TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/051589/05158900.021

Text File | 1990-09-22 | 4KB | 66 lines

BUSINESS, Page 54

Big Eagles and Sitting Ducks


    Of all the competitive weapons in the major airlines' arsenals,
perhaps the most powerful is one that never leaves the ground: the
computerized reservation system. More potent than frequent-flyer
programs or discount fares, these systems have become vital to an
airline's ability to compete and survive. Says Julius Maldutis, who
follows the industry for the Salomon Brothers investment firm:
"Automated reservation systems are dividing the industry into the
haves and have-nots. Those with them are becoming the big eagles.
Those without, sitting ducks."

    Automated reservation systems are vast computer networks that
the major carriers, notably American and United, use to dish out
the most up-to-date flight information to travel agents. When
linked to the systems, agents can check schedules, compare fares
and book tickets. They can also make hotel and rental-car
reservations as well as order tickets for Broadway shows or charter
a private jet.

    What makes a network so vital to the airlines is its ability
to arrange a dizzying permutation of planes, routes and available
seats in the most profitable configuration possible. Each day,
600,000 fares change in the airline industry, which high-speed
computers can constantly update to help an airline allocate seats.
Without the computer systems, for example, airline managers might
fill planes with passengers flying free on frequent-flyer coupons
when at least some seats could be sold to business travelers at
full fare.

    The travel-agency business has grown heavily dependent on
reservation systems and the airlines that own them, often at the
expense of carriers without their own computers. Nearly 87% of all
flights are now booked through the carriers with computerized
networks, compared with 61% in 1983. The most dominant system is
American's SABRE (an acronym for Semi-Automated Business Research
Environment), used by 14,000 agencies to keep up with some 45
million different fares at 281 airlines. United's Apollo, the
second largest, is used by 10,000 agencies. Last year the SABRE
system brought American profits of $134 million, mainly in user
fees collected from such airlines as Pan Am and Southwest, which
"lack systems of their own.

    The have-nots are leery, and with reason. In recent years the
Government has charged both American and United with violating
antitrust laws by using the systems to put their competitors at a
disadvantage. The Department of Transportation pressured American
and United to reprogram their computers to eliminate so-called
display bias. The agency accused the two airlines of rigging their
systems so that their flight information received more
display-screen prominence than competitors' flights. Richard
Murray, who heads Texas Air's reservation network, has been urging
the Government to force the major carriers to spin off their
reservation systems. Says he: "The only answer is divestiture,
because they will always find ways to use the systems as weapons
to ground competition."

    Since divestiture is unlikely, smaller carriers fighting to
end American's dominance will settle for preventing SABRE from
growing larger. They are lining up to ask the Government to stop
a plan by American and Delta to merge their reservation systems.
Combined, the two would command a 45% share of the market. Foes of
the American-Delta deal say it would hurt competition by reducing
the number of players. That step, they warn, would further widen
the gap between the big eagles and the sitting ducks.