American Airlines is the first to challenge their pact, which threatens its commercial leverage in the distribution field. The two GDSs say they have signed an agreement “to complete bookings on an airline in the unlikely event of that airline withdrawing from participation in Amadeus. Amadeus will offer the same back-up for Sabre.”

Aircraft nose W250The pact, which links a major North American distribution system with the dominant European system, is “an insurance policy” covering only airline bookings, says Sabre. American calls it “an end-run” around its agreements.

David Cush, American’s vice-president and general sales manager, says that the pact takes away leverage when negotiating with the GDSs. “This reduces our ability to go in and get the best deal possible.” American’s contracts with Amadeus, Galileo, Sabre and Worldspan expire later this year. Though it is negotiating with all four GDSs in the hope of lowering its bill, Cush stresses that it does not feel compelled to renew with all four.

Texas-based American spends more than $300 million a year on distribution costs, and hopes to cut that expense in any new contracts. Like other major legacy carriers, such as United Airlines, American is also developing relationships with lower-cost distribution alternatives such as G2 Switchworks.

Indeed, leverage is the issue, and American believes it still has plenty. Within days of the Amadeus/Sabre pact, American sent out a letter from Cush to travel agencies and large corporate travel departments stating that it may start to impose extra fees if they make bookings through a more costly intermediary. Clearly pointing to the proposed Amadeus/Sabre pairing, American told the travel sellers that “if you choose to source your fare content through a more expensive distribution channel, you may be asked to cover some distribution expense”.

In 2004, Northwest Airlines had moved to levy a $7.50 per roundtrip “shared GDS fee” on agencies, the first of its type in the industry. But it withdrew almost immediately after a public storm arose and both Sabre and Cendant’s Galileo took steps to make Northwest flight listings less attractive. Litigation stemming from that dispute was only settled in February.

Cush did not specify fees or name either Amadeus or Sabre, but said pointedly: “We want you to know that it is possible that we may not participate in all GDSs going forward.” And, he stressed that the Amadeus/Sabre agreement is seemingly designed to address a decision by American to end participation in all four systems.

In addition to reducing American’s leverage, Cush said the Sabre-Amadeus agreement would seem to violate portions of its contracts that prohibit sharing airline content. For their part, Sabre executives counter that the deal is not without precedent because the GDS already uses other distribution partners in overseas regions, such as one with Abacus in Asia.

Sabre and Amadeus executives have insisted that they will bargain separately towards new contracts with carriers. Cush, noting that Sabre was once owned by American parent AMR, sums up: “GDSs were deregulated over a year ago, and this is the next step of deregulation.” ■


Source: Airline Business