If an industry-wide on-line auction system for unsold seats existed, it would have added $5.7 billion in revenues to carriers' bottom lines last year, he claims. Maldutis created a stir in the industry with these prognoses, and is now prepared to go further: 'By the middle of next year, airlines will sell 30 to 40 per cent of their tickets [via electronic distribution]. In two years it will be 50 to 60 per cent.'
That's a lot of seats, especially when compared to the current number of tickets being sold by the likes of United Airlines' Connection program, a software interface that gives consumers direct access to the Apollo computer reservation system and allows them to book flights.
For United, as well as other US carriers that have begun employing electronic distribution, the number of bookings right now via a prospective passenger's own computer is 1 per cent (or less) of total sales; this year United expects to show $25 million in Connection system sales. Mark Koehler, director of electronic distribution for United, believes the new technology could be lucrative, but does harbour some qualifications. 'We are seeing nice returns after making some significant investments, but we are only at the beginning,' he says. 'Whether it will plateau at 5 per cent or 50 per cent of the business, I don't know.'
Welcome to the world of on-line distribution technology, where speculation reigns and 'me-tooism,' as one airline executive describes the bandwagon boarding by the major US carriers over the past 10 months, is rampant. A lot of the hype is generated by the promise of the Internet, which depending on what statistics are used has 9 million to 12 million monthly users in the US, many of whom travel extensively. For CRS companies like AMR Corp's Sabre, it means potentially lucrative direct access to consumers. For airlines, this technology could mean cutting distribution costs by reducing the travel agent's grasp on 85 per cent of the booking business, and offer new sales tools such as Maldutis' estimate of the vast potential of the last minute seat auctions.
Delta Air Lines' cap on travel agent commissions two years ago may have focused the attention of the airline community, but the new era was already a year old. In 1993, Salt Lake City-based Morris Air (taken over by Southwest the same December) was relaunched as a 'ticketless' carrier and ValuJet, the currently beleaguered Atlanta airline, started operations.
But not all US majors are as advanced as the originators of ticketless travel. Southwest and United are the furthest advanced, having started competing head-to-head with electronic ticketing in the US west coast markets early last year and both are now offering electronic ticketing nationally. Southwest says 40 per cent of its customers use electronic reservations, while United claims that more than 1.5 million passengers a month, or 30 per cent of its domestic traffic, use electronic ticketing. Seattle's Alaska Airlines started offering electronic ticketing last December and, with its services to four Russian and three Mexican cities, has pioneered the use of ticketless travel to other countries. USAir started at the start of April, and says that 12 per cent of its traffic already flies on electronic tickets. Other airlines are at various stages of experimentation or implementation, with Delta Air Lines being the farthest behind: the carrier is testing electronic ticketing in business class between five cities. TWA, Northwest Airlines and American will offer electronic ticketing systemwide by the end of the year.
But ticketless travel - which proponents say cuts down on inefficient accounting and handling of paper stock for carriers - is just a simpler way to get a ticket to a passenger. Next comes the broader services of on-line booking technology; nascent attempts at getting airline and customer together without the travel agent sitting in between. This has grown out of the establishment of non-interactive airline home pages last year, and goes hand-in-hand with electronic ticketing. United, for instance, estimates that 70 per cent of its bookings via Connection result in electronic tickets.
Connection is an example of one of two ways US carriers are beginning to take sales directly to the consumer on-line. Software is sent by mail to a customer who installs the United programme. After dialling into the Connection database, the consumer is given the ability to access frequent flyer mileage accounts, check arrival and departure times, and, most importantly, get interactive booking access to a CRS (in this case Apollo) and the flights of 380 different airlines.
It was actually USAir that first distributed such software, Priority TravelWorks, last November. Northwest Airlines followed suit in February. The difference between the three is the more targeted and less egalitarian approach of USAir in distributing its product: it only sends the product to 'elite' passengers - those that travel more than 30,000 miles a year on the carrier. This may be a small percentage of the customer base, USAir officials admit, but it is a percentage that accounts for a disproportionate amount of the carrier's revenue. The process will become more 'democratised' when each carrier starts distributing the software via its home page. United plans to have this option going by August, while USAir is aiming to offer the service by the end of the year.
The second on-line method of reaching consumers is best exemplified by Alaska Airlines' interactive home page on the Internet, launched last December. Instead of requiring software to access the system, the airline has set up a site on the World Wide Web that anyone with a computer and modem can access. 'Seattle has the highest composition of personal computers anywhere in the US, so it made sense for us to do this,' says Molly Cheshire, supervisor of distribution technologies at Alaska, who notes that 'an education phase' is still in effect, with reservations 'in a good week being a couple hundred.' Southwest also opened an interactive home page at the end of April.
A third on-line option for consumers wanting to book air travel is via on-line services, either independent, like Raleigh-based PCTravel and Internet Travel Network (ITN) out of Palo Alto, California, or a front for a CRS, like Sabre's Travelocity program, which is available to anyone using the Internet. These convenient services, however, are aggrandised travel agencies that depend on booking fees (Travelocity has a travel agency set up under the AMR corporate umbrella) and from on-line advertising: PCTravel is pushing the idea of selling advertising space to airlines to appear the moment a potential customer is about to make a booking decision. Airlines may want to consider whether this will aggravate users rather than stimulate them, assuming they have already made their decision based on information from the system.
Travelocity, which is the next generation of on-line booking service EasySabre, is available from such on-line services as CompuServe and America Online and is designed as a travel information and booking site for the 'do-it-yourselfer,' who is already familiar with computer technology. 'I'm not going to get more people to travel, but hopefully I'm going to offer a bigger "suite" of information,' says Terry Jones, Travelocity president. 'At this point, Travelocity is not a traffic stimulation device.'
If on-line services do not stimulate traffic yet, it can only be a matter of time. Maldutis' optimism over on-line auctions stems primarily from American Airlines' highly successful NetSaver promotions. This programme, launched last February, is an on-line auction that takes place each Wednesday for unfilled seats in 25 markets across American's system for the following weekend. People must become 'subscribers' by clicking on a NetSaver icon on American's web site to bid on the last-minute availability - by late June there were 75,000 subscribers. This has resulted in the carrier selling all seats on some flights - boosting load factors from the mid-60s to 100 per cent.
Other carriers are quickly beginning to replicate the success of American's programme. Mark Koehler of United sees such programmes as 'the first phase of an evolution, where airlines electronically put out private fares for preferred customers.' On-line technology allows carriers to reward their preferred customer with special fares and promotions.
These new methods of distribution have both ups and downs. On the positive side, it is now possible for consumers on-line to see fare changes the moment they are entered instead of after the competition dilutes a pricing initiative by matching or lowering its fares. The danger in the system, however, is that it opens up airline inventories to novice consumers. Moreover, the existence of on-line services like ITN, which do not require credit card details before flights can be booked, could theoretically result in a flight being fully booked, without generating any revenue.
Protecting inventory is a highly sensitive subject for many distribution managers at US carriers. Says Rita Cuddihy at USAir: 'There could be a danger because when we are dealing with the travel agents we are dealing with professionals - they don't make phony bookings. Now you don't have a business relationship with the masses, and you don't have the same recourses.'
Though the potential for abuse exists, what is of most concern is that passengers are not yet fully accepting ticketless travel, much less on-line booking programmes. The learning curve will be steep, and though the industry is reporting high growth rates, the base is extremely small and users are offered the inducement of frequent flyer points each time they incur a cost on these on-line products. But on the positive side, the consumers are certainly beginning to catch on. A TWA official says that acceptance rates in the carriers' electronic ticketing tests are highest on the US west coast. The most likely explanation for this phenomenon is that travellers in this region have been trained by the likes of Southwest and United.
Source: Airline Business
