American sues Travelport, Orbitz for antitrust violations

American Airlines 737-800. Photo: Courtesy, Boeing.

American Airlines charged Travelport with violations of federal antitrust laws in a new lawsuit filed against the GDS company and Orbitz in a US federal court in Fort Worth.

American said Travelport exerts “monopoly power” over airlines because it effectively controls access to many of the end users of American’s products and services.

In support of its claim, it cited US Dept. of Justice comments filed with the Dept. of Transportation in 1996: “Each CRS provides access to a large, discrete group of travel agents, and unless a carrier is willing to forego access to those travel agents, it must participate in every CRS. Thus, from an airline’s perspective, each CRS constitutes a separate market and each system possesses market power over any carrier that wants travel agents subscribing to that CRS to sell its airline tickets.”

If the lawsuit succeeds, the implications for the airline distribution system in the US could be profound. The three major GDS companies operate similarly, charging airlines segment fees and providing financial incentives to travel agencies to use the systems. It is estimated that around 50% of all bookings come via GDS channels including traditional agencies, travel management companies and online travel agencies such as Orbitz and Expedia.

American said if a GDS increases its booking fees or takes other actions against an airline, the airline has “little ability” to shift bookings made by its subscribers for their clients to another GDS. If an airline wants to reach those customers—primarily corporate travelers whose companies require them to book travel through their designated agency—it must reach them through the GDS used by their travel agencies.

Meanwhile, American said that Travelport enters into “long-term restrictive agreements with travel agents that give those agents a shared financial interest in maintaining the Travelport GDSs’ market power vis-à-vis American and other airlines.”

The lawsuit is the latest move in a series of events arising from American’s attempt to convince travel agencies to connect directly with the carrier (ATW Daily News, April 5). Earlier, it revoked Orbitz Worldwide’s ticketing authority when it refused to use American’s direct connect technology (ATW Daily News, Dec. 23, 2010).

Travelport owns 48% of Orbitz, and the OTA is its largest customer for GDS services. American subsequently learned that Orbitz’s contract with Travelport barred it from implementing direct connections with airlines.

American’s lawsuit also states that on Dec. 28, 2010, “Travelport terminated its third-party developer agreements with Farelogix because it concluded that Farelogix was not ‘aligned’ with Travelport, presumably due to its cooperation with AA Direct Connect. Other software developers have been told that under their agreements with Travelport they are not permitted to work with Farelogix or AA Direct Connect” (ATW, March 1).

Travelport called the lawsuit “ludicrous and without merit.” In a statement, it said American’s complaint “also finds fault with Travelport/AA’s longstanding distribution agreement—through which AA benefits from significant discounts—some five years after its initiation and at a time of renewal.” It suggested the lawsuit is “merely another attempt by AA to gain bargaining leverage through litigation.”

Orbitz issued a statement saying, “American Airlines made the decision to play the role of the marketplace bully and pull its fares from Orbitz. 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.”