American-Orbitz fight leads to UBS downgrade

By Reuters
Posted Jan. 11 at 11:24 a.m.

Shares of American Airlines parent AMR Corp. dropped more than 3 percent on Tuesday after UBS downgraded the carrier to “neutral” from “buy,” saying the company’s efforts to cut distribution costs with online travel agencies could hurt profits.

“Although we applaud AMR in its efforts to reduce distribution costs, particularly through online travel agency channels, this negotiation is very likely to hurt near-term earnings,” UBS analyst Kevin Crissey said in a note to clients on Tuesday.

American has sparred with third-party ticket sellers in recent months in a battle over distribution costs and methods. The airline is steering online travel agencies to its in-house technology that it says will save money and give customers the option to shop for flights based on more factors than just fares.

Last month, American stopped listing tickets on Orbitz Worldwide after a court decision allowed it. Orbitz had refused to use American’s new “direct connect” technology for selling its flights.

In support of Orbitz, online travel agency Expedia dropped American Airlines fares at the start of the year. On Monday, American won a court order temporarily blocking Sabre Holdings Corp TSG.UL from presenting its fares in a manner that could steer away consumers. Sabre had said on January 5 that it would drop American flights from its travel network by August, one month earlier than planned.

UBS said that while ongoing talks with the online travel agencies could eventually lead to agreements that may lower costs, it estimated that near-term effects could hurt AMR earnings by 19 cents a share in the first quarter.

Shares of AMR were down 3.5 percent at $8.48 in late morning trading and other big airlines were lower. Delta Air Lines eased 0.7 percent to $12.51 and industry leader United Continental Holdings was off 1.3 percent to $25.87. US Airways Group was down 2.3 percent to $11.21.

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