Expedia Fights Back at American Airlines

Dec. 23, 2010— -- The battle between American Airlines and online travel agents such as Orbitz and Expedia over fees has exploded into a full out war.

Earlier this week, American announced that it is trying to reshape the way airline tickets are sold, pulling all its flights off the online booking site Orbitz. Then yesterday, in a rare show of solidarity from a competitor, booking site Expedia fired back, changing the way American's tickets are displayed on its site, making it extremely difficult to find American flights.

"This has been done in light of both American Airlines' recent decision to prevent Orbitz from selling its inventory and a possible disruption in Expedia's ability to sell American Airlines tickets when our contract with American Airlines expires," Expedia said in a statement to ABC News. "American Airlines has shown it only intends to do business with travel agencies through a new model that is anti-consumer and anti-choice."

Any American Airlines tickets previously sold on these sites are still valid, but this fight could signal the start of a new era for how travelers book their flights and, possibly, how much they pay.

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American's decision to drop Orbitz comes less than a week after Delta pulled its tickets off three smaller travel sites: CheapOair, BookIt.com and One Travel.

At issue are fees that each of the online travel agents get for each airline ticket sold. American is trying to steer more ticket sales to its own website and keep a larger share of the ticket prices for itself.

Expedia today said American's move "will result in higher costs and reduced transparency for consumers, making it difficult to compare [American Airlines] ticket prices and options with offerings by other airlines." The site's retaliatitory move now makes it very difficult for users to find American flights on Expedia.

A search on Thursday morning of flights from New York to Miami next month shows a nonstop on Delta for $235 and connecting flights on US Airways and United. No flights or prices for American flights are offered, but clicking through a series of links leads to several screens that allow the user to book each leg separately before eventually finding price information for a similar trip on American. The cost for a nonstop ticket on American? The same $235 as Delta, but customers wouldn't immediately know that.

A half dozen searches performed by ABC News on various routes produced a similar experience for American flights.

"This discriminatory action is unwarranted, especially considering that American has taken no action against and continues to operate in good faith with Expedia," American spokesman Ryan Mikolasik said in a statement via email. "While tickets for air travel on American remain available for purchase on Expedia, its favoritism toward other airlines' airfares may lead consumers into believing that they have fewer choices, even in situations where American's fares are lower, and schedules are superior, than other airlines that are listed first."

Airfare experts say the ongoing battle will mean more work for passengers looking for the cheapest flights.

"The move does make things a bit more difficult for consumers in terms of comparison shopping, since they will have to remember to search American separately if using Orbitz," said Anne Banas, executive editor of the travel website SmarterTravel. "However, my advice would be to use a meta-search engine like Bing Travel or Kayak that searches multiple sites -- including Orbitz and American -- at the same time."

Cheap Airfare Websites

At the same time, Google is trying to buy the airfare search software company ITA for $700 million, an acquisition that is being reviewed by the Justice Department for possible anti-trust violations.

While ITA is not a household name, it has some of the most powerful airfare search technologies, often sold to third parties. Google dominates the overall search market and has transformed areas – think of Google shopping – that it has entered. Competitors say they fear that if Google buys ITA, it would control airfare searches and give preferential treatment to the highest-bidding advertiser.

"Google buying ITA would be a very bad deal for consumers," said George Hobica, president of airfarewatchdog.com, which refers ticket buyers to several sites including Orbitz and Expedia.

So why would American and Delta make their tickets harder to find? Money.

An airline has to pay a fee to any third-party site, such as Travelocity, Expedia or Orbitz, that sells a seat on one of its planes. Those fees can be as high as $4 per flight segment, according to Robert Mann, an airline consultant and president of R.W. Mann & Company.

For instance, consider a $160 Delta Air Lines ticket from Boston to Orlando, stopping in Atlanta each way. If that ticket were purchased on Orbitz, Delta would have to pay $16 -- or 10 percent of that ticket price -- to the booking site. If that same ticket was purchased on Delta.com, the airline would get to keep every cent of the $160 airfare.

"They are trying to flex their muscles and control their distribution costs," said Graeme Wallace, chief technology officer of FareCompare.com.

Southwest Airlines -- which like American is based in Dallas -- has long resisted allowing others to sell its inventory. Mann estimates that roughly 80 percent of Southwest's tickets are sold directly by the airline. It used to be higher, but the airline opened up some of its higher-cost tickets to corporate travel agents to woo business travelers.

Traditional network carriers, like American and Delta, only sell 20 to 30 percent of tickets directly through their websites.

"This frustrates them," Mann said.

Orbitz -- which had unsuccessfully gone to court to block American -- calls its departure "unfortunate" and said the airline accounted for about 5 percent of its overall sales.

While American's move isn't likely to have an immediate impact on ticket prices, other airlines are now likely to review their own deals with third-party booking sites.

"Southwest for a long time has not played with Orbitz or anyone and they are doing fabulously. If I were an airline, I might think: If I can do it, why can't I?" Hobica said.

"Airline websites sell a heck of a lot more than airfare. They sell hotel rooms, they sell rental cars," he added. "Maybe the airlines are thinking why share this ancillary revenue with Orbitz? There might be some profit in just selling your wares on your own website."

Cheap American Airlines Tickets? Not on Orbitz

In the past few years, airlines have cut labor costs and added fees. They have now returned to profitability and are looking for new ways to increase the bottom line.

"American, and the airlines in general, are trying to get more control and reduce costs for their distribution," said Ray Neidl, an airline specialist with the Maxim Group.

The removal of major airlines from such travel sites would not necessarily mean higher airfares, but makes those super-cheap tickets harder for passengers to find.

"It's going to mean extra work because you are going to have to look at AA.com and also your favorite online travel agency," Hobica said. If American and other airlines pull out of other travel sites, "it will kind of be back to the old days when you got on the phone and called American and called United.

"I don't see that happening," Hobica said.

Customers might also find it harder to save money with multi-carrier itineraries. For instance, a one-way ticket from Chicago to San Francisco on American paired with a one-way ticket back on United might be cheaper than a roundtrip ticket on either airline.

"The multi-carrier itineraries disappear in a puff of blue smoke," Wallace said. "Those multi-carrier initiatives are often the cheapest prices."