American vs. Orbitz: Neither really wants to clear the air

January 23, 2011

Maybe you've heard about the little dust-up between American Airlines and several online travel agencies, including Orbitz and Expedia.

Maybe you've noticed that when you go fare-shopping on those travel sites, you aren't offered any American flights.

Maybe you've said to yourself, "So what?"

"It's really an inside baseball kind of story," admits William Swelbar, a research engineer in MIT's International Center for Air Transportation.

But not so fast. Yes, the intramural spat between airlines and travel agencies may seem irrelevant, but there's a lot at stake. The future of how you buy airline tickets could hang in the balance.

Here's what has happened: Late last year, American Airlines invited Orbitz to switch the way it manages tickets from a traditional reservation system to a new one that American had developed, called Direct Connect.

Actually, American insisted.

When Orbitz declined the invitation, American pulled its tickets from the online travel agency. Then Expedia, the largest online travel agency, stopped selling American tickets in a related dispute.

Then Sabre, one of the largest reservations systems for travel agents, retaliated by "de-preferencing" American Airlines tickets on its displays, which essentially made American fares the last choice for tens of thousands of agents. Sabre also raised American's booking fees, claiming that the airline wasn't offering access to its full content by withholding information about extra airline fees from its reservation systems.

Since then, there have been lawsuits, court injunctions - and lots of rhetoric.

"This is a dispute over which company or travel industry sector controls price information," says Edward Hasbrouck, a consumer advocate. "But consumers' interest is in price transparency, which nobody in the industry really wants."

In other words, airlines and travel agencies are squabbling over how they show you ticket prices. Agencies want to display it their way; airlines want to show you the prices the way they want. Neither necessarily has your interests in mind, in Hasbrouck's view.

Online agencies typically show "base" airfares, minus any taxes and optional fees. They allow travelers to compare prices between airlines, but those comparisons have become increasingly difficult to make in the past two years, as air carriers have removed once-included items from the ticket price, such as checking a bag or making a seat reservation. Generally, airlines have refused to disclose these fees to travel agents in a meaningful and comprehensive way.

By withholding the fee information and waiting until the end of the reservation to disclose it, airlines stand to make more money because their tickets appear cheaper, and they can pocket all the profits from the extra fees that they charge later. Travel agencies want access to the information, and they say that they want to disclose it earlier so that they can keep their customers from being surprised by these fees at the airport. Plus, they hope to sell you the extras up front, potentially earning them a bonus or a commission.

Orbitz has kept a low profile in recent days, saying only that it is still trying to iron out its differences with American. "We have not closed that door," says spokesman Brian Hoyt.

Not so with American Airlines. Cory Garner, the director of distribution strategy at the carrier, spoke with me at length, saying that one reason the airline is moving to Direct Connect is so that it can show a full airfare.

"We want the customer to know what the total cost of the trip is," he says.

Garner said Direct Connect wouldn't make it more difficult for travel agencies or consumers to shop for and compare American's services with other airlines.

To get an idea of what a future Direct Connect reservation might look like, Garner suggested that I take a look at American's Web site, AA.com.

But American's vision of transparency seems different from what the average consumer might be looking for. The Web site currently doesn't offer you the choice to build a fare that includes a checked bag or a meal - instead, it reveals the fees after you've chosen your flight.

The only fee currently offered upfront is the new "Boarding and Flexibility Package," which allows you to board a flight early and offers a discount on change fees, if your flight plans change. Garner assured me that the airline was working on making all fees available right off the bat.

Jim Osborne, a vice president at the travel agency consortium Virtuoso, is skeptical of American's claims that fare comparisons will be just as easy under Direct Connect. "The proposed fragmentation that could come if each airline required you to book directly with the airline would require the agency community to drastically change the way they do business," he says. "Research would take much longer and easy comparison shopping would no longer exist."

That would be bad news for passengers, according to Andrew Weinstein, director of Open Allies for Airfare Transparency, a coalition of travel companies pushing for access to airlines fares and fees. "By trying to turn back the clock to an era of closed systems and hidden pricing, airlines risk alienating their customers and closing off the very distribution channels they need in order to succeed," he says.

But Swelbar, whose center receives funding from the airline industry, says that the change is inevitable and will save airlines money. "American's actions are an extension of the airline industry's efforts to restructure the business by cutting costs in the short-term and taking increasing ownership of their respective inventories for the long-term," he told me. "I think it is safe to say that airlines know their product better than some third-party vendor."

And how about travelers? I asked readers of this column whether they had any thoughts on this travel industry altercation. The response: a collective shrug. "If I never saw American Airlines on a Web site again, it would be OK," wrote David Kazarian, a reader from St. Petersburg, Fla.

But Steve Lapekas, an executive vice president at Pegasus Solutions, a reservations technology company, and a former American employee, says that the dispute is about to change the way people buy tickets, if it hasn't already. "It's very likely that travelers will start shopping the airline sites, where airlines will claim they can find the best price," he says.

Beyond the hyperbole and arguments, here's what should change: The Transportation Department needs to approve a proposed new airfare and airline fee transparency rule that would require any airline or ticket agency to quote an all-inclusive price for an airline ticket right up front and allow air travelers to easily compare the true cost of travel across airlines.

The technology already exists, apart from Direct Connect, to specify which extras - such as a checked bag, in-flight Internet connections or a sandwich - we want with our tickets. We should be able to tell airlines or agencies what we want right up front and be allowed to compare our preferences and the final prices across all available airlines, instead of being hit with surprise fees after buying a nonrefundable ticket.

Both sides in this quarrel claim that they want to disclose a complete airfare along with optional fees as soon as possible, so they should have no objections to such proposed regulation.

Do passengers want that? You bet. The DOT recently received a letter signed by more than 50,000 passengers asking it to mandate airfare and airline fee transparency. But this might also be a good time for air travelers to remind their elected representatives that they don't like the pricing games that are being played behind the scenes and that airfare transparency should be required by law.

If it isn't, then the winner of this argument won't matter, just the losers. Which will be all of us.

Elliott is National Geographic Traveler magazine's reader advocate. E-mail him at celliott@ngs.org.

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