Orbitz Shares Drop on American Airlines Ticket Threat

Orbitz Worldwide Inc. fell the most since February after American Airlines said it would stop providing fare data to the online travel agency, blocking it from selling tickets after Dec. 1 unless a new contract is reached.

For now, customers may continue to buy the airline’s tickets on Orbitz and Orbitz-powered sites, Mary Sanderson, a spokeswoman for American, said in an e-mail. Orbitz disclosed the plan by American, the third-biggest U.S. airline, in a U.S. Securities and Exchange Commission filing.

American is pushing for online travel agencies such as Orbitz to obtain flight and fare information directly from the airline, instead of through a global distribution system such as Sabre Holdings Corp. or Travelport LLC’s Galileo and Worldspan, said Barney Harford, Orbitz chief executive officer. There is no indication that other airlines will follow American’s lead, he said in an interview today.

“This is a broad attack by American on the travel distribution landscape,” Harford said on a conference call with analysts and investors. “Clearly our announcement today is the first salvo here.”

Orbitz dropped $1.16, or 17 percent, to $5.66 at 3:12 p.m. in New York Stock Exchange composite trading. The shares fell as much as 19 percent earlier, the biggest intraday decline since Feb. 23. AMR, based in Fort Worth, Texas, increased 6 cents to $8.43.

‘Call American’s Bluff’

American can’t afford to pull its content off all the global distribution systems, and its conflict with Orbitz is a “private negotiation that suddenly became public,” said Jay Sorensen, president of aviation consultant Ideaworks and a former marketing director at Midwest Airlines.

“I don’t see an agenda here for American to remake the travel industry,” Sorensen said in an interview. “American is doing what’s smart in terms of negotiating. You threaten to do something that you in fact are willing to do. Orbitz may call American’s bluff.”

American will seek to “negotiate mutually beneficial contracts” with other agencies as existing ones expire, the airline said in an e-mailed statement.

Travelocity.com Inc. has not been contacted by American on the issue, said Joel Frey, a spokesman for the Fort Worth, Texas-based travel agency. Priceline.com Inc., Kayak.com and Expedia Inc. didn’t immediately return calls for comment.

‘Range of Issues’

A “range of issues” are being negotiated by Orbitz and American, Sanderson said. She declined to comment on specifics because negotiations continue. The airline doesn’t agree with Harford’s characterization of the dispute, she said.

“We continue to negotiate in good faith to reach a viable, mutually beneficial agreement with Orbitz,” Sanderson said. “We believe it is important that our distribution channels be cost-effective and efficient.”

Orbitz is among a number of online travel agencies that allow customers to book airline tickets, rent cars and hotels. Consumers are able to compare prices and schedules of various airlines before making a choice.

American, which has said it pays “hundreds of millions of dollars annually” to global distribution systems such as Sabre and Galileo, has developed its Direct Connect service to provide information on fares and options directly to larger online travel agencies. Smaller companies still may use a content aggregator to obtain their data.

‘Completely Inefficient’

Global distribution systems “ensure travel agents can offer consumers a comprehensive choice of airlines,” Harford said. “It is completely inefficient for each travel agency to have to connect to hundreds of airlines. We are actively working to resolve this issue.”

Travelport, based in Atlanta, said in a statement that an attempt by American to force a move to a more restrictive distribution system may violate the airline’s contract. The company said it was “taking a number of steps” in response, without providing specifics.

American declined to provide a figure for ticket sales through Orbitz or other online agencies. Orbitz also declined to break out income from American sales.

Orbitz said today third-quarter gross bookings rose 12 percent from a year ago to $2.81 billion. Net income more than doubled to $15.3 million. Airline-ticket sales provide about 38 percent of Orbitz’s total revenue, Harford said.

Orbitz and AMR entered into an agreement in December 2003, according to the SEC filing.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Will Daley in New York at wdaley2@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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