Beyond Internet

Article is one of seven included in the Travel Technology Association's
White Paper entitled "Beyond Internet", published June 13, 1996

Internet, or its "sister", Intranet -- are representative of the "Americanization" of the Information Age. Within the travel industry, they are often perceived as a threat ... as an "alternative" distribution channel. It is, in my view, a lot of "hoopla" over very little. In point of fact, the travel industry has had a number of "alternative" distribution channels since its inception -- notably, the telephone. Even today, here are far more people with access to telephones than have access to computers.

The premise of a "Beyond Internet", is like saying "Beyond Telephones", in the early 1900's. Internet, like the telephone, is a step in the evolution of human information sharing. Perhaps a bit over-simplified ... but the "rush" to Internet/Intranet, while valid in its potential for information distribution to the general public, is a "Trojan Horse" when applied to travel -- except that it facilitates electronic settlement.

The controlling element of travel distribution has not been, as is perceived by most, the GDS/CRS systems. Rather, the controlling element of travel distribution has been the airline owned ARC (or BSP) settlement process. It is the need for a paper "proof of entitlement" (ticket) that brings travelers to travel agencies -- since only "authorized" agents can issue tickets and submit "audit coupons" to ARC/BSP.

Electronic settlement -- whether credit card, personal debit card, or EDIFACT transactions between corporations -- is increasingly the norm; an "expectation" of the individual; a management and cost control issue of corporations. Yet, historically, airline seat distribution has been tied to settlement with the airline required audit coupon document.

When tied to travel agents sales via GDS/CRSs, settlement cost is disproportionately high if compared to other industries. One reason is the internal inefficiency of airline processing; but more importantly, it is inefficient by consumer and corporate criteria. Despite these added costs, the importance of "air" in travel is reinforced. While other travel vendors use alternative settlement solutions, travel agents selling air continue to dominate travel distribution.

However, electronic tickets are "teaching" airlines how to track settlement of inventory electronically, just as grocery stores tracks the sale of a single food item to the consumer separately from the settlement of the purchase from which that single item originated. Increased airline use of direct electronic settlement would suggest conventional "other industry" methods of product distribution.

These channels typically include "remanufacturing" and "risk-taking" wholesale or volume discount outlets. While the terms are not particularly new to travel, the driving difference will lie in the method of settlement -- and the resulting change in comparative information that has "traditionally" been available via the GDS/CRSs and the shared market data of ARC/BSP.

As direct purchase gains increasing consumer acceptance, the purchase price of any item becomes, optionally, confidential -- and thus, "negotiable". Concurrently, it enables negotiation via the "bidding" process, open or closed, a tool with which some airlines are already experimenting.

Direct or EDIFACT settlement (already common for other major purchases among large corporations) with corporations or wholesale travel outlets are also "off line" -- not subject to competitive "public" scrutiny of GDS/CRSs or the ARC/BSP market share reports. Thus, direct sales induce pricing more accurately structured to the distribution relationship; the value of the specific distributor to the airline.

Therefore, one can expect to see...

1.  GDS/CRSs will transition from selling airline seats to offering expanded tour and cruise product inventory and packages that remain dependent on the "human" value added service of travel agents.

2.  Smaller travel agencies will focus more on marketing packages than on selling commodity airline seats -- and turn increasingly to the familiar GDS/CRS channel for the "packaged" products.

3.  Airlines will sell commodity seats direct wherever they can ... direct where it makes sense... and via repackagers, wholesale, or volume direct outlets. Seat prices will be structured increasingly to the distribution channel. Agencies add mark-ups or fees to essentially net fares to recover their costs.

4.  Many corporations will buy direct at volume purchase prices, using controlled booking environments to insure their commitments.

5.  Larger corporate travel agencies will "step up" to the wholesale issue by "taking risk" and pre-purchasing against the consolidated commitments of their clients.

6.  "Niche" packagers will evolve to buy in volume from airline, hotel, and/or car vendors alike -- and "remanufacture" these products into market specific "whole" products (i.e., the 3-day business tour that includes a specific airline, specific hotel, and a rental car at a price competitive with "published" air fare alone.

I see Internet only as another tool in the communication/settlement process.