UAL, the parent company of United Airlines, is somewhat belatedly taking a more aggressive tack in selling its online services. For several months United has been offering tickets on its world wide web site including weekly deeply discounted, Internet-only fares, actions most of its competitors took months ago.
More significantly, it recently bought a minority stake in the Internet Travel Network, a privately-held, Palo Alto, California-based travel technology company. ITN has been developing ties with United before this investment, particularly in the past year: It has used Apollo, the computerised reservations system partially owned by United, to display airline inventories and rates on its public web site which was launched three years ago. Late last year it created the booking engine to reserve travel and the software that sells discounted Internet fares for United's web site. And in March it signed a joint marketing agreement with Apollo's parent Galileo, that enables ITN and Galileo to sell ITN's corporate managed booking products.
Neither ITN and United would confirm the size of UAL's investment in ITN which, sources say, was US$10 million. ITN's other major owners include the Contrarian Group, Brentwood Venture Capital and US Venture Partners, all California-based investment firms. None owns a controlling stake in ITN.
According to Dick Whilden, chairman, president and chief executive officer of ITN, the company's three main lines of business are: its public web site, where individuals can purchase airline tickets and book other forms of travel, choosing a travel agent to fulfill their orders; on-line booking systems with travel management capabilities that it custom makes for corporations like Texas Instruments and the World Bank; and private-label sites that it creates for other companies - like United and CNN Interactive - to sell travel.
Whilden is especially anxious to grow this last segment of ITN's business, which he expects will become 'an important part of our revenue stream'. He does not believe ITN's relationship with UAL will prevent it from developing sites for other airlines. 'The fact that we put up the product for United is a real selling point,' he said. 'And we value our independence. That's why we sold United only a minority stake.
'That's an important selling point [to potential customers].' ITN gets its income from access and booking fees paid by its corporate customers, and from fees paid by travel agents who issue tickets booked on its public site. Whilden says the company is 'making revenue' but is not profitable 'by design: we're investing in our growth'.
Sue Fullman, United's director of distribution, says UAL opted to invest in ITN 'because we saw there were going to be fewer players long-term who could provide the capabilities and there were concerns over whether they'd be around. We wanted to be sure they'd be around. We wanted to give them capital to grow and do the things we want them to do.'
The investment also provides an 'upside advantage if ITN goes public,' she says. 'It made sense from a business and financial standpoint.' Fullman says she has no objections to ITN selling its services to other airlines. In fact she welcomes this 'because the more people they have in on their product, the lower the cost. And for us as an investor, the more they sell, the more they'll proliferate.' She denies, however, that AMR's control of Sabre, which operates Travelocity, the highly successful online travel agency, in any way influenced UAL's decision to buy into ITN.
James McQuivey, an analyst with Forrester Research in Cambridge, Mass., finds this denial hard to believe, however. 'If American and Sabre didn't figure into United's thinking, then it should have,' he suggests. 'They should want to compete on the same level as American.'
Travelocity officials decline to comment on the UAL-ITN transaction. McQuivey says UAL's investment provides advantages to both parties: He believes it will enable United to make sure ITN remains 'focused on keeping United's technology fresh. It's one way to keep a good partner close to them.'
Additionally, he thinks it gives ITN a 'good alignment with a major name player, but it's only a minority stake so ITN can talk to other airlines.' David Kirby, editor of the newsletter Interactive Travel Report, suggests UAL's investment gives ITN 'more credibility because you have a serious player in the travel industry taking them seriously enough to invest in them. It gives them credibility in the eyes of their competition -- Travelocity, Preview and Expedia -- that they didn't have before.'
McQuivey predicts it is even possible United could eventually increase its stake in ITN. If this happens, and United and ITN's systems become sophisticated enough, he thinks the airline could become the preferred carrier on the Intranets developed by ITN for corporations.
Meanwhile United and American are jointly developing an interline product that would allow travellers to purchase electronic tickets from one carrier that could be used on the other. Fullman says United is also discussing electronic ticket interlining with fellow Star Alliance members and Delta, with which it signed a marketing agreement last spring. A spokesman for American says the carrier has also conducted preliminary conversations with partners Canadian Airlines and British Airways about the electronic interlining service. Both he and Fullman say they would expect this service, which should be available by mid-1999, to become the standard for the rest of the industry.
Source: Airline Business
