2nd UPDATE: American Threatens To Pull Listings From Orbitz
05 November 2010 - 5:23AM
Dow Jones News
AMR Corp.'s (AMR) American Airlines said it would pull its
flight listings from Orbitz Worldwide Inc. (OWW), beginning Dec. 1,
unless the two companies can agree on how the online-travel agent
gets access to the data.
"This is a travel-distribution industry issue," Orbitz President
and Chief Executive Barney Harford said Thursday. American wants to
"force agencies to connect directly to [American's] system to
access content as opposed to using global distribution systems," or
GDS.
Some airlines, American in particular, have been vocal in
wanting to share the expenses of providing access to their flight
listings with travel agents and online travel sites. American's
move is an attempt to change how that data are distributed and
would reduce the airline's costs, cut out the middleman and enable
it to get a bigger hold of online-travel purchases.
American spokeswoman Mary Sanderson said that the decision
wasn't made because of anything Orbitz did and that the airline is
in various stages of discussion with other online travel
agents.
"This is about trying to get our distribution costs down and
make our distribution channels be more efficient so we can offer
consumers the lowest prices possible," Sanderson said.
The travel industry was hit hard during the recession, with
consumers and business travelers scaling back on spending. To deal
with waning revenue, airlines slashed capacity and costs, and
charged customers for everything from beverages to checked luggage.
With little left to cut, airlines have looked to distribution costs
as the next big frontier in terms of reducing expenses.
Traditionally, a GDS--such as Travelport Ltd. and Sabre Holdings
Corp. (TSG)--acts as intermediary between travel agents and travel
providers, working out financial terms and facilitating the search
and booking of flights. The airlines are charged a fee for the GDS'
service.
"It's very clear that American has drawn a line in the sand and
is girding itself for a fight," Forrester Research analyst Henry
Harteveldt said. "I understand American's desire to reduce costs
and have more control over its distribution strategy, but if it
pulls out of GDS, it's possible it may be the only airline doing
this and it may be counterproductive."
Orbitz CEO Harford said no other airlines or partners have
approached Orbitz to terminate their agreements like American
Airlines has.
"We have very strong relationships with the vast majority of our
supply partners," Harford said. "This really is an initiative that
is unique to American."
Orbitz shares, down 20% this year, recently dropped 14% to
$5.88.
Representatives from United Continental Holdings Inc. (UAL),
Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) were not
immediately available for comment.
American's Sanderson said that customers can still compare and
purchase American fares on Orbitz sites and that the airline
continues to negotiate with Orbitz to reach a "viable, mutually
beneficial agreement."
The airline refuted claims by Orbitz that the move would limit
customer choice. "We believe that together with our travel partners
we can deliver more customized and relevant products and services
to our customers, but we must look beyond the current paradigm to
succeed in this quest," the company said in an emailed
statement.
Travelport said American's action violates its "contractual
obligations" and could lead to inefficiencies and associated costs.
Travelport said it would take "a number of actions to defend travel
agents and consumers" but didn't outline its moves.
Travelport, which owns about 48% of Orbitz, is a private company
owned by Blackstone Group L.P. (BX), One Equity Partners,
Technology Crossover Ventures and Travelport management.
Representatives from Orbitz rivals Expedia Inc. (EXPE) and
Priceline.com Inc. (PCLN) weren't immediately available to comment,
nor was Sabre, which also owns online travel agent Travelocity.
Expedia shares slid 6.5% to $26.81, and Priceline added 5 cents
to $380.04.
Meanwhile, Orbitz reported a third-quarter profit of $15.3
million, or 15 cents a share, above year-ago earnings of $7
million, or 8 cents a share, and the average estimate of analysts
surveyed by Thomson Reuters of 9 cents a share.
Revenue increased 4% to $194.5 million. The company in August
projected revenue growth of 3% to 6%, below analysts' views at the
time.
Gross bookings climbed 12%, mostly on higher air fares and
transaction volume. Flights bookings rose 13%, while hotel-room
nights soared 57%.
CEO Harford said Orbitz factored in the potential impact from
the American Airlines issue into its financial forecast for the
year. The company said it expects revenue to rise 1% to 2% from
2009. It also lowered its expectations for full-year earnings
before interest, taxes, depreciation and amortization to 4% to 6%
growth from previous estimates for 5% to 10% growth.
-By Shara Tibken, Dow Jones Newswires; 212-416-2189;
shara.tibken@dowjones.com
(Tess Stynes contributed to this report.)
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