American Airlines joins forces with Priceline.com

By Blake Ellis, staff reporter


NEW YORK (CNNMoney) -- American Airlines said Tuesday it is entering into a ticket-selling deal with Priceline.com, after the airline severed a similar deal with Orbitz last month.

Priceline.com, a travel site that collects airfare information from major airlines for customers to compare and book, will begin issuing American Airline tickets through its site "in the near future." Terms of the agreement were not disclosed.

The deal follows American Airlines' split with Orbitz, another travel site, in late December. Also in December, Expedia pulled American Airline fares from its website.

Airfare-data provider Sabre, which owns Travelocity.com, dropped information on American Airlines flights at the end of the year, ending its contract with the airline early.

The spats have come as American Airlines pushes the travel sites to use its own "Direct Connect" online ticket sales platform. The in-house reservation system bypasses global distribution systems -- like Sabre -- that currently provide individual airline information to the travel sites.

Priceline will use this technology under the agreement inked Tuesday, and Vegas.com, another travel site, began using American's Direct Connect technology about five days ago.

"Direct Connect supplies our fare and product information directly from American, rather than using the decades-old mainframe technology of global distribution systems (GDS)," said Tim Smith, an American Airlines spokesman. "GDS's are quite expensive to use so we have come up with a less costly, less cumbersome way of delivering the same information ourselves."

Eliminating the costly middleman will save the airline billions of dollars, Smith said.

The money-saving move was much needed, since American is one of the only airlines that didn't go through bankruptcy and have to transform its cost structure to become more competitive, said Harlan Platt, a finance professor who covers the airline industry at Northeastern University.

Another main driver behind the deal was likely to convince the other travel sites to return to the negotiating table, he said.

"We don't know anything about the financial terms of the transaction, so it could have been wonderful for Priceline but not in the best interest of American," Platt said. "My thought is that American is simply turning up the heat on Expedia and Orbitz."

Smith said Orbitz and Expedia don't want to use American's Direct Connect because the two travel sites are owned by GDSs, so switching platforms would take away business from them. Nonetheless, he said American is continuing "to engage both of them in the hopes that we can come up with a mutual agreement."

And if it works for American, other airlines may follow its lead.

"If American gets the concessions they want from these travel sites, I would think the other airlines would let American fight the battle and then take the easy road and say 'we want the same deal," said Platt.

Smith agreed, saying that it would make sense for other airlines to introduce similar systems. "We're the first to do it, and I definitely don't think we're the last," he said.

Shares of American Airlines holding company AMR Corp. (AMR, Fortune 500) slipped 2.3% in early trading Tuesday.  To top of page

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