United Signals It Wants a Better Deal with Reservation Middlemen
Skift Take
If United were Facebook friends with reservation systems like Sabre and Amadeus, it would have just changed its relationship status from "Friends" to "It's complicated." New President Scott Kirby is worried how those companies will display its new basic economy product to travel agents and (indirectly) to ticket buyers.
Scott Kirby has only been president of United Airlines since late August, but he is already making waves. This week, he suggested -- with the support of CEO Oscar Munoz -- that the airline may need to take a tougher stance toward the technology companies that act as middlemen between airlines and travel agencies.
Kirby called out distribution systems on what he believes are unfair prices and inflexible technologies during his past executive roles at American Airlines, US Airways, and America West.
Last October, he even testified in a US Airways lawsuit against one of the companies, Sabre, and accused its chief executive of, among other things, having threatened his airline with "an ultimatum" that Sabre would "boycott" displaying his fares to agents unless the airline accepted Sabre's contract terms.
This week, Kirby, now at United, made some intriguing remarks when answering questions from analysts on a quarterly earnings call. What United does next could have a ripple effect on the industry's distribution costs — worth more than $1 billion a year for United alone — and also on how easily travelers can compare prices for flights.
United Tries to Alter Relationship Dynamics
First, the backstory: Many technology companies make money off the airlines. United is no exception among carriers in trying to gain more leverage in these relationships.
The reservation services that middlemen technology companies provide to travel agency networks and online travel agencies are a particular sore spot for airlines.
Fun fact: Every airplane ticket you've ever bought was most-likely touched at some point by one of these four companies: Sabre, Amadeus, Travelport, or Travelsky. For some airlines, this is irritating. That's because the middlemen charge airlines fees for each flight booked through an agent, online or otherwise. Some airlines think the fees and related costs are over the top for the services provided.
Fee estimates vary. Lufthansa claims it pays about $18 per roundtrip to the tech middlemen. Overall worldwide, airline lobbying groups say they pay $7 billion in fees a year to these reservation systems.
Some airlines are pushing back. For example, a little more than a year ago Lufthansa added a surcharge on tickets booked by agents through the middlemen. This move is being litigated by Sabre in a Texa
