Rketing Strategies-Computer Reservation Systems

As we saw in Chapter 26, computer reservation systems were developed independently by United States airlines starting in the 1950s, beginning with American Airlines’ SABRE, followed by United Airlines’ APOLLO, TWA’s PARS, Delta Airlines’ DATAS II, and Eastern’s System One. By 1988, these same five systems were in use in the United States and were also in common use by travel agents.

These proprietary systems had preferences built into them that favored the owning airline, created competitive disadvantages for airlines that did not possess these systems, and presented distorted options to travel agents. Travel agents typically used only one CRS, usually the one owned by the largest, closest airline to the travel agent’s city, so that the travel agent naturally pre­ferred that airline’s offerings. The agent would also typically have an incentive contract with that airline. In 1984, the CAB adopted rules to insure fair competition among all airlines.

As computer reservation systems became diversified internationally, the CRS acronym yielded to the more accurate GDS, represent­ing the “global distribution system.” By the mid 1990s, U. S. airline owners had divested them­selves of ownership in the domestic GDS sys­tems, which by 2003 were dominated by SABRE (43 percent), Galileo (formerly APOLLO, 20 percent), and Worldspan (formerly PARS and DATAS II, 29 percent). These GDS compa­nies accounted for 92 percent of all U. S. airline bookings.13

While U. S. airlines continue to use GDS booking services with accompanying fees, at the same time they began creating Internet applica­tions, including their own websites, and the large airlines have also created their own travel tech­nology companies, such as Orbitz. Southwest and some of the low-cost carriers do not participate in the global distribution system and rely instead on their own websites for information distribution, reservations, and ticket sales.

a The Internet

The appearance and growth of the Internet has generally contributed to a leveling of the com­petitive playing field in airline advertising and bookings, primarily because the consumer is the active, originating participant who searches out the desired information on the Internet. This access has been facilitated by the airlines revising their company access outlets to provide user-friendly websites available to travelers on a 24/7 basis right in their own home or office.

The aftermath of September 11, 2001 and the resulting economic downturn saw a signifi­cant increase in the use of the Internet by both business and leisure travellers for making travel arrangements directly with the airlines. This also had the effect of countering some of the incumbents’ economies of scale and CRS/GDS advantages.

The Internet is also not a one-way street. It has provided consumers with a way to provide undesirable feedback, not only to the airlines, but also to the world of travelers out there. One example was the passenger who had his Tay­lor guitar trashed by some gorilla bag handlers at United in Chicago. When United apparently chose to ignore the problem, this guitar man wrote a very uncomplimentary description of the affair in a song entitled “United Breaks Guitars” and posted it on the Internet. At last count it had over 12 million hits.

4. 49 USC sec. 41714.

5. Market-Based Alternatives for Managing Congestion at New York’s LaGuardia Airport, Michael 0. Ball, University of Maryland.

6. Nextor is a consortium of government, academic, and industry representatives dedicated to the advancement of aviation research and technology and is sponsored by the FAA. The eight universities associated with Nex­tor are George Mason University, Massachusetts Insti­tute of Technology, University of California at Berkeley, University of Maryland at College Park, Virginia Poly­technic Institute and State University, Georgia Institute of Technology, Purdue University, and The Ohio State University

7. The FAA had determined that large carriers who control almost all slots at LGA are using the airport to serve their medium and large hubs, and that the average size aircraft operated into the airport has shrunk to 98 seats.

8. For a full discussion of the proposal applicable to LGA, see Congestion Management Rule for LaGuardia Airport, Docket No. FAA-2006-25709, RIN 2120-A170, April 16, 2008. The proposed rules were considered in two separate dockets, one for JFK and EWR, and one for LGA.

9. Long Beach, CA (LGB) and John Wayne Orange County (SNA) are slot-controlled under local airport authority.

10. General Accounting Office Report, Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports, (GA)/RCED-90-102, July 1990.

11. The LGA perimeter rule was first established in the late 1950s under an informal arrangement between the Port Authority and the airlines. It was formalized in 1984 and unsuccessfully challenged in Western Airlines v. Port Authority of New York and New Jersey, 658 F. Supp. 952 (SDNY 1986), aff’d 817 F2d 222 (2nd Cir., 1987, cert, denied, 485 U. S. 1006 (1988).

AIR-21 in 2000 and Vision 100-Century of Aviation Reau­thorization Act in 2003.

Europe-based GDS companies, like Amadeus, are not included in the discussion of domestic airline ownership.