American lobs new shot across Orbitz' bow
Just when you thought it was safe to assume the fight between American Airlines and GDSs had settled there comes a new attack by American on Orbitz. It didn’t take long after American and Expedia reached a deal, in which it seemed that Expedia blinked, for the airline to go after Orbitz and Travelport with a new lawsuit charging monopolistic practices.
This suit is the one to watch because it targets the heart of the argument – whether the global distribution systems and online travel agents are monopolies. This will be a long battle and it is unlikely the issues will resolved any time soon.
The suit, filed in US District Court for the Northern District of Texas, also seeks to recover compensatory damages as well as relief in the form of injunctions. The suit charges that Travelport/Orbitz' “illegal actions” have harmed consumers by suppressing innovation that would be beneficial to airline passengers.
“American has suffered significant harm in the form of exorbitant booking fees, outdated and inflexible technology, lost sales and loss of goodwill in the travel agent community, corporate customers and consumers,” said the airline, citing consumer harm from the lack of a competitive and accurate distribution system and product innovation. “Unless these practices are enjoined, American will continue to suffer harm, in the form of an inefficient system for the distribution of airline services, lost goodwill, and excessive distribution costs.”
American said the law suit results from long, “extensive, yet unsuccessful, discussions between it and the defendants". It also said it is honouring its existing contractual obligations with Travelport during the legal action.
It really shouldn’t be surprising, this latest volley, given the rhetoric American has been using when Senior Vice President Government Affairs Will Ris cast the airline as a victim to the “greatest duopoly” that everyone in government is ignoring. The suit zeroes in on how GDS and OTA distribution agreements are anti-competitive.
“Travelport, which effectively controls the distribution of fares and other content to a large number of travel agencies and their corporate customers, has engaged in anti-competitive conduct to protect its market position from new competition by alternative technologies that are both less expensive and more capable,” said American in its filing.
Other airlines have voiced support for the Dallas-based airline’s quixotic quest but are content to let American fight on its own for something that is likely to turn distribution on its head. American called Travelport and Orbitz practices “a broad and unlawful, multi-part, anti-competitive scheme”, violating Texas law as well as Sections 1 and 2 of the Sherman Act. American said GDS actions were designed specifically to foil its own Direct Connect programme.
“Travelport has engaged in various forms of unlawful exclusionary conduct intended to significantly limit the incentive and ability of its travel agent subscribers to shift bookings among different providers of airline booking services in response to ordinary market forces,” said the airline. “In doing so, Travelport has ensured that American and other network airlines that rely on travel agents to distribute tickets are dependent upon Travelport to access the critical group of travel agents that subscribe to Travelport’s GDSs. In this way, Travelport has obtained and maintained monopoly power over American and other network airlines.”
To that, Orbitz responded by dismissing the suit as only the latest in a series of legal battles by American to “limit consumer choice and inhibit competition”. Orbitz said it will also seek relief from American’s “predatory actions”.
“American Airlines made the decision to play the role of the marketplace bully and pull its fares from Orbitz,” said the distribution system. “Having failed to force Orbitz to adopt unproven technology that does not meet the needs of our customers, American Airlines is now resorting to groundless litigation in a desperate attempt to revive an unsuccessful strategy.”
The Business Travel Coalition weighed in on the latest legal action calling the American law suit Exhibit A in the airline using consumers and corporate travel programmes as pawns.
“This American antitrust lawsuit against Orbitz and Travelport is not a path to resolving an overarching problem that the marketplace does not embrace American’s so-called direct-connect proposal,” said Executive Director Kevin Mitchell, who has waged a campaign against American’s Direct Connect program for nearly two years. “Rather, the lawsuit is another major symptom pointing to a failure in the marketplace for commercial airline services.”
He said the suit does not bring consumers closer to what BTC is seeking through the Department of Transportation and Congress, transparency for fares as well as ancillary fees.
In its filing, American called GDSs the “gatekeepers between American (and other network airlines) and travel agents and their customers”. It said Travelport owns three of the five GDSs in the US including Galileo, Apollo and Worldspan. The other GDSs include Sabre and Amadeus.
“Travelport accounts for 30% of all airline ticket sales made by US-based travel agencies,” it said. “In the past year, over USD2.7 billion of American’s sales were booked through Travelport's GDSs. Travelport effectively controls the ability of American and other network airlines to distribute fare, schedule, and availability information to Travelport's travel agency subscribers, including defendant Orbitz, and to obtain reservations and sell tickets through those travel agencies.”
Noting that most business travellers only purchase tickets through a corporate travel agency, American said Travelport’s monopoly power rests with its control of the corporate travel booking process.
“Travelport provides virtually 100% of the bookings for a large number of corporate customers whose travel agents subscribe to one of Travelport's GDSs,” it said, adding that the GDS fees charged to airlines were “supracompetitive ‘booking fee’” amounting to tens of millions of dollars just to Travelport alone. Worse, since these fees are shared with travel agents, those agents have an incentive to maintain the current GDS power and limiting agent ability to shift bookings to Direct Connect.
“Travelport recognises that AA Direct Connect poses a significant competitive threat to its power to charge supracompetitive booking fees and its ability to impede technological investment and change,” said the carrier in its filing. “In doing so, Travelport has ensured that American and other network airlines are dependent upon Travelport to access the critical group of travel agents that subscribe to Travelport’s GDSs.”
American listed five ways in which Travelport acts as a monopoly including imposing contract terms limiting airline ability to develop or use competing distribution channels. It also cited the long-term contracts requiring or incentivising agents to use Travelport exclusively by giving them a financial interest in maintaining Travelport’s market power.
The airline also recounted the retaliation taken against American since it began its quest for a direct relationship with passengers including refusing to deal with technology companies that threaten the status quo. Citing the doubling of the booking fees paid by American to Travelport for bookings outside the US, American, the airline called this Travelport’s retaliatory action.
“Travelport, Orbitz, and other industry participants have undertaken attacks against American that have been swift and punitive and misrepresented American’s fares, making them look more expensive to non-US passengers,” said American. “Additionally, Travelport caused American's flights to be displayed less frequently relative to other airlines’ flights, thereby causing American to sell fewer airline tickets to customers traveling to and from the United States.”
Additionally, other industry providers have also altered American displays and forced American to use the current GDS model. The contract between American and Travelport expire later this year although American has been trying to sell its Direct Connect programme to travel agents in anticipation of that.
“In advance of negotiations with American,” said the airline, “Travelport sought to convey a message to American: Stop trying to innovate and inject more competition into the provision of airline booking services or Travelport will continue to punish American and, ultimately, cut off American's access to a critical group of corporate customers. Travelport's conduct has harmed not only American, but also US consumers, in violation of the federal antitrust laws.”