Expedia drops American as distribution debate heats up

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Online travel agency Expedia has stopped offering American Airlines' fares on its web site, citing the US major's pursuit of a commercial strategy that it deems anti-consumer, as the debate over how airlines manage distribution heats up.

The move by Expedia falls on the heels of American's decision to remove its inventory from rival online travel agent Orbitz, which is 48% owned by global distribution system (GDS) Travelport.

In an apparent show of unity, Expedia last week began listing American's flights and schedules lower in its search display, before dropping them entirely over the weekend. American has been pushing a 'direct connect' model, which allows travel agencies the freedom to communicate reservation data directly with the airline, bypassing GDSs like those operated by Travelport and Sabre.

Forrester Research analyst Henry Harteveldt says the current dispute got started when American wanted to put more tickets through the direct connection it already has in place with Orbitz, called Supplier Link, versus Travelport's Worldspan GDS. "Travelport objected and so Travelport forced this behaviour on the part of American."

"It all goes back to the economics of GDS distribution," he explains, "because the travel agencies get those segment fee rebates. I assure you, if American had figured out a way to make it financially worthwhile for travel agencies to use direct connect, then Expedia would not have taken the action it did."

He adds: "Expedia's objection to what's going on here has nothing to do with lack of consumer choice. It's entirely based on the fact that the travel agencies, whether online or offline, get segment rebates from GDSs and that makes up a significant part of their airline-related revenue because the airlines are essentially at zero commission."

Harteveldt notes that American's contract with Expedia expired at the end of 2010 with no direct connect agreement in place. He says the carrier "failed to take into consideration" how travel agents would make up the lost revenue of moving to a direct connect model.

At the same time, however, he believes American is taking a big risk. "There is no question that this is a very expensive game of distribution chicken. And if Orbitz generates $800 million worth of ticket sales for American, Expedia, which is more than twice as large, is generating more than $1.6 billion at least in sales on American. If these numbers are accurate that means that $2.4 billion of American's revenue is now at risk."

American in a statement is urging customers looking to compare flights or fares online to visit "other travel sites such as Kayak.com or Priceline.com" and assures that its lowest fares can always be found on its own web site, which does not charge a booking fee.

Furthermore, American notes that it also continues to provide its air fare content to thousands of travel agency partners, both through global distribution systems and through American's own direct connect technology, powered by Farelogix.

"We will continue to negotiate in good faith to reach terms with Orbitz and Expedia that will benefit customers and position each company for sustainable success," says the carrier.