Premier passenger carrier American Airlines Group Inc. (AAL) has severed its ties with online travel company Orbitz Worldwide Inc. as the two companies failed to reach an agreement on their long-term dispute over fees.
American Airlines notified that no settlement could be made over the fees that Orbitz charged customers buying American Airlines tickets from the latter’s websites. As a result, the nation’s largest carrier has already withdrawn its fares from Orbitz and two of its affiliate websites – Cheaptickets.com and ebookers.com. Beginning Sep 1, the carrier will also drop U.S. Airways listings from Orbitz.
However, corporate customers will still be able to book flights through ‘Orbitz for Business’, which serves corporate travelers. Moreover, tickets that have already been purchased will not be cancelled.
Henceforth, individual passengers will have to book their flights either through the airline’s own website or through other online booking sites like Expedia Inc. (EXPE) and Travelocity.
Neither American Airlines nor Orbitz divulged any details about the financial numbers that would be affected in this process. Both the company’s shares closed the day in red, with Orbitz experiencing a greater decline.
Founded in 2000, Orbitz offers online booking of air tickets for American Airlines as well as peers like United Continental Holdings Inc. (UAL), Delta Airlines Inc. (DAL), JetBlue Airways and other passenger carriers. However, the company has been plagued by a decline in its share of air travel booking over the last few years.
In the past, American Airlines has had a fair share of trouble with Orbitz. In 2011, American Airlines had sued Orbitz claiming that the travel agency had downplayed the carrier’s flights in results reflected against customers’ search queries. The dispute was, however, settled last year.
With the pullout of the largest U.S. passenger carrier, Orbitz could be impacted somewhat. However, American Airlines does not stand to be affected much as its corporate travel option is still available on the site.
We view this as a strategic move by American Airlines to improve ticket sales through its own website, in a bid to cut commission costs payable to such third-party booking companies. A similar strategy has already been adopted by rival carrier Southwest Airlines Co.
American Airlines currently carries a Zacks Rank #2 (Buy).
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