American Airlines Feels Vindicated in Its Second Try at Direct Distribution

In July, Cory Garner, American Airlines vice president of sales and distribution strategy, said he would take a retirement buyout. But in a surprise turnabout on Monday, Garner said that he had had a change of heart. He will stay on, continuing to lead his unit’s 140 employees.

The news is a fine excuse to pause to consider what American has done since 2010 in pursuing next-generation retailing. The company has led the airline industry’s quest to provide content to desktop reservation systems that enables travel agents to more easily explain to customers how the carrier’s products differ from those of rivals based on quality rather than price.

Garner has played an outsized role as the point person for American’s effort to adopt new technologies and fresh compensation models in its dealings with agencies and travel management companies.

To be sure, Garner and American were not the only players in the long-running and on-going drama. Several industry names from the past, such as Montie Brewer, the CEO Air Canada from 2004 to 2009, played pivotal roles.

Today, several industry figures, such as Tye Radcliffe, director of distribution at United, and Xavier Lagardère, Lufthansa Group’s senior director in charge of distribution, are pushing for additional change.

But Garner was the man in the limelight in September 2010, when American announced its effort to launch what it called a “direct connect,” which it claimed was a first for U.S. airlines.

“The Direct Connect will ultimately serve as the single point of access for all American fares and optional services by the outside world, whether that be travel agencies, GDSs (global distribution systems), or any other technology company,” Garner said at the time, according to reporter Dennis Schaal.

Garner looks back at himself as having been a “naïve boy” at the time in the sense he “had no idea what would come next.”

American’s direct connect strategy ran into a blizzard of opposition from irritated global distribution systems and confused travel management companies.

American’s direct-connect effort was presented by some as an effort to bypass the three largest travel technology middlemen that airlines typically used for distributing airfare content — Amadeus, Sabre, and Travelport. Those companies fanned the flames of concerns raised by travel agencies. They labeled direct connect as the enemy of transparency, meaning it would hinder price comparison by agents and consumers because not everyone would see the same full range of fares and services.

Given the opposition, business travel journalist Jay Campbell declared American’s direct-connect push a “walking corpse” in early 2013.

Jump ahead to today. More than 5 percent of all global tickets booked on American via nearly 200 travel agencies now go through American’s direct connections.

Between 2010 and today, American championed the International Air Transport Association push to have the travel industry adopt new technical standards called the New Distribution Capability (NDC). These modern communication standards are better capable of delivering rich content from airlines to agencies using cloud-based systems instead of the decades-old Edifact standards built to be used with mainframe computers.

American, along with its tech vendor, Farelogix, donated some of its intellectual property to the global airline association to kickstart the effort.

Since then, many of the industry’s largest airlines and travel management companies have taken steps to adopt the standards to varying extents. NDC brings with it new value-added content and functionality such as corporate bundles, waivers and other exceptions in corporate booking tools, and enhanced data that agencies can use to fulfill their promises to be watchful of travelers, known as duty of care.

Last summer, American Airlines launched a new iteration of its direct connect that formally adopted the latest New Distribution Capability standards.

Unlike American’s earlier direct connect effort that was more custom, all of American’s direct connections are now based on the same “Level 3”, or latest, NDC standards that have been widely adopted in the industry. So they don’t require custom work and workflows by agencies.

Making Nice with the Middlemen

Rather than stumble into another fight with the global distribution systems, which feared being left out, American decided to accept those middlemen tech companies roles in the ecosystem.

Last summer, it invited Amadeus, Sabre, and Travelport — along with other aggregators — to plug into its platform and deliver its content to agencies that preferred to book everything through one of them.

This week American said its intent is to implement full end-to-end NDC connections with Sabre and Amadeus in early 2019. It will be a phased rollout, starting with a small number of customers initially and then rolling out more broadly.

“We do not plan to differentiate content between GDSs integrated with NDC versus any other NDC channel,” Garner said. When a GDS implements a full end-to-end NDC connection with American, it will likewise be able to offer the same content and benefits as are available via direct connections.

What’s more, last year American began to pay travel agencies $2 per segment — essentially each leg of a flight — when they use direct integrations with its NDC API, NDC connections through a non-GDS aggregator, or an integration via a GDS.

North American and European airlines had all-but-stopped paying incentives over the prior decade. Many agencies have instead earned a financial incentive for using the global distribution systems, which typically range $1 to $3 per segment. American will pay the agency and the agency will either fund its technology provider. But it’s not clear how agencies and GDSs will handle incentives once the GDSs connect to American’s pipes.

Softer Touch

In short, unlike in 2010, American has more recently used a “soft and very welcoming” rather than a “stick” approach, in Garner’s words, to encourage agencies to cooperate. “We didn’t ask for binding commitments to participate, and we didn’t mandate the use of NDC,” he said.

The airline also decided not to slap a surcharge on agency bookings done through the global distribution systems the way Lufthansa, as well as British Airways and Iberia, have done to encourage agencies to book through their direct connections.

American said it has signed up major players, such as American Express Global Business Travel, Carlson Wagonlit Travel, Flight Centre Travel Group, BCD Travel, and Expedia Group for its direct connects.

It has more than tripled the number of NDC connections in market since it introduced incentives in summer 2017. Some connect directly and some connect via more than 20 NDC connections provide by non-GDS NDC aggregators.

A year ago, Travelport’s CEO Gordon Wilson said he was “super skeptical” about American’s latest strategy.

Echoing sentiments expressed by executives elsewhere, Wilson of Travelport said, “The delivery of content through a new pipe as proposed doesn’t cause me any horror, concern, or dread at all. But I think the $2 incentive for agents to do all that and handle the pipe and content and then also take on all the automation, redo all their robotics, and redo all their mid-and-back-office systems, and redo all their reporting and inventory management systems, that’s the part I’m super skeptical about.”

Skift didn’t ask Garner to comment on that, but in an interview, Garner indirectly conceded part of that view.

“Since 2012 we’ve heard from agencies that the GDSs are the architectural center of their businesses and that they rely on too many processes and systems to be able to abandon the GDSs,” Garner said. “We got the message and took on the hard work on our side and work with the GDSs to make next-retailing work in cooperation with them as best we can.”

He argued that American’s acceptance of the role global distribution systems play is more realistic and durable than what some other airlines have attempted, which should give it an edge in sales with corporate travel agencies that will prefer its approach.

As for Travelport, specifically, Garner said, “Travelport has been working with American on NDC for years, as have Sabre and Amadeus, but has not yet announced plans to implement a full end-to-end NDC connection.  We would love to work with Travelport in the same way.”

Garner argued that the early work American has done on the new retailing tech has given it an edge.

“You’ll hear announcements that this airline or that airline has been certified Level 3 for NDC [meaning, their systems can handle some merchandising transactions with the new standards],” said Garner. “That’s fine, but doing the work to make NDC work in the GDS environment is a different challenge and it’s something American has an early start advantage in doing.”

Still, Garner likes the overall trend toward industry adoption. “American isn’t the only airline championing NDC anymore. Others have joined. And the more that airlines come along with the idea, the more an aggregator or a GDS or a travel agency has an assurance that there will be scaled at the other end of their NDC integration, which encourages adoption of new ways of doing business.”

Still Agitating for More Change

How close is this situation to what Garner hoped for in 2010? “It’s 100 percent exactly as we envisioned, once the GDSs finish implementing the integration,” Garner said.

“With the upcoming addition of Sabre and Amadeus to our portfolio of NDC channels, more than 80 percent of our travel agency tickets globally will be issued using NDC,” said Garner. “We’re in the right direction.”

Perhaps. But a key part of the early dream of some American executives had been to achieve more favorable commercial terms for distribution, and that hasn’t truly happened.

American pursued two lawsuits as a way to reshaping the debate. It pursued one suit against Sabre that it settled out of court, and US Airways, which was subsequently acquired by American, sued Sabre, too. That case went to a jury, which sided with the airline in 2016 that Sabre’s contracts restricting airlines from offering lower fares through non-Sabre channels had unreasonably restrained trade. Sabre appealed the ruling this year.

Garner wouldn’t comment on the suits or how commercial terms between the airline, GDSs and travel agencies have evolved. But he offered a more general view: “We believe there really do exist inefficiencies in the global distribution systems that we deeply believe need to change and that are still holding back the pace of innovation in the marketplace,” Garner said.

Recognizing the shortcoming of current industry dynamics, though, doesn’t preclude working with the various parties.

“Setting that aside for the moment, that doesn’t mean we can’t have productive relationships with the GDSs,” Garner said. “In fact, we’ve tried to be GDS-inclusive and a productive partner with everyone in the travel chain including the GDSs.”

While other airlines, like Northwest, which merged with Delta, and Lufthansa, have also engaged in litigation against the global distribution systems, American stood out in its assertiveness. It’s fairly rare in litigation involving U.S. airlines, which may be unpopular with the public, for cases to end up before a jury.

More Carrots Than Sticks

Garner said Monday, “I continue to believe there will be a financial benefit for everyone on the system to embrace NDC. Most importantly, it’ll be a huge benefit to customers, the travelers, at the end of the day when the industry is able to replumb our indirect channels to be more consistent with what’s already going on today on airline direct platforms and to be in sync with a meta-trend in retailing in other sectors.”

In other words, Garner argues it would be beneficial if airlines could offer travel agencies the same content that consumers can get on airline websites. That would take a lot of backend work.

As noted, this week Garner decided to remain in his job, which is to lead strategy for all of the airline’s sales.

While distribution strategy with online travel agencies and other third parties is what he’s most known for, the majority of Garner’s team is focused on selling to travel agencies. Part of that is figuring out how the carrier can grow its relationships with its big and small corporate customers in order to steal share from rivals like Delta and United.

A year ago, Garner was elevated to a larger role to more closely marry the airline’s technical work in direct distribution with its larger sales strategy to corporate travel agencies. He expects gains in the next year or two.

When we consider the daunting nature of the task before Garner, we’re tempted to think, there’s still a tremendous amount of work to be done.