This is part of IEEE Spectrum's special report: What's Wrong—What's Next: 2003 Technology Forecast & Review.
In the old days, getting a seat on an airplane was easy: call the local pilot of the airmail plane and ask for the plane's spare seat. Now, the trip from travel agency to ticket counter is infinitely more complicated, and "every wrinkle, bell, and whistle costs more," says Ron Kuhlman, vice president of Unisys R2A Transportation and Management Consulting Practice (Hayward, Calif.).
At a time when turbulence applies as much to an airline's financial status as to its flight status, cost is everything. Airlines recognize that the key to survival is cutting costs, and they are looking to technology to do just that. In particular, the airlines aim to slash a US $2.2 billion item-a large part of the surprisingly expensive process of selling tickets, or distribution. To do so, they are counting on their own Web sites and other Internet-based technology to link them directly to their customers at far lower cost.
No-frills airlines RYANAIR and JETBLUE are just two low-cost carriers that made a profit while most airlines lost money last year. Ryanair's profits rose by 68 percent in the first quarter of 2002 alone. Both airlines rely heavily on their Web sites to sell tickets
Though the world's airlines as a whole fared better, the U.S. AIRLINE INDUSTRY LOST US $7.7 BILLION in 2001, and 2002 looks to be worse. In December, the world's second largest airline, United, declared bankruptcy—the latest in a rash of airline bankruptcies and the largest in the history of the industry
Under the one-two punch of 9/11 and a weak economy, BUSINESS TRAVEL DROPPED 30 PERCENT and general travel slowed about 8-9 percent
Orbitz president and CEO, Jeff Katz, with one of the company's 400 Low Fare Search servers. Orbitz is the first online travel agency to build direct connections to airline reservation systems.
Technology has always been central to selling and tracking airline tickets, but, in Frankensteinian fashion, the system originally developed to help airlines sell tickets efficiently has turned distribution into the industry's third largest expense. Today 90 percent of all U.S. tickets are sold through four global distribution systems (GDSs), privately owned data centers operating on mainframe computers to provide travel agencies and Web sites with the entire inventory and fare information of the world's airlines. The systems are expensive: they charge airlines a fee for every segment of travel sold. A one-stop flight, for example, has two travel segments. If the airlines have one goal for distribution technology, it is "anything that can replace the GDS," says Lorraine Sileo, an airline analyst at PhoCusWright (Sherman, Conn.), a strategy and research firm that specializes in the online travel industry.
The simplest and cheapest way for airlines to avoid using a GDS is to sell tickets on their own Web sites. This is exactly what many low-cost airlines have been doing. Southwest Airlines, for example, sold half its tickets on its Web site last year, while Ryanair's online sales have made ryanair.com Europe's most-visited travel site. According to Southwest Airlines, a ticket sold on southwest.com costs it about $1 versus $5-$6 for tickets sold by a travel agency through a GDS. To push even more sales through their Web sites, some airlines, including American, are beginning to offer the discounted fares traditionally only available online to travel agents provided they book through the airline Web site instead of a GDS.