The continuing battle between airlines and computerised reservations systems over rising costs took an unexpected twist in late March when Continental Airlines forced Galileo International to rescind a new fee it planned to impose on electronic tickets. Continental also announced that it planned to cut its distribution costs further by establishing three Internet-based electronic ticket distribution systems that would bypass established CRSs entirely.

The latest round in the battle between airlines and CRSs began when Galileo said that, as of 1 March, it would implement an average 4.1 per cent booking fee increase for airlines that use Apollo or Galileo systems to distribute their services. It also said it would charge airlines a new 50 cent fee for each electronic ticket issued, to recoup what it said was a $5 million investment in developing and implementing its electronic ticketing system. No other CRS plans to set such a fee.

The proposed new 50 cent electronic ticketing fee incensed many carriers, including Northwest and Galileo shareholder US Airways, which both came out publicly against it. Continental said it would turn off its electronic ticketing option in Apollo/Galileo as of 1 March, preventing travel agents using these systems from issuing electronic tickets on its flights. Galileo backed down on 27 February, cancelling the 50 cent fee because opposing airlines' responses 'would have caused undue difficulties for travel agencies'.

According to Steve Cossette, Continental's vice-president of distribution planning, the Galileo incident forced his airline to reassess its priorities, and to 'accelerate an electronic ticket independence programme' it had planned to implement next year. The carrier is developing a 'menu of solutions' that 'will make electronic ticketing available to everyone in the distribution chain,' he says. These include an Internet connection that will allow a travel agent to go directly into Continental's inventory to book an electronic ticket. This system will give agents the option to settle payment directly with Continental. Competing carriers will not be able to access Continental's market share information. As an incentive to use the system Continental also promises to give half of whatever distribution cost savings it receives back to travel agents.

Corporations will receive their own version, which they will also be able to use to make bookings in Continental's inventory for their employees. Employees could pay for their tickets once they board their flights, eliminating the need to reissue, exchange or refund tickets. Furthermore, Cossette says that corporations could possibly receive lower fares if they use this system.

The third bypass system being developed by Continental is a desktop application for agents or corporations with access to the inventory of other carriers as well. Cossette declines to identify the other airlines but says that there will be a pilot of one or more of the three systems later on this year. 'CRS fees continue to rise when they should go down, with lower costs for telecommunications, hardware and software,' he says. To the CRSs he says, 'If you continue to raise your price, you give me no alternative but to use the Internet and electronic ticketing'.

By the end of the first quarter, 36 per cent of Continental's domestic tickets were electronic and it will offer electronic ticketing as an option on all of its international routes by the end of this year. Cossette denies that Continental is potentially hurting its 12 per cent ownership stake in Amadeus and one-third stake in System One, the US marketing arm for Amadeus, by developing bypass methods, saying he expects their impact will 'not be significant. I have no illusions that the CRS will become less important or go away; it's too important to the complex distribution system.' But he believes a significant amount of well defined business in the corporate arena will not have to be dependent on CRSs.

Some observers deem Continental's various bypass systems somewhat impractical. Nick Bredimus, a Dallas-based airline consultant, says the systems face major obstacles. CRSs pay travel agents substantial fees to use their systems, and he believes agents would be loath to forfeit these in favour of a Continental bypass system. He also says it is doubtful that an airline with a substantial stake in a CRS would want to participate in Continental's bypass system, thus jeopardising the income of both the CRS and itself. However flotations of 18 per cent of Sabre in 1996 and 35 per cent of Galileo last year saw airline owners reduce their holdings, and Amadeus has also discussed an initial public offering.

Another issue, according to Tom Woodall, publisher of Travel Distribution Report, involves equipment. He believes 'you'll have to wait until PCs become more robust' before Continental's bypass system becomes popular among travel agents.

These caveats aside, both men believe Continental's systems will go forward and generate limited bookings. 'It's unlikely you'll see United announce it will bypass its CRS,' suggests Bredimus. 'On the other hand, if a number of airlines go direct to corporations with a booking product and incentivise them, United, American and Delta could be dragged into the fray as well.'

Sue Powers, vice-president of sales and marketing for Worldspan, says she doubts 'the amount of savings Continental would pass on would overcome the inefficiencies and new costs the systems would create for travel agencies.'

Jim Poage, senior vice president of customer relations for Sabre Travel Information Network, says 'every travel supplier is pursuing a direct booking capability', while Galileo says 'there are many alternative methods of selling airline seats. Today's travel buyer appreciates having a variety of choices and options, and ultimately determines the distribution system that provides the most value.'

Source: Airline Business