In the latest spat between airlines and travel websites, Expedia (NASDAQ:EXPE) dropped American Airlines from its website. In morning trading, shares of AMR Corp. (NYSE: AMR), American Airlines's parent corporation, are up over 1 percent while Expedia fell nearly 3 percent.
Earlier, Delta Airlines (NYSE:DAL) pulled its listing from three smaller travel websites. Before that, American Airlines discontinued selling through Orbitz (NYSE:OWW).
Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU), two low-cost airlines with arguably strong customer followings, never fully partnered with travel websites and instead prefer to do business directly with customers.
Regarding its quarrel with Orbitz, American Airlines said it is important [for the airline] to be free to customize its product offerings to improve the customer experience as well as distribute its products in a way that does not result in unnecessary costs.
This statement touches on the two issues that airlines have with travel websites. One, they prefer not having to pay these third-party websites for bringing them customers. Two, they want more ways to customize and cross-sell to customers, which is easier to do so directly rather than through travel websites.
Megatrends in information technology suggests that airlines will likely win the simmering war against travel websites and traditional travel agencies.
Advances in information technology has propelled two trends: customization and cutting out the middle man.
That's why web portals like AOL and Yahoo!, which dominated the internet in the early days, have been supplanted by platforms like Google and Facebook, which connect users directly to the original sources and provide mass customization.
Although it's not a perfect analogy, travel websites and traditional travel agencies are like web portals that may eventually fall victim to emerging platforms like Kayak.com, a travel search engine.
Andy Xie, a prominent economist, went further by saying that advances in information technology, which gave birth to online intermediaries in the first place, will eventually eliminate them.
He said because the communication between service providers and customers (through the company's own website, Facebook, Twitter, various Smartphone apps, etc.) are so cheap and efficient, there will be no need for intermediaries.
Plus, airlines have more flexibility to offer customization directly to customers than travel websites. Air travel is no longer just about price, but about a wider variety of [custom] products and services, said American Airlines, so airlines will have the advantage in this increasingly important aspect of the air travel industry.
Of course, travel websites do provide two important functions: helping customers compare prices and combining services from different airlines (for example, using one airline to get to a destination and using another one to return).
Those two functions, however, may be better (and more cheaply) performed by travel search engines like Kayak.com or some Smartphone app that has platform-like qualities.
For now, American Airlines said it is committed to working with all distribution channels, including traditional travel agencies, online travel agencies and global distribution systems.
However, American Airlines is becoming increasingly assertive with the terms of its relationship with these distribution channels and megatrends in technology will likely continue to give it the upper hand.
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