InformationWeek

It's not a bad deal for Northwest, either. A $300 ticket sold online costs about $6 to process, and saves the airline $25: $15 on the travel agent commission of about 5%, and $10 on the reservation system fee, Lenza estimates. Sell 100 million online tickets and the savings start to add up.

Even the 5% commission figure holds a huge savings for the carriers. Having an Internet alternative to human agents has put pressure on commissions, which have fallen from a historically rock-solid rate of 10% to just 4.47% on domestic tickets in January 2000. Air travel is becoming a commodity-as fares fall, more people can afford to fly. Those trends hold good and bad news for travel agents: Of the travel agencies in business last year, 7% closed their doors. But those that remain are averaging weekly sales of $39,000, up 13% from last year.

American Airlines parent AMR recognized early that the conventional Internet business model, with its demand for big capital investments to establish a presence and little short-term return, wasn't going to cut it with traditional blue-chip investors. In addition, AMR's ownership of Sabre made other carriers hesitant about giving it their business. So AMR spun off Sabre into a separate business unit and then took it public in March.

American is jumping into virtually all the online channels. This summer it will launch a business-to-business exchange for travel agencies and airlines, and it has signed up to sell its own excess inventory through both Priceline.com and Freemarkets, a business-to-business reverse-auction site.

United is also spinning off its E-commerce division into a separate subsidiary "to make us more nimble and entrepreneurial," Praven says, and to focus on products and partnerships involving E-commerce and wireless communications.

In addition to their individual online efforts, the five biggest airlines-American, Continental, Delta, Northwest, and United-are cooperating on Orbitz, the huge new consumer site that will offer the wares of 450 airlines, 22 car-rental companies, and 22,000 hotel properties. But under the close watch of the Department of Justice for antitrust violations, the site may have a hard time differentiating itself enough to win customers from market leaders Travelocity and Expedia, which currently account for 80% of all online travel sales.

Alex Zoghlin, the site's chief technology officer, says it will win customers by replacing the limited mainframe architecture of the computer reservation system with Linux and Java, the LISP programming language for artificial intelligence, and personalization engines to offer consumers easy access to any piece of information in any way they wish.

Want the best fare? Orbitz will search all 10 million fares posted by the airlines every day and look at every possible configuration of connections. "Our infrastructure has no limitations," Zoghlin says. "We're building all these individual applets to let customers choose what information they want, and on what device."

Still, Shawn Milne, a VP and senior research analyst at E-Offering, an investment banking firm, says Orbitz "will have to build brand awareness just like the other companies, and that's costly. And it will be a very big struggle to integrate all these different airlines. But having said that, these are big companies with big cash flow, so it's certainly something worth watching very closely."

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