The online travel business is both one of the oldest e-commerce sectors and one of its better growing sectors as well. In the United States, online travel sales totaled $111 billion in 2013, up from $103 billion in 2012 and more than double in 10 years. That’s why Tuesday’s announcement by American Airlines Group Inc. (AAL) that it will immediately withdraw all American Airlines fares from the websites powered by Orbitz Worldwide Inc. (OWW) is a big deal. Fares for U.S. Airways will be withdrawn on September 1.
The airlines believe they are giving up too much revenue to the ticket sellers, and they are trying to negotiate deals that will direct more revenues to their own top lines. In its announcement, American Airlines president Scott Kirby said:
We have worked tirelessly with Orbitz to reach a deal with the economics that allow us to keep costs low and compete with low-cost carriers. While our fares are no longer on Orbitz, there are a multitude of other options available for our customers, including brick and mortar agencies, online travel agencies, and our own websites.
Southwest Airlines Co. (LUV) has never sold tickets through an online agency, and American seems to be announcing that it has no intention of being taken advantage of (as the airlines sees it) any longer.
This announcement could send a chill down the spine of Expedia Inc. (EXPE), Priceline Group Inc. (PCLN) and Sabre Corp.’s (SABR) Travelocity. If the companies cannot offer comparison shopping for air fares, traffic to the travel sites could take serious blow. Then, too, American may not have done itself any favors by stomping out of Orbitz. It is too soon to tell.
Shares of Orbitz were down more than 7% in early afternoon trading, at $7.83 in a 52-week range of $6.40 to $10.70.
American’s shares were down fractionally, at $39.27 in a 52-week range of $15.28 to $44.88.