Orbitz was formed by a group of airlines for the express purpose of introducing competition in the online travel market and bypassing expensive GDSs with direct connects to airlines. A controlling stake in Orbitz has since been purchased by an entity that also controls Travelport and its GDSs (i.e. Worldspan, Apollo, and Galileo). Direct connects potentially threaten Travelport's role as an intermediary between airlines and travel agencies. As a result, Travelport may have an incentive to do everything within its control to make sure that threat disappears. Orbitz's actions, therefore, may not necessarily be indicative of its own business interests but rather the interests of its largest shareholder.
Orbitz's 2009 10-K filing with the SEC says:"Because we are limited in our ability to pursue alternative GDS options or direct connections with suppliers during the term of our GDS agreement with Travelport, any such actions by Travelport could make us a less attractive distribution channel to our suppliers, who could attempt to terminate or renegotiate their agreements with us, and could place us at a competitive disadvantage relative to other online travel companies ... As long as Travelport's controlling holders continue to indirectly own a significant amount of our outstanding voting stock, even if that amount is less than 50%, they will continue to be able to strongly influence or effectively control us. The interests of these holders may differ from our other shareholders' interests in material respects."
Rather than acknowledge what is stated in their 10-K filing as their business rationale, Orbitz and Travelport have used media statements and Orbitz's third quarter investor call to confuse the issues and paint American in an unflattering light. I would like to make American's position clear and keep our dialogue with our valued travel partners open:American is pro-consumer
. American has been, and is still trying to, come to an amicable arrangement to continue its participation on Orbitz. Though we do not see eye-to-eye with Orbitz's controlling shareholder as to the future of travel distribution, we do see a path forward that can benefit American, Orbitz, and consumers. If American is unable to reach a deal with Orbitz, American's fares will continue to be widely available through AA.com, corporate TMCs, brick and mortar travel agencies, other online travel agencies such as Priceline.com, and metasearch engines such as Kayak.com. In addition, consumers can purchase products and services through American's call center and at airport locations. There will still be many ways for consumers to conveniently obtain American's products and services.Direct Connect technology is efficient
. Orbitz has been using airline direct connects for years. That is what they were designed to do. The modern direct connect technology we have proposed would only make Orbitz's existing direct connection with American easier to maintain and more content-rich for consumers. Furthermore, Travelport just added Southwest to a list of nearly a dozen airlines that offer direct connects through Travelport's new Universal API. The argument that this cannot be done with American appears to be contradicted by the facts. Therefore, the only choice being restricted in this situation is the choice of Orbitz and American to find a mutually beneficial way to work together differently.
American believes that protecting Travelport's GDS business is not value-maximizing for Orbitz, nor in the best interests of the customers we jointly serve. Rather than stand in the way of our business dealings with Orbitz, Travelport should facilitate direct connect integration on behalf of Orbitz. Travelport's announcement with Southwest of a direct connect deal is proof that this capability exists and is viable. See Travelport's full release
American will not stand idly by as its largest domestic competitor continues to expand its distribution through Travelport and other GDSs using modern, lower cost technology similar to what American has proposed. In a US travel market that has been marked by Low Cost Carrier growth and declining real fare levels for decades, American needs a competitive distribution cost structure. We firmly believe that can be done in a way that also increases transparency of optional services to customers. This situation can be easily resolved and we will work with Orbitz in good faith to bring this situation to a resolution that meets the needs of consumers and all stakeholders on both sides.
We hope that Orbitz will agree to join the growing list of travel agencies who are committed to deliver the lowest fares and most relevant optional service offers from American. If you would like to find out more about how American's Direct Connect can benefit you and the customers we jointly serve, we encourage you to visit http://directconnect.aa.com and explore our blog at http://www.aa.com/distribution.This post was republished with permission from American Airlines' Distribution blog.