American Airlines
American Airlines has been trying to cut booking costs by fighting to reduce the power of the Global Distribution Systems (GDS) — and the high fees they charge. However, its own ticketing process remains surprisingly outdated for one of the world’s largest carriers, and far from being cost-efficient.
It wouldn’t be difficult for American to save millions of dollars a year. All it needs to do is implement instant ticketing, which most other major airlines have had for years. The carrier says it plans to introduce instant ticketing on its website later this year, but it has no intention to allow phone reservation agents to issue tickets at this time.
“Several technology improvement processes are currently underway, which will ultimately allow instant ticketing for various functions. It won’t happen all at once, but will phase in during the second half of this year, with everything completed by the end of the year under the present schedule,” American spokesman Tim Smith said in an e-mail message.
“For now, our reservations group and its agents will continue to use their existing ticketing system,” he added. “They will, of course, monitor the situation once it’s up and running on AA.com to determine whether any changes are needed with the reservations ticketing model.”
Currently, when you purchase a ticket on AA.com or by phone, your reservation is queued up for ticketing by a dedicated department, which is the only one authorized to process credit cards. If your card is rejected, an employee is supposed to call you and let you know.
That happened to me last month — sort of. I bought a ticket on a Friday on AA.com for travel on the following Tuesday, which should have given it priority in the pipeline before reservations for later dates. But six hours later, the ticket wasn’t issued. I called American and was told there was a problem with the credit card. How was I supposed to know that? No one called or e-mailed to tell me. After I gave the agent a new credit card, it took another eight hours for the ticket to be issued.
In contrast, when you buy a ticket from other major airlines, including United, Emirates and British Airways, you get a ticket number right on the spot — both from phone agents and on their websites. If your credit card doesn’t go through, you are told immediately, so you can react. Just yesterday, I issued a ticket on the Emirates website — it took about 10 seconds.
Imagine how much money American would save if it eliminated the middleman — the so-called ticketing department — in every single purchase. Of course, every airline needs and has a ticketing department. But all those other carriers use it only in special cases, mostly when manual ticketing is required as a result of changing an existing ticket or when the computer fails to price out a ticket automatically.
There is actually another middleman when issuing American award tickets. After you make a purchase online or with an agent, it’s queued up first to the AAdvantage Customer Service. Why? Because that department deducts the miles from your account and verifies that your award complies with routing and other rules. Apparently, American has no trust in its dedicated AAdvantage agents or its automated computer system. Only after that is the reservation queued up to the ticketing department.
Last week, it took American four days to issue an award ticket. I was told that the AAdvantage Customer Service is closed on weekends. About the same time, I got a United award ticket — it took the United agent about five seconds to issue it.
Part of me is glad that many people have jobs, but the other part wonders why American is wasting so much money on creating work for two or three people when those functions can be easily accomplished by one employee.
“Any additional costs associated with our current system is offset by a different aspect of cost-savings for both the airline, the card issuer, and the cardholders,” said Smith, the spokesman. “The current process allows us to do additional card verification and transaction analysis that benefits all parties and help keep costs down. Simply put, less cost from fraud.”
Obviously, fraud is a major issue, but other airlines and companies have found more efficient ways to deal with it. Apparently, American recognizes that, too, since it plans to implement instant ticketing on its website.
Why does it matter when a ticket is issued? I’m told the American system is programmed to hold a reservation for seven days before it gets canceled, which is plenty of time. But what if a booking falls through the cracks, especially if there is a credit-card problem? In addition, if the itinerary includes flights on partner-carriers, those airlines may cancel their seats if they don’t get a ticket number from American by a certain deadline.
One huge advantage of AA.com is that it allows customers to hold a reservation for 24 hours for free before buying it. United’s decision last year to remove that option from its site has caused immense inconvenience to numerous customers. Most airlines, of course, don’t provide a “hold” option online, while others charge a fee for it. Sure, many carriers permit free refunds within 24 hours of ticketing, but that’s not the same thing.
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One by one, airlines are waking up to the sobering reality of the modern Global Distribution System (GDS) model, which they created decades ago. Two carriers have now taken legal action, and this is only the beginning. If more airlines want to see changes and lower costs, they should join forces instead of watching from the sidelines.
Judge Miriam Goldman Cedarbaum of the United States District Court for the Southern District of New York is about to become an expert on airline data distribution — in the 82nd year of her life. You can see her name stamped on a complaint (pictured above) filed last week by US Airways against Sabre, the largest GDS in the United States.
Sabre should take this lawsuit very seriously. Cedarbaum is not just any judge, and she is certainly not to be trifled with. One of the many high-profile cases she has overseen was against would-be Times Square bomber Faisal Shahzad, who was sentenced to life in prison without parole in October.
The most important reason for Sabre to prepare for a serious fight is the actual merit of the US Airways complaint, which the GDS predictably dismissed in a press release after the court filing. The airline accuses Sabre of monopoly, unfair practices and stifling competition by “locking travel agents” into using the GDS, so they “effectively become unable and unwilling to provide their customers with alternative, more efficient” booking channels.
“Rather than compete on the merits, Sabre has used its massive power over airlines such as US Airways to entrench its antiquated and inefficient technological systems, to preserve its supra-competitive booking fees, and to harm competition,” the carrier wrote in its complaint.
“Sabre’s technology has hardly changed from your grandfather’s distribution system, and was long ago left in the dust by new, innovative solutions that are web-based and take advantage of the networked economy,” it added. “These new offerings, however, have been stifled by the GDSs’ grasp over travel agencies and the exercise of their market power over airlines.”
The airline is referring to the technology I’ve written about before, known as a “Direct Connect” model, which allows carriers to host their data and make bookings independently of a GDS. Airlines prefer that model because it lets them control their data and offer non-airfare products, and it also saves them lots of money.
As I explained in February, about 60 percent of the roughly 1 billion tickets issued worldwide each year are sold through a GDS, according to Farelogix, a technology company mentioned in the US Airways filing. The average GDS fee paid by the airlines is about $12 per ticket, or more than $7 billion a year in distribution costs, Farelogix CEO Jim Davidson told me. In contrast, Farelogix’s “Direct Connect” allows carriers to spend only between $2 and $3 per ticket, saving about 80 percent of the current costs.
In its court filing, US Airways said that 35 percent of its revenue, “amounting to
over $3.5 billion annually, is booked through Sabre.” That’s exactly why no airline wants to be taken off a GDS — whether Sabre, Travelport or Amadeus. That’s also the reason why US Airways is only the second carrier — after American Airlines — to stand up to a GDS.
Having just written about a hybrid model that would make it possible for GDS portals to provide access to a carrier’s “Direct Connect” channel, I was surprised when US Airways signed a new agreement with Sabre several weeks ago. Instead of joining in America’s efforts to change the GDS model, US Airways is simply caving in, I thought.
Earlier this month, American reached an agreement with Expedia to implement a hybrid model, and then sued Travelport and Orbitz, claiming violation of antitrust laws. Online travel agencies like Expedia and Orbitz rely almost exclusively on GDS use, and some of them are owned by GDS companies.
Now US Airways has reconsidered and decided in favor of a fight. In its complaint, it says that Sabre forced it into their latest contract with “numerous oppressive and
anti-competitive terms.” The carrier “had no choice but to sign the agreement, which it did under protest, or face a complete shut off from Sabre’s network,” it said.
One of the most draconian clauses is that US Airways is banned from offering fares on its website unless it also makes them available to Sabre. In addition, Sabre penalizes travel agents who book tickets through any other channel.
As my record in this column shows, I’m a frequent critic of the airlines. But their complaints against the GDS companies are legitimate and need to be addressed. What the GDS management teams are doing is nothing short of business bullying. Worse yet, they pretend to be victims, trying to trick consumers into supporting them by falsely claiming that their model is the only way to ensure comparison-shopping.
Instead, they should be less greedy and let go of their unrealistic dreams of enormous and easy profits. Resisting inevitable change as a result of advanced technology is a recipe for extinction, not prosperity and longevity. The sooner the GDS companies realize that, the better for all parties in the air travel system, including consumers.
For their part, airlines should unite in their opposition to the current GDS model if they want to see results they like. They shouldn’t leave it to American and US Airways to fight their battle alone and then benefit from the outcome — and I’m sure the outcome will ultimately be more favorable for the airlines than the present state of data distribution.
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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.
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This should not be news, but it is: U.S. airlines have finally begun advertising some airfares properly, meaning they now show round-trip prices instead of the longtime marketing ploy of “each way based on a required round-trip purchase.” But those are just baby steps, as some taxes and fees are still being excluded.
When I wrote about false fare advertising in 2008, my copy editor at the Washington Times put this headline on my column: “Fare sales often lost in translation.” I compared the deliberately misleading airline practice to the mysterious “Twin Peaks” revelation “The owls are not what they seem.” I also wondered, If a round trip is required, why on earth is only half of the actual fare being advertised?
This month, United Airlines became the first major U.S. carrier to change its policy and advertise predominantly round-trip fares on its website — the only exceptions seem to be last-minute weekend specials. The airline is currently promoting five domestic and four international sales on its site, and they all include round-trip prices and fuel (YQ) surcharges — though some taxes and fees are excluded.
For example, a Business Class fare for a round trip from Los Angeles to Shanghai is shown as $3,513, while the total final price as of today is $3,572, if booked on nonstop flights. A round-trip Business Class fare from Washington to Rome is displayed as $2,411, and the final price is $2,460, if purchased today on nonstop flights. As you see, the differences are not that big.
All other carriers should follow suit. Continental and US Airways display some fares as round trips, but most of their advertising is still being done the old-fashioned way, as is American’s and Delta’s. Southwest, Alaska Airlines and Virgin America show one-way fares but don’t require round-trip purchases.
Although the Department of Transportation has looked into the issue and called on the industry not to deliberately mislead consumers, it has done nothing to stop the controversial practice. The European Union (EU), on the other hand, has been much more proactive on behalf of travelers. That’s why fares in Europe are advertised with the full ticket price.
Some of the European carriers that fly to the United States, such as Spain’s Iberia, are honoring the EU rules globally and displaying actual full prices on their U.S. websites as well. But others, such as British Airways, Air France and Lufthansa, while observing the rules on their home turf, have given in to the pressure from their U.S. competitors and adopted the “one-way based on a round-trip purchase” policy.
In January, all four above-mentioned European airlines offered the same fares from New York to London. The last three advertised $199, while Iberia showed $584, which is what the actual fare was, including all taxes and surcharges. Singapore Airlines, also having the guts to be honest with its customers, promoted a $586 fare from New York to Frankfurt that was truly the final price.
It’s high time the airline mentality of trying to trick customers changed once and for all.
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As United and Continental prepare to become one airline, they are making changes that, though necessary, are affecting negatively their customers. One consequence is that upgrades on international flights will be harder to get in the short run, and more expensive in the long run.
The carriers announced last month that they would begin “cross-fleeting” — swapping routes in each other’s network — and some of those changes have already been loaded in their schedules. Both United and Continental will be serving certain routes in the next several months, but each of them is taking over other routes entirely.
For example, all Anchorage flying goes to Continental, as do the Washington-Paris and Washington-Amsterdam routes, now operated by United. The current Continental flights from Newark to Zurich and Brussels, as well as its Houston-Lima flights, will be flown by United.
That practice is not unusual in airline pre-merger situations. While the United-Continental merger was legally completed late last year, they will be operating as separate airlines until they secure a single certificate from the Federal Aviation Administration, which is expected to happen by early next year.
However, United and Continental are implementing the route changes before resolving some technical issues that will harm their customers.
If you are a United 1K flier and have system-wide upgrade certificates, you can’t use them on the previously United flights now operated by Continental — and the other way around. The same applies to your confirmed regional upgrade certificates on domestic flights. As of now, it’s technically impossible for the carriers’ reservations systems to accept upgrade certificates from the other airline’s frequent-flier program.
Mary Clark, a Continental spokeswoman in Houston, confirmed that certificates will be “carrier-specific” for the time being. “We are in the process of aligning the programs, and changes to the current policies will be announced as they are rolled out throughout the year. We aim to fully combine the programs by 2012.”
United is expected to adopt Continental’s reservations system eventually, but until then, there may be another way to resolve the issue. The carriers announced this week that miles can now be transferred between United and Continental accounts. I wonder if they can make it possible for upgrades to be transferred as well. It’s unclear if they looking into such an option yet.
There is another issue with the United system-wide upgrades whose impact is just now becoming apparent. For years, they have been allowed only on tickets booked in W class or higher, which makes S, T, L and K classes ineligible. Continental recently adopted the same rules.
This means that customers often have to spend hundreds of dollars more than the lowest available fare, just to qualify for an upgrade request — and if the upgrade doesn’t clear, they are left with a lot less money and the same coach seat they would have had if they had paid much less for it.
Things are getting even worse. In January, because of the merger, United added a 14th coach booking class, G, which was a regular published booking class on Continental, but on United it was previously an unpublished travel-industry discount class — it didn’t earn miles and was ineligible for upgrades.
Now, instead of four, there are five booking classes ineligible for system-wide upgrades. So what? you might ask — just a small technicality. Not quite. As a result of this change, W fares are getting more expensive. For example, a base fare of $800 that might have booked in W class before, now books in S or T. A few days ago, I helped a friend with a ticket from Washington to Bangkok, and the W base fare was more than $1,400 round trip — including taxes and surcharged, it came up to $1,900.
There is no question that fares have been going up for some time. A few years ago, a W fare to Bangkok was about $900, including taxes. In 2002, an H fare was $900. So the trend is clear and it didn’t start yesterday. But adding one more booking class makes things even worse.
It’s worth pointing out that American Airlines system-wide upgrades are allowed on all published booking classes.
Another negative change as a result of the United-Continental merger is that, similarly to the upgrades, discount vouchers from one airline cannot be used on the other. So if you want to use a United voucher for a ticket to Anchorage, you can’t, because United has given its seasonal service to Continental.
This week, the United website seems to be including Continental flights in electronic certificate-discounted itineraries, but the official policy hasn’t changed. It may be a website glitch, given that it also allows Lufthansa flights, and the vouchers’ terms and conditions specifically say that they are not valid on code-share flights.
One positive merger-related change is that United customers can now avoid StarNet blocking — it has diminished but still exists — by transferring their miles to Continental, which doesn’t block Star Alliance partner award seats.
NOTE: Several months after this column was published, United and Continental made it possible to use upgrades on flights operated by the other airline, including on mixed itineraries.
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