Q: In your Jan. 24 column, "Illinois court erred in denying Travelport injunction against AA," you explained why Travelport did not stop American Airlines from lifting its plate from Orbitz. What is the real significance of this case? Where is the battle between the airlines and the GDS vendors going to end up?
A: The Illinois case is a skirmish in the renewed battle of airline vs. GDS: The parties are refighting their 2006 battle, albeit with new weapons.
For many years, the major U.S. airlines (other than Southwest) have been unhappy with the booking fees that they must pay the GDSs when travel agencies make reservations. Although exact amounts are highly confidential, I believe those airlines pay about $3.50 per segment, so that, on a roundtrip reservation with a connection, the airline pays about $14.
The airlines' complaint is not only that the fees are high for any kind of electronic transactions today but also that a large portion (if not most) of the booking fees are passed through to travel agencies as segment incentives. This pass-through upsets the airlines, which have been at war with travel agencies since the first commission caps 16 years ago.
Although American's propaganda focuses on the alleged consumer benefits of direct connections, I believe that if the GDS vendors lowered their booking fees so much that agency segment incentives were eliminated, the airlines would be happy and cease trying to bypass the GDSs. Fortunately for agencies, the GDS vendors plan no such cuts.
In 2006, the airlines had two tactics; one was silly but the other almost worked. The former was to pretend that the so-called GDS New Entrants were worthy competitors of the Sabre, Apollo, Worldspan and Amadeus systems. (In fact, with one exception, the GNEs disappeared in a puff of smoke.)
Where the airlines almost succeeded was to threaten to withhold the full set of fares (so-called "full content") unless agencies paid a fee to the airline for access to full content, with the fee more or less compensating the carrier for the booking-fee expense. After months of scary threats, the parties compromised by having the GDS vendors give the airlines a bit of a break coupled with a net reduction of agency incentives in the form of a so-called "full-content fee."
This time around, American's weapon is the unproven Direct Connect program, which American had tried to get Orbitz to adopt. American wants to target the largest agencies in the coming months and years, although it is not likely that American will lift its plate from any corporate-oriented agency that refuses to cooperate.
The problem is that American cannot fight a GDS-bypass battle without help from other airlines, but the GDS vendors have successfully negotiated peace with both United and Delta. Those carriers' contracts with Sabre, Travelport and possibly Amadeus extend into 2013, and the contracts effectively discourage those carriers from copying American's battle tactics of bypassing the GDSs for the next couple of years.
So, it looks like the battle between the GDSs and the major airlines will again end with victory for the GDSs, not merely because they offer the best approach to travel distribution but also because they have successfully divided most potential opposition.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at [email protected].