Electronic ticketing - otherwise known as paperless travel - and to a lesser extent self ticketing machines, are expected to revolutionise carriers' booking, ticketing, refund and exchange, airport check-in and accounting procedures, enabling many to slash up to one-seventh of their operating costs. And while the changes are initially affecting US and European domestic markets, some carriers believe they can be extended to the European Union and ultimately international airline travel.
The role travel agents will play in the electronic ticketing revolution remains unclear. Some believe the systems could eventually allow airlines to cut agency commissions, which have risen to over 10 per cent of the US industry's operating costs. Travel agents will almost certainly find their role reduced, with more direct bookings bypassing them completely. This will force agencies of all sizes to offer value-added, probably fee-based, services to clients.
Most US carriers are candid about the use of ticketless travel to cut distribution costs, but in Europe many carriers claim to be seeking primarily to make travel more convenient for customers.
Southwest, United and Delta are still testing two different forms of electronic ticketing. The most common, used by Southwest and United, involves the passenger receiving a simple booking confirmation number which is then used to check in at the airport gate. But at Delta frequent flyers are already employing a Smart Card with a micro chip, which stores the information needed to buy travel and check in at the gate.
These experiments follow recent domestic trials by Lufthansa and SAS of a new generation of self-service ticketing machines whose use will soon multiply on both sides of the Atlantic. The Lufthansa machines issue a combination ticket or boarding pass for prepaid, full fare travel, check passengers in and assign seats. The SAS equipment checks passengers in, assigns seats and frequent flyer points and issues baggage tags. A few SAS machines also issue certain types of tickets.
Smart cards
Both carriers plan to pursue the concept of paperless travel. Lufthansa says it will ultimately adopt smart card technology and its ticketing machines are already equipped to handle this. Meanwhile SAS will conduct an electronic booking trial this year for frequent flyers on domestic routes.
Within five years electronic ticketing could be used to book the majority of intra-United States short-haul travel on the simple roundtrips between two points that represent between 60 and 70 per cent of all domestic flights. As a result more passengers will book directly with carriers than at present: travel agents currently produce close to 85 per cent of US airlines' business. Ticketing machines also should encourage the growth of direct sales.
The savings these changes could generate for airlines are not immediately quantifiable. USAir's director of distribution planning, Shariq Khan, estimates booking, ticketing, credit card, airport processing and revenue accounting procedures are responsible for a minimum of 10 per cent of an airline's total operating costs.
Michael Gelhausen, a Dallas-based managing partner at Andersen Consulting which advised Lufthansa on its ticketing equipment, suggests these costs are even higher: using 1992 DOT statistics, he estimates that between 20 and 25 per cent of North American airline revenues are eaten up in distribution costs, including CRS fees, gate and counter operations, and travel agency compensation. Gelhausen claims these costs amount to $16-$21 billion annually and could be reduced by 12-14 per cent if electronic booking were adopted throughout the industry.
If travel agents issue fewer airline tickets, carriers will use this as valid reason to cut their commissions and override payments. 'Right now travel agents make reservations, produce a document to get the passenger on the plane, and convey expense and travel management information to the corporate buyer,' explains Michael Whitesage, a US consultant with the Prism Group. 'If they don't perform all these services in the future, why shouldn't airlines cut their commissions?'
To remain viable travel agencies of all sizes will be forced to offer fee-based, value-added services for their clients. Mega-agencies such as American Express and IVI Travel already have fee-based operations; smaller agencies would have to function this way also, suggests Philip Wolf, president of PhoCusWright, a travel industry consultancy.
Outside the US, electronic ticketing could be readily adopted in short-haul intra-European markets, where there are less onerous customs, and no immigration, procedures. However significant obstacles will need to be overcome before paperless travel can happen on a global level.
Without a ticket, airlines currently have no means of applying the Warsaw Convention treaty rules that spell out a carrier's liability for lost luggage, death or personal injury in the case of an accident. Customs and immigration officials in many countries also require proof of return travel as a condition of entry. Furthermore many developing country airlines lack the sophisticated computer capabilities that are needed to process electronic bookings.
Electronic ticketing is expected to be strongest among frequent business travellers who will prefer the convenience of not having to worry about losing or exchanging a ticket, or queuing to check in at the airport. But in the short term at least customer preference could work against ticketless travel. Some passengers, particularly leisure travellers, might not want to travel without the security of a paper ticket.
Gate chaos
'I might want proof to show the gate agent I've paid $5,000 to fly first class to Heathrow,' says one frequent flyer and European aviation executive. 'And I often need to get through the airport quickly. I'd rather have an ATB (automated ticketing and boarding pass) machine at the podium that reads my ticket, than chaos with everyone trying to give their confirmation numbers ten minutes before departure. With ticketless travel, you're avoiding part of the process at the front end, but creating congestion and stress at the back end.'
The two pioneers in US electronic ticketing were ValuJet, the low-cost, low-fare airline that began flying out of Atlanta in October 1993, and Morris Air, the Salt Lake City-based carrier purchased by Southwest later that year.
Morris, which started out as a charter operator, developed electronic ticketing after it launched scheduled service. ValuJet has been 'ticketless' from the beginning - a misleading term since some forms of so-called ticketless travel entail some kind of paper documentation. ValuJet was helped by a simple route and fare structure and, with less than a quarter of its business booked by travel agents, equally simple accounting needs. The carrier does not interline, give passenger refunds, or participate in any computerized reservation system nor in the Iata or US Airlines Reporting Corporation bank (ARC) settlement plans.
Under ValuJet's ticketless system, passengers receive a confirmation number when they book their travel. They present this number at the airport gate, and are sometimes asked to provide photo identification before boarding.
Always seeking new ways to remain the US industry's low-cost leader, Southwest began examining Morris' ticketless operation soon after it purchased the carrier. Southwest received an even greater incentive to revamp distribution last May, when its refusal to pay booking fees for services hitherto provided free resulted in its flights being dropped from the main CRS displays in Apollo and System One, the reservations systems owned by rivals United and Continental. This made it impossible for travel agents - currently responsible for 50 per cent of Southwest's business - to issue the carrier's tickets automatically on the systems.
'We got the word directly from Herb [Kelleher, chairman] that we needed to figure out a way to give agents a mechanism to book Southwest without relying on CRSs owned by our competitors. If we didn't require tickets we wouldn't be a slave to the ticket printer,' explains Charles Zug, Southwest's manager of business development.
Last September, Southwest launched a ticketless trial on two routes and subsequently expanded this to all its flights between Dallas, Little Rock, Houston and Corpus Christi, and the nine cities it serves within the state of California. Electronic ticketing will be offered systemwide from the first quarter of 1995.
Bypassing CRS
Passengers book either by calling Southwest directly or through a travel agent who then contacts Southwest with the booking information, thereby bypassing the major CRSs. Passengers receive a six-digit number for each reservation, which they present at the gate for check in and boarding. Southwest also gives each passenger a printed itinerary. The carrier, which does not interline, handles the settlement process for agent-booked ticketless travel internally, as systems have not yet been developed for ARC processing.
Southwest's travel agency bookings have fallen by between 6 and 8 per cent since the carrier was dropped from System One and Apollo, but there have been no 'noticeable' changes in the number of agency bookings since electronic ticketing trials began. Longer term, however, the impact could be considerable: NatWest Securities analyst Michael Derchin predicts that electronic ticketing will enable Southwest to reduce its agency bookings to the low 40 per cent range by the end of next year. Derchin also believes electronic ticketing will cut Southwest's revenue accounting and back office costs.
According to Mark Koehler, manager of distribution planning at United, United first considered electronic ticketing several years ago when passengers in focus groups began to ask the airline why it didn't reserve travel the way hotel and car rental companies do, with confirmation numbers for bookings instead of cumbersome travel documents.
Shuttle by United, the new intra-California operation with a simple route and fare structure, gave the carrier a well defined market in which to experiment with electronic ticketing. A trial launched in November excluded travel agents as the CRS systems could not yet accommodate their electronic bookings. CRSs should be ready to accept agent bookings in early 1995. United plans to expand electronic ticketing, for non-interline travel, to its entire domestic system by mid-1995, according to Koehler.
A portion of electronic bookings will be made by travel agents on major CRS systems. However carriers which - like United - own a slice of a major system, are likely to be more amenable to their use. At least two systems - Worldspan and System One - say this type of ticketing will not affect the fees charged to airlines. Electronic bookings will be created in the CRS with an itinerary and invoice and CRSs will be able to handle refunds and exchanges as well as processing and settlements in the same way as for paper tickets.
Under United's electronic operation, when a reservation is made the carrier gives the passenger a confirmation number as well as an itinerary. At check-in a photo or credit card must be presented, to verify the identity of the passenger.
Delta launched its own mini-experiment with electronic ticketing last September. Some 50 frequent flyers in the Boston-New York-Washington shuttle markets use an AT&T Smart Card, with a microchip programmed with credit card information, to purchase travel at the gate without a reservation. Delta plans to make Smart Card shuttle travel available to any interested shuttle passenger in early 1995, if tests are deemed successful.
Other US airlines are developing their own electronic ticketing procedures in a more limited way. American has been conducting an internal trial for employees travelling on company business and a spokeswoman says this will continue indefinitely. Continental has been working with System One to develop its own electronic system and officials say this could be introduced in early 1995 on Continental Lite and possibly other routes.
Besides testing ticket machines for pre-booked travel at airports in Boston and Baltimore since last July, USAir is creating its own electronic system that should be up and running by this summer. USAir's Khan says the airline will initially make ticketless travel available on selected routes, perhaps to one specific market segment.
The potential for a rapid growth in this type of distribution has led the US Air Transport Association to set up a task force to look at possible complications for the US airline industry. The participants include representatives of member airlines, Apollo, Sabre, Worldspan, System One, ATA and ARC. The task force's efforts are also being tracked by Iata.
The task force's main goal is to develop procedures to facilitate the electronic booking of interline domestic travel. Specifically, the group is considering issues such as how reservations, payment, and revenue accounting would be handled; how baggage would be transferred; and how mandatory DOT consumer protection notices, now printed on paper tickets, would be distributed.
Also under discussion is the development of what one CRS participant calls 'a database in the sky', a super ticketing transaction database that any CRS or airline could enter to see if a passenger has a valid electronic interline reservation. Such a database is not needed today, because passengers have ticket documents that prove they are booked for interline travel.
Bilateral policies
The ATA has imposed a June 1, 1995 deadline for the task force to develop these procedures fully but it is not clear whether member airlines will adopt them. Carriers could, in fact, come up with bilateral policies for dealing with these issues.
Differing electronic ticketing procedures by carriers would mean trouble for the industry, one executive believes. 'Our concern as a CRS supplier is that if all airlines have a different system, it's going to be confusing to the travelling public,' explains Sue Powers, vice president of product marketing at Worldspan. 'We've got to make it simple and straightforward. We've got to make sure the experience is consistent, and convenient to the public.'
So far non-US carriers have concentrated on developing efficient airport ticketing and check-in machines, though most plan to study electronic ticketing as well.
British Airways, which has had 'Time Saver' self-ticketing equipment at intra-UK shuttle airports since the late 1980s, is due to roll out new ticketing machines in the UK and Europe that are compatible with ATB II ticket stock. This has a machine-readable magnetic stripe that enables airlines to check in passengers automatically and reconcile them with their luggage. Peter Stanton, a senior project manager in BA's customer systems department, says passengers will be able to use the new machines to buy tickets and check in before departure.
Lufthansa has operated 36 ticketing machines in ten different German airports since last September. These issue tickets on ATB II ticket stock for prepaid travel on domestic routes without baggage check-in. A spokesman says Lufthansa hopes to refine these machines to accept a Smart Card sometime this year and plans to expand their usage to intra-European and, ultimately, to international travel.
SAS has employed ticketing machines at eight airports throughout Scandinavia for over a year. Passengers must travel within Europe and cannot check in more than two pieces of luggage. The airline is now developing an electronic ticketing test for domestic frequent flyers which it currently plans to launch in 1995.
For the past year, Swissair also has used ATB II machines to process passengers in Zurich and Geneva, though baggage check-in is not permitted. Austrian Airlines will launch a similar system at Vienna airport by mid-1995. In Asia, Swissair partner Singapore Airlines has been testing an ATB II reader at Changi Airport on the Singapore-Kuala Lumpur route since October.
A&T Global Information Solutions, which helped develop Lufthansa's ticket equipment, says it has received 'firm commitments' from many major US and non-US carriers as well as travel agents. According to Michael Denny, AT&T GIS's vice president, transportation solutions group, these machines can be designed to process point-to-point travel, provide a full service to frequent flyers, or even allow travel agents to communicate with clients via two-way video.
Whatever the system, this latest revolution in airline distribution is set to shake up the travel agency business and make ticket sales less costly and more efficient. Indeed it is only a matter of time before the expected boom in electronic ticketing and self ticketing becomes reality.
Source: Airline Business
