Airline ticket system faces new allegations

THE BALTIMORE SUN

The recently stepped-up U.S. Justice Department investigation into possible price-fixing by major airlines has put a spotlight on the four computerized reservation systems owned by U.S. carriers.

The systems -- Apollo, SABRE, System One and DATAS II PARS -- apparently are not targets of the federal probe, at least not yet.

But the entire lightning-fast process by which most airline reservations are made, and by which all participants in the air travel business are interconnected, is sure to come under close scrutiny as the investigation proceeds.

The federal probe also is likely to revisit some of the long-standing criticisms of computer reservation systems, much to the consternation of the executives who run airline reservation businesses.

"There's just so much misunderstanding and misinformed rhetoric going around about what we're all about and how we operate," said Allan Z. Loren, president and chief executive of Rosemont, Ill.-based Covia, the owner and operator of the Apollo system.

Covia, which was established by United Airlines as an independent affiliate in 1987 to run its Apollo operation, is owned jointly by United, USAir and a consortium of foreign carriers, including British Airways, Swissair, KLM Royal Dutch Airlines, Alitalia and Air Canada.

The main criticism of the reservation systems is that they give the airlines that own them an unfair advantage over other carriers.

Specifically, critics charge, the systems provide information on airline fares and schedules to travel agents in a way that entices or encourages the agents to book travelers on the carrier or carriers that own the system.

By doing so, the critics contend, a reservation system -- known as a CRS -- creates unfair competition in the industry.

In other words, they allege that a system such as Apollo has ways of highlighting United's flight schedules and fares to increase the chances that a travel agent will book a customer's flight on United.

The same is true of SABRE and American Airlines; DATAS II and Delta, Northwest and Trans World Airlines; and System One and Continental Airlines, the critics argue.

SABRE is a wholly owned subsidiary of AMR Corp., the parent of American. DATAS II is owned and operated by Worldspan, which is owned jointly by Delta, Northwest and TWA. System One is Continental's computerized reservation system.

Officials of the systems contend that the allegations are baseless. They say air travelers are sophisticated and knowledgeable consumers who, like other consumers, look for the best deal in respect to price, convenience and other factors. If a reservation system offered them biased information, it wouldn't be in business very long, officials say.

"CRSes today have to make shelf space available for all the airlines or the traveler will stop shopping in their system," said Paul W. Besch, airline sales and marketing director for Covia's Apollo system.

The reservation systems are one of the few bright spots in a financially depressed airline industry. Because the systems are privately owned, obtaining their financial results is difficult, but executives, including those at Covia, say their businesses made money last year, even while most of the airlines they serve were swimming in red ink.

Robert Crandall, chairman of American Airlines, has said that if he had to choose between unloading the airline or its SABRE reservation system, he would dump the airline without hesitation because the reservation system makes more money and its potential for growth is greater.

"The most vocal critics of CRS systems, as you might expect, have been airlines that don't have their own CRS," Mr. Besch said. "They've contended for years that the airlines who own CRSes have a competitive advantage over them, but they've never been able to prove it."

But Mr. Besch acknowledged that when computer reservation systems were in their infancy in the 1970s and early 1980s, (United established the Apollo system in 1971), the airline owners of the systems did place themselves at an advantage within their own systems. They usually did it by putting their own flight schedules ahead of all the other airlines feeding schedules into the system.

Whether such gimmicks significantly increased ticket sales for the airlines owning reservation systems is hard to say, Mr. Besch said.

Airline industry analysts and observers have long felt, however, that it did give carriers such as American and United, which were among the first to get involved with computerized systems, a significant advantage.

In fact, American's SABRE and United's Apollo played a major role in making the two carriers the heavyweights in the airline industry, the analysts say.

In 1984, at the behest of carriers without their own reservation systems, federal regulators prohibited American, United and other system owners from listing their schedules in a way that might place other airlines at a competitive disadvantage. By then, American and United were well ahead of the competition.

Even if federal regulators had not stepped in, it is unlikely that reservation systems would have continued much longer to grant favored status to their airline owners, officials of the systems say.

By the mid-1980s, it was becoming apparent to the systems' operating companies that travel agents and consumers would no longer accept biased information.

What travelers increasingly wanted was access to all the airline travel data that was available, and they wanted the information tailored to meet their own needs.

The reservation systems now have software capable of meeting the needs of virtually every consumer of travel services.

Besides being able to make airline reservations with lightning speed (the Apollo system can process up to 1,700 computer-driven messages per second), travelers also can use the system via a travel agent to make other types of travel arrangements -- booking hotel rooms, renting cars, booking ocean cruises or reserving seats on trains -- just as swiftly.

Moreover, through the computer systems, travelers increasingly can make reservations anywhere in the world. Covia, for example, is merging with Europe's Galileo computer reservation system, which will create the world's first truly global system.

But if government regulators begin putting restrictions on systems, making them less competitive, some of the services they provide could disappear, said Mr. Loren, Covia's top executive. Additional innovations would be unlikely, he said.

"The computer reservation system is one of the few technological areas in which the U.S. is a leader," he said. "The government ought to be encouraging competition among CRSes and among the airlines instead of trying to think of ways of hampering it."

Mr. Loren said a lack of understanding of how reservation systems work and the services they perform was part of the reason government regulators and Congress have been suspicious of the systems and their relationships with the airlines.

"It's essentially a distribution warehouse where sellers of travel services -- the airlines, hotels, rent-a-car agencies, cruise lines, railroads, etc. -- deposit their services," said a spokesman for American's SABRE system.

"The warehouse assembles the services and tailors them to consumers' needs and then makes the finished product available to travel agents who, in turn, sell the product to the travel consumers."

What federal investigators seem to be concerned about, industry sources say, is that the airlines, unlike hotels, rental-car agencies and other travel-service sellers, do not funnel their data -- such as fare listings, schedules and route changes -- directly into reservation system computers.

Instead, the carriers ship the information to clearinghouses that assemble and combine them and obtain any federal approvals that might be required before passing the information on to the systems.

The federal probe centers on the airlines' use of Airline Tariff Publishing Co., a Washington-based computerized clearinghouse owned jointly by the airlines.

The company is the repository of all fare changes made by the airlines. The clearinghouse assembles the fare data given to it by individual airlines and transmits that information to the computer reservation systems.

The government apparently is trying to determine whether the airlines are acting illegally by using Airline Tariff Publishing Co. to set the prices of airline tickets. The airlines, meanwhile, deny that the company or any other part of the computerized airline reservation systems is fixing prices.

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