American Airlines’ battle with online agencies and global distribution systems has grown to the point where it involves more than 40% of its annual passenger revenue, could add $156 million in annual distribution costs and is diverting executives from work on other key airline initiatives, American says in a Jan. 10 lawsuit it filed against Sabre and Travelport.
American won at least a temporary reprieve Jan. 10 in one of the most potentially damaging parts of its battle: Sabre’s Jan. 5 decision to downgrade American’s listing in flight searches, even if American offers a better fare. A district court judge in Texas issued a temporary restraining order to prevent Sabre from continuing to do that.
But a full hearing on the issue is scheduled for Jan. 24 on whether to extend that ban with a preliminary injunction, and American’s other distribution-related challenges are ongoing. In a response to the lawsuit, Sabre says the company is “confident that our actions are well within our contractual rights, and we will aggressively defend against American Airlines’ baseless claims to the contrary.”
From December 2009 through November 2010, American says it generated $6.2 billion in passenger revenue from tickets booked through Sabre from geographic regions affected by the new display bias. (For regulatory reasons, Sabre did not implement the bias for bookings made by agents in the European Union or Canada.)
The bias is “eliminating countless sales,” the airline told the court. It cited one example in which an American New York-Los Angeles flight showed up first in an unbiased flight search display but 46th in the biased display.
“Corporate customers have expressed irritation and even anger towards American because of the unwarranted delays and difficulties caused by Sabre’s conduct,” American adds. “Indeed, a corporate account has already threatened to stop doing business with American.”
Over that December 2009-November 2010 time period, Expedia bookings accounted for approximately $1 billion in passenger revenue and Orbitz $592 million, it says; American’s inventory no longer is included in either online agency. American also generated $341 million in passenger revenue from Travelport-owned GDS bookings from regions now affected by Travelport’s “bias against American.”
Altogether that comes to about $8.1 billion in passenger revenue from December 2009 through November 2010, or 43% of the $18.9 billion that American collected in total. By comparison, American generated $6.8 billion in passenger revenue from direct bookings.
American also identified other costs. For example, it says Sabre's flight segment fee increases for each GDS booking could increase the airline’s annual costs by $157 million if left in place. As of Jan. 5, Sabre is charging American $7.31 on average for each domestic point-of-sale flight segment, up from $2.73, the airline says, and as of Feb. 4 will raise the international point-of-sale segment fee from $6.84 on average to $7.36.
American’s lawsuit also spells out the key points of disagreement as to whether Sabre has the contractual right to bias the displays and raise the segment fees.
American says Sabre is basing its legal authority on two claims: that American violated an agreement in its existing contract not to market its Direct Connect “program” to GDS subscribers through the media or publicly at industry or trade meetings, and that it is not providing the agreed-upon full-fare content to the GDS. Direct Connect is American’s name for its system to directly connect agents with its internal reservations system.
American has talked about Direct Connect, but argues it has done so only in response to a publicly waged and misleading campaign by Sabre and other GDSs and online agencies.
The full-fare content dispute seems to center on the “Your Choice” program American unveiled in June 2010, which includes a “boarding and flexibility package” that customers using American’s website can receive priority boarding, free standby rights and a halving of the change fee to $75. Customers who book through Sabre can get the reduced change fee, but not the other benefits, nor can they purchase other “Your Choice” options such as airport club access or inflight Wi-Fi.
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