United Airlines and Expedia: United’s endgame is unclear
The airline distribution landscape has changed significantly during the past decade, with airlines often taking aggressive steps to change dynamics with third party ticket sellers in order to gain more favourable commercial terms. One of the more high profile spats occurred between American Airlines and Orbitz, with the airline opting to pull its inventory from the online seller for a period of time in both 2010 and 2014.
Now United and Expedia appear to be heading toward a severing of ties after tough contract talks and some legal tussles.
United's relationship with Expedia has not always been comfortable, but the current skirmish between an airline and a third-party seller is the latest attempt by airlines to rewrite the rules for distributing their inventory.
- American Airlines has had its own skirmishes with third-party sellers in the past, but ultimately the airline reached agreements with those distributors.
- United believes it can sell its lowest fares just as well as Expedia through its own direct sales channels.
- More recently, airlines have adopted various strategies to alter their agreements with third parties, ranging from GDS surcharges to incentives for agents to book directly.
The tiff with Expedia is the latest in the push and pull between airline and OTA
During early 2019 Expedia filed a lawsuit against United arguing that the airline had breached its agreement with the OTA and seeking an injunction prohibiting United from interfering with Expedia’s ability to work with United customers after 1-Oct-2019.
In late 2018 United told Expedia that it would cut the OTA's access to flights after Sep-2019. United’s move appears to stem from its efforts to gain better contract terms from Expedia – a recurring theme between airlines and third-party distributors over the past decade.
American’s yanking of its inventory from Orbitz in 2010 and 2014 was a result of the airline concluding that the terms of its contract were unfavourable. In 2014 American’s then president Scott Kirby stated that the airline had worked tirelessly with Orbitz to reach a deal offering economics that would allow the airline to keep its costs low and compete with low cost carriers. Eventually the two companies resolved their dispute.
United believes it can sell the lowest fares just as well as Expedia
Now Mr Kirby is president of United, and the airline plans to stop offering its inventory to Expedia and its partners – Orbitz, Travelocity, Hotwire and CheapTickets – from 1-Oct-2019, after the company determined that it could not negotiate a contract with more favourable terms with Expedia.
United chief commercial officer Andrew Nocella recently told analysts and investors that the airline had invested in its own website and app to be more cost effective, and while Expedia has historically been good at selling its lowest fares, “quite honestly we think we can sell our lowest fares just as well and that’s where we are”.
Perhaps part of United’s decision that it could sell those fares just as well rests on its ability to upsell, to nudge customers to buy up to higher priced fare tiers. The three large global US airlines have cited upsale rates from basic economy fares of 50% to 60%.
The question is what United's endgame could be
Many unanswered questions remain in the latest dispute between United and Expedia. Is United just playing hardball to obtain better contract terms, or does the airline fully believe it can sell its lowest fare tickets just as well as Expedia?
As Travel Weekly has pointed out, in 2016 Expedia and United were on the verge of ending their agreement but extended their contract two days before it was set to expire.
If United ultimately does end its relationship with Expedia, will other airlines follow suit? All airlines want better terms with third parties that distribute their products but American, and now United, have been the most aggressive in the US in taking dramatic steps to obtain improved contract conditions.
In Europe the IAG airlines British Airways and Iberia, and Air France-KLM, followed the Lufthansa Group in levying a fee on bookings made through global distributions systems (GDS). But Expedia reached a deal with Air France-KLM to bypass the fee and also committed to work with Air France-KLM and the airline group’s GDS partners to collaborate on integrating IATA’s New Distribution Capability (NDC).
During the past couple of years American has adopted a different approach in certain facets of its distribution strategy. In 2017 the airline began offering a USD2.00 commission to travel agencies booking flights through an American-approved NDC connection.
Airlines will continue to press for improved terms
United and Expedia’s latest conflict has attracted a lot of attention and reflects a level of relentlessness that some airlines are adopting in working towards gaining more favourable agreements with third-party distributors.
The global distribution landscape for airline inventory is undergoing significant changes – most notably the adoption and roll out of IATA’s NDC and the way that new technological standards can transform how airlines sell their ancillary products.
GDS companies have come around and accepted the role that NDC will be playing in the distribution landscape.
But the latest dust–up between United and Expedia shows that efforts by airlines to secure what they deem as more favourable agreements with third parties will only intensify.
Undoubtedly one strand of United's tactics will be to push Expedia into presenting an improved/cheaper option for United; but whether the airline is prepared eventually to adopt the nuclear solution, and just where the line on cost compromise will be drawn is something we probably won't find out until late Sep-2019.