Expedia, the most popular online travel agency, agreed to the terms of American Airlines, which gave up some ground, too.

The new airline data distribution model I predicted in February has just become a reality. Expedia, the most popular online travel agency, agreed this week to carry American Airlines data hosted by the carrier’s “Direct Connect” channel. Expedia’s consolation prize is that it will use Global Distribution System (GDS) aggregation technology.

Since Dec. 31, when its contract with American expired and it decided not to renew it, Expedia had been resisting the airline’s attempts to move to a direct channel. Why? Because it wanted to continue to receive sizable kickbacks from Sabre, the GDS it uses to display and book flights.

American insists on “Direct Connect” for two reasons. First, the channel allows it to control how the data is displayed and offer customized options to travelers, such as priority check-in and boarding, which will increase revenue. Second, the cost of “Direct Connect” is much lower than the GDS fees American used to pay Sabre, which has its own quarrel with American.

After a January visit at Farelogix, a Miami-based technology company that is building direct data-hosting and distribution channels for about a dozen airlines, I suggested that a solution to the dispute between American and Expedia (as well as Orbitz) may be a hybrid model.

As Farelogix CEO Jim Davidson told me, the GDS system is not going anywhere, and it provides the best and fastest data distribution. No airline is disputing that or trying to make the GDS model obsolete. But there is a way to integrate “Direct Connect” in a GDS. All three GDS companies — Sabre, Amadeus and Travelport — have been bad-mouthing “Direct Connect” because they stand to lose lots of money.

Now Expedia has realized that a hybrid model is the future of airline data distribution. Instead of fighting it, the GDS companies should get over the past and help to improve the new model, so consumers have the best possible information when comparing prices across airlines.

Until the new system is in place, Expedia will use the existing GDS model to display and book American flights.

Related stories:

GDS travel-booking model faces change

New seminar on travel-booking war

Airlines find new way to overcharge fliers

The risks of third-party airline bookings



One Response to American wins first battle in data war

  1. Seth Miller says:

    I certainly agree that the GDSs are avoiding the transition to direct models because they stand to lose a lot of money. So do the OTAs. It is no wonder that they don’t want to be bullied about by the airlines. And thank goodness they are trying, as consumers will lose in the long run if the airlines pull all pricing calculations back in-house.

    If we accept that the ancillary fees are the only place the airlines are making money — and there is decent data to support that these days — then it is no wonder that the airlines want to push those sales more aggressively. The GDSs are clearly not able to handle those sales today, so there is conflict. But the airlines are not willing to give up any chunk of those sales (i.e. make them commission-able), so there isn’t much motivation for the GDS operators to upgrade and support such sales.

    On top of that, by bringing the pricing in-house the airlines create a system where they can much more aggressively manipulate fares. They claim that by “knowing the customer” they can offer the best deal every time. And that is true to an extent. But it doesn’t mean they have to. Given the recent claims by a Delta executive that some customers are more special than others, it doesn’t take much to realize that, if the airlines are able to obfuscate the pricing data, then a customer will have a much harder time comparison-shopping to be certain that they are getting the right deal.

    Transparency is king for consumers. Transparent pricing makes it possible for the customer to win. And anything that pulls the data back from being openly published decreases transparency, despite the claims of the airlines and their trade group, Open Axis.

    The best result for customers is a hybrid approach, one that exposes both the fare and the ancillary data in a fully transparent manner and which lets the customer build their personal itinerary the way they want it. The technology doesn’t exist today and none of the parties seem to be moving in that direction. Too bad, because we are the ones who are going to lose in this fight.

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