Posted: January 25, 2011
And in this corner…
One travel agent’s take on the American Airlines battleBy Robert Polk
As co-owner of a large regional Travel Management Company, I have watched with great interest the ongoing battle between American Airlines (AA) and Orbitz and, later, Expedia. American has succeeded in having their fares dropped from these online sites, making it harder for consumers to compare fares.
I have watched with increasing great interest as the battle has now spread from online travel booking sites to Sabre, one of a handful of companies that distribute inventory to travel agencies. As this battle moves closer to my travel agency's doorstep I cannot help to think I must be missing something.
Travel agencies sell and book travel through those distribution companies. These companies produce global distribution systems that feed inventory from travel suppliers-i.e. airlines, hotels, rental car companies, etc.-to travel agencies.
These distribution systems serve as the ultimate middle man, offering travel agents complete supplier inventory and pricing in one place. The travel supplier pays the distribution system per reservation.
Unfortunately, middle men are expensive.
American decided to build a direct connect system bypassing the global distribution system entirely. As best we can tell, the goal of American is to receive as many reservations as possible through its direct connect. We think this goal is important because American wants to lower distribution costs and have more control of our/their customer.
The problem those online guys, now Sabre, lots of travel agencies, and consumers have with their direct connect model is that it fragments the global system. It would simply be harder to compare apples to apples if American decides to deliver their apples in orange crates because they are cheaper to ship.
American certainly has the right to pursue this and any other goal it thinks is in the best interest of its airline and its shareholders. What perplexes me is the following:
• American Airlines receives 25 percent of their revenue from bookings made through their own website. Only 17 percent of revenue comes from other consumer sites, like Orbitz and Expedia, where consumers head for bargain basement fares on their vacation flights. A whopping 53 percent of their revenue comes from travel agencies like Polk Majestic Travel Group. In general, bookings from travel agencies have the heaviest concentration of business travel transactions that are high-touch, close-in, time-contingent, and thus often come with higher fares.
• Is American's distribution system cost substantially greater than the cost of a sale made on its web site? Once all technology costs-including hardware, software and support-are totaled, I am hard-pressed to believe these costs are much less than traditional distribution costs. And when you factor in those high-touch, high-fare business travel transactions, it appears the ticket sold by a travel agency is a bargain and of greater benefit to the airline.
• If this is the case, would it not be in the airlines' best interests to not only preserve the valuable travel agency distribution model, but to do all possible to enhance it?
So, the real reason American started this war must be something other than economics.
Does American want to do away with travel agencies all together? Ironically, no airline could handle all of the support that goes along with selling airplane tickets. When the East Coast was hit with the recent Christmas blizzard, none of the airlines could handle the call volume. If you were to have called several airlines during this time, a recorded message informed you they were busy and suggested you call back later. The computer then hung up on you.
Since they cannot be prepared to do away with travel agents, do they want us to book all American tickets through its direct connect system? This makes the most sense, but raises all sorts of questions, would have huge implications on the way we do business, and would change how we provide services to our travelers.
I have been in the travel business for 30 years. I have seen airlines, distribution systems and lots of other agencies come and go. I have seen and listened to more industry strategies and ideas delivered by countless executives who are no longer in the business than you can imagine.
What has not changed, for the most part, is that travel agents book travel through a global distribution system. The reason we book travel through a global system is simple. It keeps everybody honest. It ensures our customers have access to all of their options when booking travel. It works for all parties involved. Except American, apparently.
What perplexes me is the great length airlines are willing to go to save a small amount of money on those transactions that make them the most money.
What am I missing?
Robert Polk is CEO of Polk Majestic Travel Group, Denver's largest independent travel agency. He welcomes your comments and questions at Robert@polkmajestic.com.