The ticketing system feud between American Airlines parent AMR Corp. (NYSE:AMR) and Expedia (Nasdaq:EXPE) came to an end late Monday as the online travel site agreed to migrate to American’s proprietary ticketing technology. Expedia shares were up 2.5% by Tuesday on news of the deal.
The agreement immediately restores access to American and American Eagle fares and schedules to Expedia and Hotwire websites worldwide — initially through Expedia’s global distribution system technology.
In a related development, Orbitz Worldwide (Nasdaq:OWW) has extended a deal with its global distribution system provider, Travelport, that gives Orbitz special financial incentives for not establishing a direct-connect arrangement with American — or any other airline.
The special incentives, which took effect a day after American pulled its fares off Orbitz, would have expired on April 21. The extension keeps the fatter segment payments going until Aug. 31 — unless American returns its flights to the travel site or Orbitz establishes a direct-connect arrangement. Orbitz shares were up nearly 2%.
The AMR-Expedia deal appears to resolve a high-stakes game of chicken the two companies have been playing since last fall: whether online booking sites can use their own platforms or whether they must use American’s. While it may appear that American went to war over a minor technical point, the standoff was all about the bucks, not the bits and bytes.
American pushed travel sites like Expedia and Orbitz to use its system because it costs the airline less and reinforces its brand with customers. The booking sites resisted because they would make less money. Like most U.S. airlines that make their fares available to online booking sites, American pays those companies about $1 billion a year in fees. With airlines struggling to keep the lid on operating costs — including a spike in fuel prices — that’s a lot of money to leave on the table.
The battle heated up last December, when American pulled its ticket listings from the Orbitz site. When Expedia raised the ante the next day by “hiding” American fares on its site, the airline also yanked its fares from that site.
Online ticketing rival Priceline.com (NASDAQ:PCLN) saw the light early, and cut a deal with American to make the airline’s flights available on its site. That’s one reason Priceline shares have been on a tear — up nearly 200% from their 52-week low last July.
Bottom Line: While it could be said that Expedia blinked first by agreeing to use American’s proprietary system, in reality, it’s a win for the booking site as well. The standoff with American had slashed Expedia’s fourth-quarter earnings by 30% and sent its shares down 28%.
