AMR vs. ORBITZ

[WorldTraveler]

Let's remember that American Airlines created the first computer reservation system with the full intention of being able to display only AA flights. As other companies developed similar systems and legal and economic considerations developed over the years, the tables turned so that airlines ended up having to pay to participate in the reservation systems they created... even though most airlines spun off their ownership in the CRS/GDSs years ago.

There is nothing wrong with AA or any other airline looking to reduce their costs and undo the relationship they once had with the GDS... lots of things in business change and what was once deemed necessary is now a huge ball and chain.

I haven't seen the most recent statistics but the major US airlines were between 1/3 or more of their ticket sales on their own websites so the AA.coms and its peers are doing well.

There is still a significant amount of traffic booked through the CRS/GDS by agents, esp. corporate and negotiated travel.

I would not doubt that the online agencies such as Orbitz are major sources of revenue but it is not the majority of any airline's revenue... and that is precisely why AA is willing to take them on. Travelport is trying to up the ante by excluding AA from other Travelport channels -which they may or may not succeed at doing.

But AA has developed technology to allow direct inventory and booking from outside systems and they are not wrong to push for others to use it. Problem is that Orbitz doesn't want to make the technologicial effort to check 25 or more different airline websites every time a customer query is made.

AA recognizes that even if they don't succeed, they are planting the idea that they won't pay what they have paid in the past and that other airlines will certainly join them in their efforts to cut their costs... and again, there is no cost on employees, and every bit of money the company can save from other sources means less that must come from employees.

 

[eolesen]

I personally don't know anyone who uses one stop shopping for tickets. Like I said before, people I know usually visit the airline's website. And it is advertising. Companies advertise to sell their product. In this case, tickets. It's all about getting more exposure to the flying public. But unless your the airline who comes up first as the lowest fare, it's a big waste of money.

It is not advertising. It is commission based selling. No money changes hands if there isn't a related sale.

For North American airlines, upward of 60% of airline sales are done via the GDS and travel agencies.

 

[Hopeful]

It is not advertising. It is commission based selling. No money changes hands if there isn't a related sale.

For North American airlines, upward of 60% of airline sales are done via the GDS and travel agencies.

Yes, 60% of ALL airline sales....But what's the breakdown of each airline? Are their individual sales worth the commision paid the GDS? I'm all for cutting costs, and if AA wants to end their agreement with Orbitz, then so be it. I am sure they have researched the alternatives.
I am aware it is a comission based deal. My advertising reference is simply wherever you see an airline's name and/or logo, it is advertising...for the sole purpose of sales.

 

[eolesen]

Yes, 60% of ALL airline sales....But what's the breakdown of each airline? Are their individual sales worth the commision paid the GDS? I'm all for cutting costs, and if AA wants to end their agreement with Orbitz, then so be it. I am sure they have researched the alternatives.
I am aware it is a comission based deal. My advertising reference is simply wherever you see an airline's name and/or logo, it is advertising...for the sole purpose of sales.

I don't know specifics by carrier, and if I did, I'd probably be violating NDA's.

Considering that the largest domestic carrier in the US (Southwest) has about 20% of the market, and the majority of their booking come in via their website, as do LCC's like Jetblue.

When I worked on electronic ticketing back in the 90's, the average was around 85% of all ticket sales came in thru travel agencies. And AA was very much within a few points of that average.

With those two data points, you can guess that today's number is somewhere between 60% and 85%....

But to the bigger point... Are the commissioned sales worth it?

It depends entirely on the channel. Online sites like Orbitz & Hotwire tend to appeal to leisure customers, and although there is a small segment of business customers who use Orbitz and Travelocity, leisure customers do anything to save a few bucks. Typically, low yields, and probably low value to the airline.

Business travelers tend to book thru traditional agencies (most provide an online booking tool, so they still count as an agency sale), and those are definitely higher yields. I just booked a trip to Canada, and it's a $950 ticket. Paying the GDS to close that sale is likely worth it to the airline.

When you consider that Mastercard, Visa, and Amex skim between 1% and 3% of a credit card purchase just to close the sale, paying the GDS to initiate the sale isn't out of line.

I can't comment much on whether or not GDS's themselves are worth paying, but it is still the most common way of being able to publish your schedules and fares globally. Without them, travel agencies would be a lot less efficient, and waste a lot of time and effort trying to go to individual sites trying to research the best way of getting from A to Z. It's not to say that there aren't competing technologies, but for now, they're still the predominant method.

 

[Hopeful]

I don't know specifics by carrier, and if I did, I'd probably be violating NDA's.

Considering that the largest domestic carrier in the US (Southwest) has about 20% of the market, and the majority of their booking come in via their website, as do LCC's like Jetblue.

When I worked on electronic ticketing back in the 90's, the average was around 85% of all ticket sales came in thru travel agencies. And AA was very much within a few points of that average.

With those two data points, you can guess that today's number is somewhere between 60% and 85%....

But to the bigger point... Are the commissioned sales worth it?

It depends entirely on the channel. Online sites like Orbitz & Hotwire tend to appeal to leisure customers, and although there is a small segment of business customers who use Orbitz and Travelocity, leisure customers do anything to save a few bucks. Typically, low yields, and probably low value to the airline.

Business travelers tend to book thru traditional agencies (most provide an online booking tool, so they still count as an agency sale), and those are definitely higher yields. I just booked a trip to Canada, and it's a $950 ticket. Paying the GDS to close that sale is likely worth it to the airline.

When you consider that Mastercard, Visa, and Amex skim between 1% and 3% of a credit card purchase just to close the sale, paying the GDS to initiate the sale isn't out of line.

I can't comment much on whether or not GDS's themselves are worth paying, but it is still the most common way of being able to publish your schedules and fares globally. Without them, travel agencies would be a lot less efficient, and waste a lot of time and effort trying to go to individual sites trying to research the best way of getting from A to Z. It's not to say that there aren't competing technologies, but for now, they're still the predominant method.

I understand...My point is the AA looking to end the agreement with Orbitz. My gut feeling is thay they feel don't need them as much due to other ventures.

 

[Interested]

An interesting article: says AA will shoot them selves in the foot.
http://seekingalpha.com/article/235308-american-airlines-needs-orbitz?source=yahoo

 

[WorldTraveler]

AA can be criticized for some things but understanding and leading in marketing is not one of them. AA knows full well what the risk is, has a well developed game plan, and knows when it has to pull back on its strategy. But AA also knows that merely making threats makes them look weaker if they walk away without gaining anything from their efforts; I doubt very seriously that AA will just cave in to Orbitz' demands.

Distribution is changing in the airline industry; to argue that network airlines should stay in the age of travel agencies and not leverage the power of their own resources is ridiculous. WN has as many visits to its site because it didn't bother to build the travel agent and corporate relationships that the network airlines have. TO tell the network airlines that they are stuck with a 35 year old system because that is "just the way it has always been" while also telling them to pay higher and higher prices for those 3rd party services is exactly the kind of mindset that good management at any company MUST challenge. And you don't say that it isn't worth going after money like what is involved with the Orbitz despite just because AA really needs a whole lot more money; you fight for what you can get.

 

[PhatSappy]

I bought a round trip ticket on Orbitz two years ago. Flew to S. America through three U.S. cities to get there and back. Their text messages kept me updated on gate changes faster than the overhead monitors were updated. More reliable too!

I have all but given up non-revenue travel and appreciate the services of online companies like Orbitz and CheapTickets etc.

 

[Hopeful]

I bought a round trip ticket on Orbitz two years ago. Flew to S. America through three U.S. cities to get there and back. Their text messages kept me updated on gate changes faster than the overhead monitors were updated. More reliable too!

I have all but given up non-revenue travel and appreciate the services of online companies like Orbitz and CheapTickets etc.

The funny thing is that this past Sunday while watching football throughout the day, Southwest was advertising SOUTHWEST.COM like it was the end of the world....I guess the flying public believes that they and Jetblue are the only airlines flying.