InformationWeek

Still, the trickle of online sales-about 1% of all tickets in 1998 and 2% in 1999-has grown to 3% and is about twice that for the leading U.S. carriers. United Airlines Inc. says 5% of its domestic revenue in the first quarter of this year came from online sales, split about 50-50 between its own Web site and others, according to Scott Praven, VP of E-commerce. Based on annual revenue of almost $20 billion, that means the nation's largest airline will sell more than $1 billion worth of tickets online in 2000-half of that direct to customers. Projections are that online sales will hit 20% by 2003.

Northwest Airlines is doing even better. Sales on its Web site rose from 4% last year to 6.5% this year, "and you can multiply that by two for total Internet sales from all North American points," says VP of distribution Al Lenza.

Northwest Airlines has 3,500 companies enrolled in its EBiz Perks program, designed to reward small and midsize companies for buying online. This month, the airline began testing with five customers a marketplace that will let large buyers book directly in its reservation system. "Traditionally, corporate deals have been based on, 'You give me more market share, and I'll give you a discount,'" Lenza says. "But the new online model is about deals based on helping us cut our distribution costs."

Airlines are also looking at new models for settlement that would bypass another big chunk of distribution costs, the 2% credit-card fee. Northwest is testing direct payment with Andersen Consulting, one of the nation's biggest travel buyers, with an annual air volume of more than $300 million. Already linked directly to Northwest for booking, Andersen also pays direct, by wire transfer, every night.

Electronic travel marketplaces really were born 20 years ago, when airline prices were deregulated by the federal government. Until then, the price of a ticket from New York to Los Angeles was the same on every airline flying that route. But the free market soon changed that. Today, 100,000 flights a day generate 10 million different fares, all tracked by one of the world's first electronic marketplaces-the computer reservation systems built in the 1960s and 1970s by the airlines. With quick access to all the available inventory on all flights, travel agents using these reservation systems sell more than 80% of all airline tickets, plus hotel rooms, car rentals, train tickets, and even limo services. Suppliers pay a transaction fee of about $3.50 for every booking, every change, and every cancellation, plus a commission to the travel agent who makes the sale.

It's been a profitable business for owners of the reservation systems. In one or two lean years, American Airlines actually made more profit on its Sabre reservation system than it did on airline flights. Travel agents sold 400 million airline tickets through Sabre in 1999, and the company, which was spun off from American Airlines parent AMR Corp. in March, reported $2.4 bil-lion in revenue. Sabre, which owns Travelocity, the hands-down leader in online consumer travel sites, also operates Business Travel Solutions in the business-to-business market, and hosts 800 other travel Web sites.

"The travel industry certainly has an advantage in selling online as far as inventory management and fulfillment, in that we don't have to worry about warehouses and delivery and items being mailed back," says Sabre's Hannigan. "The industry sold $6 billion in the consumer market alone online in 1999, and we're expecting it to hit about $16 billion in the next four or five years. Business-to-business sales were up 300%, though from a much smaller base."

New technology provides even greater opportunities for airlines than cutting costs and selling unused inventory. The Internet offers suppliers a business opportunity that has never before been affordable: the chance to interact directly with millions of individual travelers and business-to-business buyers. After 20 years of speaking to customers only through intermediaries such as travel agents, airlines can use the Internet as a pipeline that makes one-on-one communication possible.

Virtually every airline and computer reservation system already has identified the first opportunity: notifying travelers of departure and arrival information and gate assignments. Travelers can choose how far in advance they want to be notified, how often, and at what address. A Delta passenger, for example, can opt to have an E-mail sent to his pager and that of his wife and office two hours in advance of his flight home, with updates every 15 minutes.

The next step is to make booking systems available via the Wireless Applications Protocol. Galileo International, a computer reservation system, and Trip.com, a travel Web site it recently acquired, this month rolled out a system that lets users do just that. A traveler whose meeting ends earlier than expected can dial in over a cell phone while en route to the airport, bring up his current reservation, go back to see earlier flights, and hit enter to rebook a ticket on an earlier flight. The system also gives travelers access to hotel and car-rental reservations. By the fourth quarter, it will show the cost differential for ticket changes and let passengers pick seats and check on upgrade status.

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