Playing Chicken with Airline Distribution Channels

January 11, 2011

The New Year began with the most significant travel distribution news in at least a decade, some “fireworks” which will have a dramatic influence on the airline and travel markets.

For some time, American Airlines has been talking about the revival of direct distribution channels, including direct distribution to travel agencies, and it didn’t hide its effort to develop a new API for this channel based on XML messaging. Sometime last year, American was ready with its API and began to launch its challenge.

As American’s contracts with major Online Travel Agencies (OTA) began coming up for renewal, American dared to suggest to the OTA companies that the link to its schedule and fares should be “direct connect” to American’s reservation system, instead of through the old fashioned (and costly) GDS technologies and protocols.

In late December 2010, announcing it was unable to reach an agreement with Orbitz to implement a direct connect link, American removed its fares from the Orbitz website.

In an odd display of comradeship, Orbitz competitor Expedia responded on New Year’s Day by removing American flights from its website. Then, within a week, Sabre, American’s largest GDS partner (and a former subsidiary) downgraded American flights in its displays, increased American’s fees, and moved to bring an early end to its distribution agreement with American.

It is not as if direct distribution was unknown in the industry before this event, nor as if many airlines don’t have a preference for direct Internet distribution over distribution through intermediaries such as the GDS companies. But the fact that a major, global carrier decided to break out of the “sacred” chain of Airline–>GDS–>OTA, meant that, after all, this chain may not be as indispensable as the GDS and OTA companies want us to believe.

News coverage, quoting a variety of industry personalities (aligned in some way with the GDS and OTA companies), has primarily portrayed American’s stand for direct connection as “a new model that is anti-consumer and anti-choice.”

Nothing could be further from the truth.

In fact, the ability of a travel website to display an airline’s fares using a direct connection to the airline’s database is what allows consumers to see the most up-to-date information, including fares which may be available on the airline website but have still not been loaded in the GDS databases.

Strangely enough, the direct connect model is already deployed by many OTA companies to display the fares of airlines not present in the GDS databases. Consumers have benefited, not been harmed, by this. American’s proposal does not introduce any new policy, and certainly no technology hurdle, to the OTA business.

But American is now the most illustrious airline to insist on bypassing the GDS model.

In my opinion, American Airlines is being discriminated against, if not bullied, in an attempt by the GDS and OTA companies to prevent a domino effect of other global airlines going in the same direction.

But the GDS and OTA companies are on the losing end of this battle. Since the creation of the World Wide Web, the implementation of direct connectivity between the source of information and its end users has been inevitable. It was just a matter of time before the major airlines would begin to fully embrace the potential of the Internet. And consumers will benefit.

Happy New Year. It is already looking like an interesting one.

Novak