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Orbitz Tumbles After American Airlines Contract Notice

Orbitz CEO Barney Hartford
Barney Harford, chief executive officer of Orbitz Worldwide Inc. Photographer: Andrew Harrer/Bloomberg

Orbitz Worldwide Inc. fell the most since March 2009 after American Airlines said it would stop providing fare data to the online travel agency, blocking ticket sales 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 in a U.S. Securities and Exchange Commission filing the plan by American, the third-biggest U.S. airline, to possibly end their agreement about three years early.

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 $1.19, or 17 percent, to $5.63 at 4:15 p.m. in New York Stock Exchange composite trading. It was the biggest one-day decline since March 11, 2009. AMR, based in Fort Worth, Texas, fell 3 cents to $8.34.

‘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.

Even if American drops Orbitz, it may eventually return “although perhaps at different terms than exist in the current agreement,” Marianne Wolk, an analyst at Susquehanna Financial Group, said in a note. Inc. hasn’t been contacted by American on the issue, said Joel Frey, a spokesman for the Fort Worth, Texas-based travel agency. Inc., and Expedia Inc. didn’t immediately return calls for comment.

‘Range of Issues’

A “range of issues” is 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 are negotiating in good faith with Orbitz to reach a mutually beneficial agreement that provides broad, efficient distribution while also enabling more choices for consumers,” Sanderson said. “We can deliver more customized and relevant products and services to our customers, but we must look beyond the current paradigm to succeed.”

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.

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