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Marketplace

American Airlines, Orbitz on the outs

Nancy Marshall-Genzer Aug 27, 2014
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American Airlines and Orbitz are having a tiff.  American has pulled its flight listings from Orbitz websites. 

Since American and US Airways have merged, their fares will disappear, too.  Orbitz’s corporate clients aren’t affected. Still, will Orbitz take a big hit if you can’t buy American or US Airways tickets on its sites?  How does it make its money, anyway? 

Well, when you book a flight online you spread the love.  Everybody gets a cut; the airline and ticket distributors, who then pay travel websites like Orbitz.

American and Orbitz aren’t saying much about their dispute. 

“But ultimately it all comes down to economics,” says Robert Mann,  a former American executive who started his own consulting business, R.W. Mann & Company.

He says big carriers like American are trying to stay competitive with budget guys like Southwest.  Southwest tickets are only available from the airline.  It doesn’t use Orbitz. 

“And airlines have gotten really attentive to this because of the difference in cost,” Mann says.

Of course, online travel agencies like Orbitz are happy to take the airlines’ cash, but they have lots of other ways to make money.

Tom Parsons, CEO of Bestfares.com, says agencies need to sell plane tickets because that’s the first thing consumers buy.  But after that, travel sites will try to sell you packages including rental cars and hotel rooms.

“Where you make your better money is on the hotels,” he says. “It wouldn’t be uncommon for us to make 10 to 12 percent on a package.”

That is, Bestfares would get 10 to 12 percent of the total package price. Travel sites also sell cruises. But just as Orbitz needs American, American needs Orbitz, or it’ll lose business to other airlines. 

Gary Leff writes the View From the Wing.   Here’s how he describes the situation: “This is a lose-lose if it goes on,” he says.  “It’s a do-what-I-want-or-I’ll-shoot-myself kind of a scenario.”

Leff expects American and Orbitz to smooth things over in a matter of weeks, but no one really knows how long this will drag on.

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