vice president and general manager of AOL Media Networks.

THE CITY OF ATLANTA joined the ranks of several other big U.S. cities and sued the major online travel agencies for allegedly unpaid city hotel taxes. The civil suit, filed March 29 in the Superior Court of Fulton County, seeks to collect the allegedly unpaid taxes as well as damages, penalties and interest. The suit doesnt estimate the amount of taxes owed because it alleges that the defendants have not filed required reports on their sales. The litigation seeks an accurate accounting of the amount of taxes allegedly owed, the establishment of a trust to cover the liability and the granting of a preliminary and permanent injunction requiring defendants to collect and remit occupancy tax on the full consideration that is paid by customers for the right to occupy rooms in the city. The defendants are Cendant Travel Distribution Services, Expedia Inc., Priceline.com, OneTravel Holdings, Travelocity.com, Site59 and some of their affiliates.

THE SUIT ALLEGES that the defendants act as hotel operators or agents of the hotel when they sell rooms on a merchant basis and that they improperly collect, or should be responsible for, taxes on the retail rate but only remit taxes on the wholesale rate they get from the hotels. Seeking to show that it is appropriate to sue the online agencies together, the suit alleges that the defendants acted in concert and jointly in their industry-wide failure to remit applicable taxes under shared business models. To back up that claim of collusion, the suit cites the defendants numerous partnerships, common practices and technology, communications with one another and membership in the Interactive Travel Services Association. Other Georgia municipalities as well as Los Angeles, San Diego, Chicago and Philadelphia, among others, have filed similar suits. The online agencies counter that they are following local tax laws in paying taxes on the net rate because they do not control hotel inventory and thus are not hotel operators or agents of the hotel and thus are not liable for taxes on the retail rate that consumers pay.

CONTINENTAL, following an earlier warning by American, said it may not participate in all GDSs in the future and cautioned agencies in a letter to consider using alternative companies to access its flights. Continental, which is negotiating new GDS contracts, noted that it may consider introducing an extra distribution charge if agencies book their flights through higher-cost channels. Continental has contracts in place today with Sabre and Amadeus that do not allow them to share fare, schedule and inventory information between them, Dave Hilfman, Continentals senior vice president of worldwide sales, wrote in a letter to travel professionals March 28 about the Sabre-Amadeus content-sharing agreement. We will take the appropriate actions to protect our content if it is used by any GDS company without our permission. Separately, American signed a five-year content distribution agreement with Worldspan that begins Aug. 1 and gives agencies the opportunity to access Americans inventory. American and Worldspan have been particularly coy about their agreement, which may be the first major airline opt-in agreement, where travel agents would be charged to access certain content, in the U.S. market.

Technology Editor:

Dennis Schaal

Phone: (201) 902-1904

[email protected]

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