By Mike Esterl
Of THE WALL STREET JOURNAL
AMR Corp.'s American Airlines signed a new distribution pact
with online travel agency Priceline.com, giving the airline some
traction in its high-stakes drive to overhaul how airfares are sold
to U.S. consumers.
American said Tuesday that the website of Priceline.com Inc.
will get the carrier's fares and schedules directly from American
instead of a global distribution system, or GDS, which has long
acted as a middleman between airlines and travel agencies.
The agreement with the fourth-largest U.S. online travel agency
by bookings comes as American risks becoming isolated amid
escalating disputes with other key intermediaries that oppose the
airline's attempts to cut distribution costs and reduce the
middleman role of GDSs.
Just before Christmas, American pulled its fares from Orbitz
Worldwide Inc., the second-largest online travel agency, after
Orbitz refused to bypass the GDS system. Expedia Inc., the largest
online travel agency, dropped American's fares on New Year's Day
after also refusing to connect directly with American's booking
platform.
Fort Worth, Texas-based American, the No. 3 U.S. airline by
traffic, disclosed Monday that Vegas.com, a large online travel
site specializing in Las Vegas vacations, had agreed to use
American's direct-connect technology.
"I think it's possible to do more such deals," said Cory Garner,
head of distribution strategy at American, on Tuesday.
Many travel agencies worry American's alternative system will
translate into higher costs and less revenue for them. Under the
current model, GDSs collect fares, schedules and seat availability
from hundreds of airlines and distribute that information to travel
agencies, charging a booking fee to airlines and sharing the money
with travel agencies.
American is also battling with Sabre Holdings Corp., which owns
the largest GDS and Travelocity.com, the third-largest online
travel agency. American secured a temporary restraining order
against Sabre from a Texas court last week after Sabre began
displaying American's fares less prominently than those of rival
airlines. The next court hearing is in February.
American, like many other airlines, sells about two-thirds of
its seats through third parties. But several other U.S. carriers
are also eager to cut their distribution costs and sell more
tickets directly to consumers, though they have avoided full-blown
disputes with key intermediaries.
Delta Air Lines Inc., the No. 2 U.S. carrier by traffic, said
Tuesday it has canceled about a dozen distribution contracts with
smaller online travel agencies in recent months as it steers more
customers to its own website.
"You should expect us to continue that trend," Richard Anderson,
Delta's chief executive, told investors in an earnings conference
call.
Priceline.com declined to comment on whether it is in other
discussions with other airlines to hook up with carriers directly
and bypass the GDS system. But it said the direct-connect deal with
American is similar to arrangements it has struck in recent years
with hotels and car-rental companies.
"We have always used multiple links to get content from our
suppliers, so it's nothing new for Priceline," said a company
spokesman.
Sabre said in a statement Tuesday that most of its clients
remain opposed to connecting directly with American and that such
an approach "would take the marketplace backwards, making
comparison shopping harder and costlier for businesses, travel
agencies and travelers."
Online travel agencies made up 16% of the estimated $110 billion
in U.S. airline passenger bookings last year, according to
PhoCusWright, a travel research firm.
But GDSs also linked airlines with brick-and-mortar travel
agencies and corporate travel management companies that represented
another 45% of airline bookings in 2010, PhoCusWright
estimated.
-By Mike Esterl at mike.esterl@wsj.com