American Must Return to Orbitz
By Timothy W. Martin, Lauren Pollock, The Wall Street Journal | Jun. 02, 2011
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An American Airlines jet. Wednesday's court ruling was a setback for the nation's No. 3 air carrier by traffic.
American Airlines must make its flights available on Orbitz Worldwide Inc.'s websites, an Illinois court ruled Wednesday, a legal victory for the online travel industry in its battle with air carriers over fees for flight and fare information.
In granting Orbitz's request for the order, the Illinois Circuit Court of Cook County dealt a setback to American, which accounts for about 5% of the Chicago-based travel site's revenue.
American, the third-largest U.S. airline by traffic, pulled its flights from Orbitz in December. Since then, other airlines have captured nearly half of its former Orbitz market share.
"We still saw a strong interest of customers coming to our site, despite the fact American Airlines was never even on it," said Orbitz spokesman Brian Hoyt.
Orbitz shares surged after hours on news of the ruling, climbing 49% to US$3.29 after finishing 4 p.m. trading on the New York Stock Exchange at US$2.21, down 3.9%. The shares have fallen 60% this year amid the dispute.
American, a unit of AMR Corp., said in a statement Wednesday that it "fundamentally" disagrees with the court's conclusion and will evaluate its options. For now, it said it will comply with the judge's order.
Travel sites like Orbitz and larger rival Expedia Inc., as well as third-party ticket distributors, are in negotiations with airlines over booking fees. Some airlines, including American, are pushing for lower fees, to cut costs as fuel prices remain high. Carriers also want to deal directly with travel agents and consumers to offer fliers additional services.
Travel sites get a fee of US$8 to US$10 for each airline ticket they sell-roughly US$3 to US$5 from the airline and US$5 from global distribution systems, or GDSs, said Jake Fuller, a travel analyst with Lazard Capital Markets.
In recent years, GDS operators, the third-party distributors that consolidate the fare information and flight schedules that appear on the travel sites, have taken fee reductions, including 12.5% in 2003 and 15% in 2006, the analyst said. If GDS fees are lowered further, the travel sites' revenues also stand to decline.
Contracts are set to be renegotiated this summer for many GDSs and travel sites, talks that have led to lawsuits, injunction requests and threats.
As the economy stumbled in the past few years, online travel sites saw their bookings rise, as hotels and-to a lesser extent, airlines-turned to the travel sites to reach a broader audience as business bookings declined. Now, with travel conditions improving, online sites are seeing their bookings slow.
Separately, American added Sabre Holdings Corp. to a federal antitrust lawsuit it filed in April against Travelport LP and Orbitz. American says it believes GDS operators are blocking travel agents from alternative, cheaper forms of booking-such as its own Direct Connect product, which bypasses GDS services like Sabre and Travelport, which owns 48% of Orbitz.
Sabre filed a countersuit Wednesday, alleging American is seeking to force travel agencies to use the Direct Connect. In light of American's moves, "Sabre has no choice but to pursue legal remedies," said Chris Kroeger, a senior vice president of Sabre Travel Network, in a statement.