E-Tickets -- More Impact Than Internet

Article Published in Travel Distribution Report March 13, 1996

Internet, self-booking tools, and alternative distribution solutions have become symbols of the essence of anticipated change about to engulf the travel distribution structure. While certainly "symbols" of technological evolution, the hype surrounding these issues may be hiding the real structural change in travel product marketing that is evolving.

Airlines have maintained control over travel distribution through audit controls mandated, not by the distribution piece, but by the appended settlement process. Most travel professionals have come to think of the two processes -- distribution and settlement -- as one.

It is important to recognize that, except for SITA and those BSPs that are government owned, only 26 or 27 airlines own all of the GDSs and the various ARC and BSP settlement companies. Yet there are more than 1100 airlines in the world that use these systems. Simple math suggests that more than 1075 airlines "fund" their 26 or 27 competitors to effect distribution ... more realistically, are tied to their competitors' distribution systems to ensure proper settlement.

The logical extension of e-tickets represents real potential for both alternative distribution and a restructuring of travel product marketing and operations. As airlines acquire the technology that enable them to electronically audit and track seat inventory sales, it is a simple step to facilitate direct electronic settlement with the banking systems in lieu of the traditional physical document tracking processes required by the combined "GDS/CRS and ARC/BSP structures.

Consumers have been "educated" to the use of electronic settlement by credit card companies and direct debit ATM systems; and more recently via direct paycheck deposit and automated settlement of monthly bills. Major corporations commonly use EDI (and EDIFACT) to settle large and small "manufacturing" transactions.

In effect, airlines "manufacture" seats. Airlines recover the cost of their capital asset(s) by optimizing "yield per seat" for a given flight segment. Most computer distribution and/or settlement systems use a different pricing model. Computer asset recovery is driven by "yield on volume" for a given time period. In most distribution/settlement systems, revenue is not related to the "manufactured" product or service. Financial settlement systems serve gas-dispensing machines, ATMs, retail stores, manufacturing plants, and airlines with roughly equal costs. Also, the distribution/settlement costs are usually shared by buyer and seller alike.

The GDSs, on the other hand, continue to use the airline "yield per seat" price model as "yield per (reservation) transaction"... with all of its appended information and settlement "baggage". To be competitive with other distribution and settlement solutions, the GDSs must change their pricing model. Accordingly, the dynamic "business rules" of capital asset recovery of the two business' (airline and distribution) will diverge as airlines attempt to optimize "yield per seat" while their GDS "brethren" are forced optimize "yield on volume".

If one assumes that...

a) airline owners will not willingly" pay their competitors (particularly when the GDS shows a "profit") for services the airline can competitively obtain elsewhere,

b) consumers and the banking systems continue to expand the proven (multiple) electronic settlement solutions,

c) e-tickets are forcing airlines to build electronic inventory, audit, and tracking systems where ARC/BSPs are just another "electronic" bank, and

d) electronic financial settlement systems will become more volume driven than transaction based

... then one would conclude that non-GDS owner airlines will turn to settlement solutions offered by the existing banking systems once these airlines have acquired the ability to track and audit inventory electronically. Owner airlines will follow out of competitive necessity.

While many will argue the finite and relative "the way it's done" cultural issues, and focus of current process structures, it is increasingly apparent that the primary key to alternative distribution is tied directly to settlement issues.

As corporations or other business entities are able to effect direct purchase travel product through EDI as they do today for hard product inventory, and distribute such purchases via Internet, Intranet, or other internal controls -- the dynamic of travel product marketing changes. As more airlines are able to electronically track and audit e-ticket inventory, large corporations will demand the efficiencies and control that electronic buying already brings them for non-air product.

Under competitive pressure, the functionality of settlement will further shift to "agencies" that will literally "buy in bulk" for consolidated corporate client accounts and/or themselves -- not unlike the large commercial "discount outlets" in other industries. This will further separate and segment both the marketing channels and operational functions of the current travel structure.

E-tickets, when extended to their logical evolution, have far greater potential for changing the structure of the travel industry than Internet, Intranet, or any of the other alternative distribution channels, which are gaining such wide attention.