Since my December post, a number of developments have occurred on the evolving travel distribution front:

• Sabre and AA have called a temporary truce and are in negotiations to resolve their conflict
• Priceline has embraced the AA direct connect strategy clearly following an independent path from Expedia and Orbitz
• USAir has signed a multi-year agreement with Expedia which includes the sale of Choice Seats
• Travelport has announced a new agreement with Air Canada that apparently uses part of the new controversial Open Axis XML connectivity

What does this all mean to travel distribution in 2011?  To many these may seem like conflicting developments with certain distributors sidling with the airlines while others clearly opposing their efforts to reshape traditional distribution.  In reality the recent announcements actually signal a certain level of detente. The GDS are bending on their hard stance about accessing ancillary fees via the Open Axis XML connection while with the exception of AA, other mainline airlines are showing a willingness to work with both the GDS and OTAs.

It seems somewhat ironic for one Travelport executive Kurt Ekert, to negatively describe the AA direct connect strategy in this way” simply an attempt by AA to push a materially inferior version of the value provided to travel agencies, suppliers and others in the travel distribution chain by the highly evolved and efficient GDS channel,”, while at the same time Travis Christ also of Travelport calls the Air Canada deal “an industry-leading end-to-end solution, capable of merchandising Air Canada’s content along with the aggregation of the GDS content”.  This seems illogical as both the AA and Air Canada solutions are based on the Farelogix (Open Axis Group) XML schema.

Many might wonder why Priceline has embraced the new connectivity, but Expedia and Orbitz have not.  Part of the issue may be how the air booking engine was built. I have  no first hand knowledge of how Expedia created its booking engine, but it is possible that the booking tool was programmed directly against the GDS API.  Other booking alternatives use a neutral  platforms such as the Pass Consulting multi-source platform that creates a layer between the GDS and the booking tool. It is therefore likely that Priceline architecture is more multi-source which has allowed it to easily integrate the new AA XML schema.

One of the recurring themes of the anti-AA direct connect group is around the lack of  ability for consumers to accurately compare airfares. This argument is weak at best.  Fragmentation already exists in online travel where Low Cost Carriers such as Southwest Airlines refuse to participate in OTAs. Meta-search engines such as Kayak can provide the consumer a cross Web comparison shopping experience. In the age of the Web, comparative shopping happens at the point of sale.  That being said the GDS continue to control specific segments of the travel industry, especially corporate managed travel. This may change if Open Axis Group member Rearden Commerce or Concur another leading provider of online corporate booking tools where to embrace the AA direct connection.

No doubt that 2011 will continue to see confusing announcements and arguments from all camps, but at the end of the day detente will likely be reached whereby as in the USAir/Expedia or the Travelport/Air Canada agreements, ancillary fees are obtained through the Open Axis Group XML schema, powered by Farelogix.

There has been a lot of media buzz regarding the announcement that AA was pulling their inventory from meta-search engine Kayak. The news was first leaked by Tech Crunch on July 23rd. The article stated that AA was pulling their inventory from Kayak and considering doing the same for Orbitz, which Kayak uses to supplement direct connections with airlines. As originally conceived by SideStep, the meta-search application would satisfy two important market needs: (1) consumers like to compare fares from multiple sources through a single query (2) airlines could benefit from direct bypass of other more costly channels especially OTAs such as Expedia. SideStep was originally launched as a downloaded application that automatically appeared in a sidebar when the user visited sites such as Expedia and entered their flight request information. Recognizing the challenges with downloaded apps, SideStep a few years later moved to a completely Web-based comparative shopping platform. Other sites such as Mobissimo, Farechase and Kayak soon appeared. (note: Farechase was actually the first such meta-search engine and was acquired by Yahoo! back in 2004). At first the OTAs were very negative towards these new meta-search engines. The only exception was Orbitz where Kayak founder Steve Haftner was also one of the original founders of Orbitz and thus had particular pull with his former company. At the PhoCusWright Travdex conference in the spring of 2005 in Dallas, Bill Bliss at that time a senior marketing VP at Expedia, presented a session on why mega-search was a bad idea due to the lack of customer ownership (meta-search engines do not fulfill tickets, but instead send the user to a supplier or OTA site). This negative position soon changed as the OTAs recognized the value of these meta-search engines in generating leads. In fact as the market dynamics shifted and airlines were faced with skyrocketing price of fuel, most of the major airlines stopped compensating meta-search for referrals. At the same time the OTAs continued to provide compensation to these sites. An insider at one of the major meta-search companies told me that as much as 60% of the company’s referral revenue was coming from OTAs. AA’s decision to pull out of Kayak was based on this reality where more revenue was being shifted to OTAs rather than the AA.com site. The threat to withdraw from Orbitz is more serious and as of this writing has not been implemented. Unfortunately even the best airlines still miss the nature of the Web. Rather than limiting reference sites, AA and other major carriers should be syndicating their booking engine on as many sites as possible. The Web has an unlimited number of specialty sites and syndication has the opportunity to gain incremental revenue from a variety of sources. Comments by AA and other carriers that their dollars are better spend in SEM (Search Engine Marketing), are a bit silly as their brand is so ingrained in the mind of the American consumer that finding AA.com through Google is not a challenge. The idea whereby all consumer traffic could be generated through an airline’s site conflicts with the very nature of the Web which is constantly expanding and fragmenting users based on their interest groups. The consumer wants comparative shopping and actions by AA with Kayak demonstrate a lack of sensitivity to the true nature of the Web.

I had a great conversation this morning with Jerome Thil the CEO of the French meta-travel search company Sprice. In Europe and other parts of the world purchasing static vacation packages has been the norm long before the advent of the Web. That buyer behavior has changed a bit with the concept of dynamic packaging, but roughly 80% of travel-related searches by European consumers still focuses on static packages. The Sprice meta-search capability is currently only available on the Spice French site:

For those not up on their French the “Sejours” button starts the travel search for packages. The package meta-search capability took 4 years to develop and uses an interesting technology approach to capture the unstructured and non standardized content from package seller Websites. Rather than using intelligent agents to screen scrape the site, Sprice built an extraction application as an extension to the open source Mozilla Firefox browser. As a Sprice developer uses this modified browser to identify fields on a given site, the extension records the session and thus captures the structure of the site. When the user enters a search query, behind the scenes, the Sprice technology sends these knowledgeable browsers to the sites tracked and extracts the information. Please note that this is a fairly simplistic way to describe the technology as cleansing and parsing the data is a major step in providing consistent comparisons across sites and thus the 4 year development cycle to bring this to market.

Comparative shopping is at the heart of the Web. Rather than focusing on air or hotel shopping as many competitors are already doing (e.g. Kayak, Mobissimo, Farecast), Sprice is focused on the package segment providing important functionality to markets that still predominantly purchase pre-packed tours. User generated content and mobile applications are on the near Horizon for Sprice, particular as the company has a long standing relationship providing the travel channel for the large European Telco, Orange.

A new meta-search company, InsideTrip was mentioned today in Tech Crunch.

The model is the now familiar multi-site airline search pioneered by SideStep, Kayak, Farecast and Mobissmo (not to forget the original pioneer, FareChase which only recently was put on the front page of Yahoo! Travel ). The twist is a rating system that evaluates the quality of a given selection based on three specific categories – speed, comfort and ease and 12 so-called “pain points” such as number of stops, security wait time, legroom, aircraft type, connection time, and gate location. Users can indicate which of these pain points are most important and the service will generate a unique TripQuality score for each ticket result. Interesting concept that mirrors the corporate purchasing philosophy of “Total Cost of Ownership” which measures products and services often assigning a numeric score to a qualitative evaluation. A bigger trend is represented here as well which includes personalization techniques adopted by Kayak and Mobissimo as well as semantic search evaluations by start-ups Kango, Nile Guide and Circos. The commonality is a system that filters search results based on user designated criteria. This level of personalization applied to travel search is long overdue and can produce results that are more in sync with the user’s needs. That being said, the Achilles heel for these type of personalization techniques is simply a concern that the filtering may eliminate choices that would be acceptable to the user. With gradual maturing of the market for meta-search, competitive efforts promise to continue to provide different tools to filter content to better meet a user’s profile. Who owns this preference profile and whether it can be used across sites, is an emerging battle for customer ownership that is underlining the goal to position the company as the first stop in travel search.

Two stories from late 2007 and early 2008 signal a shift in the online travel model. In November 2007 at the PhoCusWright conference in Orlando, Expedia announced a new agreement with IHG that included a pay per click (PPC) compensation model. The acquisition of SideStep by Kayak this month is another significant development. How are these two announcements related? The Kayak/Sidestep merger is a clear validation of the referral model, but also demonstrates the need for scale to be an online travel player globally. The Expedia PPC contract element reflects the simple fact that many people shop OTAs and end up buying at supplier sites a phenomenon that has been validated by PhoCusWright and Forrester research. For Expedia, being paid for referrals represents a new and important revenue stream. You then add Travel 2.0 players such as Farecast, Kango and the Nile Guide, and the value of search and travel planning tools represents a major growth area for online travel here in the US and globally. As the economy softens the value of the referral model is likely to increase as suppliers scramble to fill airline seats and hotel beds.

Michelle talked about general travel industry themes such as the need for better customer service, air schedule reform and economic indicators pointing to a downturn in the economy. She admitted that OTA interfaces have been stale for some time. She pointed to Travelocity’s Experience Finder as a different way to approach travel verses the traditional linear method. She emphasized the data gained from transactions as a valuable tools for suppliers. Talk backers including Randy Peterson from WebFlyer. Randy asked about fare filing problems such as the $59 Tahiti fare mistake asked. Steve Kafner asked about the role of travel search and touted the new relationship with Travelocity. One theme discussed was relevance verses personalization Michelle emphasized that at each stage of the travel process relevance is the key. Travelocity’s experience finder works on this model of relevance. Travelocity research conflicts with PCWI research staying that people stay with an OTA despite the desire to shop multiple sites.