American Airlines: Scare Tactic Or Antitrust Trouble?

American Airlines has decided to sue online travel agency Orbitz and Travelport, a private global distribution system (GDS) owned by the Blackstone Group, for alleged ‘anticompetitive business practices.’ 

According to the lawsuit, the nation’s fourth largest airline says that Orbitz, which distributes fares and other travel booking content, is trying to control the distribution of airline tickets. Currently, most of American Airlines’ revenue comes from tickets sold by travel agents who obtain information from GDS.

‘The lawsuit raises innovative but real questions about market power and behaviours in the current airline structure,’ says Spencer Waller, professor and director of Institute for Consumer Antitrust Studies at Chicago-based Loyola University. ‘But I don’t think this lawsuit will get to a resolution on the merits of antitrust claims. I view this case primarily as a continuation of the dispute and negotiations over fees in the online travel agency.’

Orbitz and Travelport denied American’s charges, claiming that the airline is using a ‘scare tactic’ to get the companies to adopt American’s distribution system.’Because we have not agreed to use their [American] unproven technology, the airline has brought these scare tactics to force us into agreeing to their terms,’ says Brian Hoyt an Orbitz spokesperson.  ‘No one likes the schoolyard bully and what American wants us to do is less than ideal for our customers.’

Last year, American pulled its flight listings from Chicago-based Orbitz after the two companies failed to agree on how a travel agent should gain access to flight data. American and Orbitz were partners, but in December decided to part ways. The online travel agency reportedly lost a legal battle that allowed the carrier to yank all its content from the website. 

Traditionally, GDS like Travelport and Sabre Holdings, another privately held travel technology company, serve as the intermediary between travel agents and providers, like American. The GDS provide the option to search and book flights on many airlines, but to gain access to this system the airlines are charged a fee. 

American has been pushing feverishly to bypass the GDS process and recoup the fee it pays to the likes of Travelport for access to online and offline travel agencies. In turn, this will move the sales back to its own website by lowering operating costs by eliminating online travel agency commissions.’ Travelport and Orbitz have harmed consumers by suppressing innovation that would be beneficial to airline passengers,’ says American in a statement. 

The airline is now seeking monetary damages for lost ticket sales and punitive damages. 

In response to the airline’s claim, Hoyt says, ‘American wants to dismantle the experience of enabling consumers to compare fares.’ He adds that Orbitz was one of the first companies to launch a matrix display that allows the customer to sort and save flight and hotel packages. 

‘We have been at the forefront of technology and the matrix display is now being copied throughout the industry.’ The antitrust lawsuit, filed earlier this week, is the latest development to surface from the ongoing battle between the companies that stretches back to American’s announcement in November that it was pulling out of the online travel giant.  

‘The dispute raises real antitrust concerns because firms have substantial market power, and higher fees are being generated that are being passed on to consumers,’ Waller adds. ‘The antitrust law is looking at it from a consumer perspective and in the end, this law would want the airlines to produce lower fees.’ 

‘This case is completely baseless- it has no foundation in antitrust law,’ says Hoyt, who stresses that American ‘made the decision to pull its fares from Orbitz.’