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Saturday, November 05, 2005

Airlines, Internet & New Economics

The internet's deflationary effect is felt on every industry it touches – starting right from the financial services, travel, transportation, printing & publishing, telecom, media & entertainment and a host of other industries. Some airline operations are case studies for extrapolation beyond the aviation industry. Imagine southwest without these technology applications . Look at new features like this – it is clear the airline industry is on the verge of massive change.Looking at the airline industry, the first air ticket was sold via the Internet almost 10 years ago, in December 1995, by Alaska Airlines. The USA Today article heavily excerpted here points out that ten years back 50 sales a week looked like a great deal, but this year, about 42% of all travel sale transactions in the USA - airline seats, hotel rooms, car rentals, cruises, tours and other services - will take place online and are expected to touch 55% in a couple of years.
U.S. airlines are now focussed on developing ways to use the Internet, with the aim to cut distribution costs even further in the next five years than they have in the last 10, and increase unit revenue by developing applications that will induce Web-surfing travelers to pay slightly higher average prices. With the marketplace,there are lots more of those cheap seats available than there were a decade ago and new promotions make the challenges more formidbale
. Now, carriers in their pursuit to cut costs even further are backing new third-party websites, and employing new software on their own websites that allows them to partially bypass the big, expensive ticketing networks used by most travel agents. Those four big computer reservations systems — Sabre, Galileo, Worldspan and Amadeus — collectively are known as global distribution systems, or GDSes. Search engines like Kayak.com and Sidestep.com scan a wide number of airline-operated and third-party travel websites for the best deals. Then, for a modest finder's fee, the search engines transfer consumers directly into the selected airline's website. The airlines also are boosters of new third-party websites, called GNEs (GDS-New Entrants, or "Genies").
Airlines feel that the "legacy costs" built into the big GDSes make them too costly for financially distressed carriers to continue using. American Airlines CEO Gerard Arpey says the world's largest airline won't continue selling tickets via some or all of those old systems unless they can get their costs close to American's cost of selling tickets directly to consumers. The GNEs, run on much less expensive and more efficient network servers, are giving airlines negotiating leverage.GDS views its system as more hip technologically, narrowing the cost gap vs. the GNEs & claims more revenue benefits -in some cases, lots more - per ticket sold than do either the GNEs or the airlines' own websites. Just as the big GDSes are trying to narrow the cost gap vs. the GNEs, the GNEs are trying to narrow the revenue gap vs. the GDSes. In various stages of development are new applications that will let GNEs and airline sites offer different fares and services to virtually every traveler who logs on to the sites, based on their known preferences, previous travel purchases, income levels and frequent-flier status.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"