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Online Air Ticket Booking Systems
Real World Case Study
Report
Written by:
ISM Group No. 1.
Subgroup 2.
Harrington, Corrin Scott
Krawczyk, Przemyslaw
Márton, Csilla
Molnár, Tibor
02-03-2002
Question 1
Select a trip and some dates.
We tried to choose an important and busy route. Our dates are different in the duration
between the two ways, in how far they are in the future, and also in whether they are on
weekdays, weekends or national holidays.
The details of our chosen trip are the following:
Departure: London Heathrow Airport (LHR)
Destination: Los Angeles International Airport (LAX)
Number of persons: 1 adult
Type: Round flight (way and back)
Dates:
LHR to LAX LAX to LHR
th th
Trip “A” 12 March (Tuesday) 14 March (Thursday)
Trip “B” 29th March (Good Friday) 1st April (Monday)
th th
Trip “C” 12 November (Tuesday) 17 December (Tuesday)
Question 2
Use the web to find out a list of carriers that fly the required route.
As our route is a major one, several airlines run flights on it, both American, European and
also from other continents. The following list contains only some of the most important ones:
Air France KLM Royal Dutch Airlines
Alitalia Swissair
American Airlines United Airlines
British Airways US Airlines
Continental Airlines Virgin Airlines
Continental Airlines Virgin Atlantic
Delta Air Lines etc.
Question 3 and 4
Use the web sites of two or three selected airlines to find the cheapest available return flight.
Find an online travel agent and find the cheapest price from the agent for the requirements.
For further analysis and comparison we chose the following four airline companies:
1. British Airways 3. United Airlines
2. Delta Airlines 4. Air Canada
When choosing we took care that we pick airlines both from the departure and destination
countries, and also from a third country.
We compared the prices quoted on the corporate web-site of these airlines with those quoted
on the site Travelocity.com, and also with those on two online agencies, namely Flights.com
and Cheapflights.co.uk (the latter is a European one). We also tried Orbitz.com, but we could
not make any use of it, because it cannot deal with cities outside the US.
All the prices that we found can be read in the Appendix. Here we would like to make a few
general comments about our findings:
- Agencies in general have lower prices than what the airlines offer on their websites.
The differences are enormous.
- The Sabre based web site Travelocity.com offers mostly the same or slightly lower
prices than the corporate sites.
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- Companies in the departure or destination country have considerably lower prices than
third-country airlines.
- The further is our trip in the future, the lower is the price of the ticket.
- Some other not major airlines on Cheapflights.com offer tickets priced even far below
the cheapest one offered by the big ones.
- The lowest price was offered by Delta Airlines, for trip “C” and it was 315 USD
(corporate website). The most expensive one was offered by Air Canada, for trip “A”
and it cost 4502 USD (Travelocity.com)
Question 5
Recently, a number of large Airline companies took the initiative to start a new large online
booking system, exclusively for the use of their own airlines. This new booking system
eliminates completely the role of online travel agents.
We think that the new system does not differ significantly from those established earlier.
Considering this and in order to make the understanding easier we are going to apply the
following method when answering the questions of point 5.: We start our arguing by giving
general statements that apply to all the presently existing online booking systems and than
emphasise those characteristics, which are especially typical for the lately established system.
The latter statements will be shown in bold.
5.a
Which (group of) airline companies have started this new booking-system, and what is the
name of the system?
The first two airline companies, which used the development of the computer networks to
establish an online booking system (and provide terminal access to these for the use by travel
agents) were United and American Airways (AA) in the late 70s. The system of United was
called Apollo, the one of AA Sabre.
Over the years European companies also developed their online booking system and there
were a number of mergers between the different systems, as a result in 1999 there were three
major system worldwide in use:
1. SABRE; started by AA in the 60s; 40% of the world market, 440 airlines integrated,
over 400 million booking yearly)
2. GALILEO; started from the merger of United’s Apollo system and the Galileo system
established by European airline companies; 30 % of the world market, 530 airlines and
250 tickets sold yearly
3. AMADEUS; founded by four European airlines and now including the system of the
US carrier Continental; 469 airlines
Additionally we would like to point out that Galileo does not eliminate the role of online
travel agencies, as the operator of this system don’t want to face competition with their own
agencies and thus the system doesn’t have a web interface for the retail trade.
The system launched lately is called Orbitz.com and it is a common establishment of five
major airlines, namely: American, Continental, Delta, Northwest and United. Since it
launch in June 2001 several other airlines has joint, it has dozens of charter partners
and offers altogether the flights of some 450 airlines.
5. b
Why did they start this system? And what are the main objectives?
The airline companies used (and use) several channels to sell their tickets (e.g. travel
agencies, their own offices and outlets at airports etc.) and not being able to coordinate the
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traffic of these channels had a negative influence on their profit. There was a need for systems
that can provide every channel used with real-time information about the seats available on
the flights so as to sell possibly all the seats without overbooking. Practically the introducing
of these systems meant competitive advantage for their operators. Before the elimination of
anti-competitive features for an agency that joint one of the online booking systems, it was
very difficult to join another one as well, and this again led to advantage over the competitors
for the owner of the system.
The objective of complementing the existing systems with a web interface for the retail trade
is skipping the intermediaries (offline and online agencies) and the commissions paid to them,
and creating an extra channel for the sales.
Orbitz.com is not only providing a web interface for an existing online system, but it is a
new booking system. In our opinion the purpose of starting Orbitz.com for the major
airlines was eliminating rivalry that resulted from the parallel existence of several
systems.
5. c
What are the 1) advantages and 2) disadvantages for the companies and for the customers?
Advantages for the airlines:
- Ability to monitor the free seats left on flights in real-time, thus being able to offer
last-minute tickets and avoid over-booking. Altogether being able to exploit their
capacity better.
- When introducing the system, the joining agencies had difficulties in selling tickets of
“outsiders”, and even those airlines who adopted the system had competitive
disadvantage because the system favoured the flights of the owner airline company.
- Nowadays none of the joint companies are disfavoured but the owner of the system
charges them for the use of the system.
- For airlines only using (and not owning) the system it represents a chance to have
equal presence on the virtual marketplace as the early movers, who now own the
system.
- Airlines using the same system have the possibility to form alliances and use code
sharing and through routing, i.e. broadening of the product portfolio.
Advantages of introducing web-interface for the retail trade:
- Creating a new sales channel
- There is no commission on tickets sold in this channel (unlike on those sold by an
agency) and this can increase profit margin, even if the retail price is lower than that
offered by agencies.
- The website makes it possible to collect buyers’ data
- If the retail web-interface is part of the company web-site of the airline (i.e. only the
tickets of the particular airline are sold and not those of the other members of the
system), it can be a tool for increasing customer loyalty through extra services on the
website.
Advantages of introducing Orbitz.com for the airlines:
- Eliminating rivalry between the companies.
- Sparing money on common investments into developments instead of developing
their own systems (Sabre, Galileo and Amadeus)
- Due to the better prices and services more and more customers are using
Orbitz.com and users from the previous systems add up to a bigger demand at
the new site.
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Disadvantages for the airlines:
- The online booking systems’ objective to give first movers competitive advantage
over their competitors failed and these systems resulted in the air travel’s becoming a
commodity product. The customers can easily compare prices and this together with
the increasing price-conscious customer behaviour influences the airlines’ profit
negatively.
- Running a website providing direct access to the booking system for the customers can
lea to a worse relationship between the airline companies and its high-street and online
agencies, because such a website represents practically competition to the agencies.
- Developing of the system requires huge capital tools.
- A disadvantage of launching Orbitz.com for the companies is, that the market
became absolute transparent with it. Any prices can be compared by the
customers in one click and the competition got really tough.
Advantages for the customer:
- The original online booking systems (terminals at agencies) make more up-to-the-
minute information available for the agency and they can offer more favourable prices
to the customer.
- The retail web-site results in a more transparent market of air tickets, ease of getting
information about the prices of any company and choosing the most appropriate one.
- Skipping the intermediaries the airlines can offer lower prices on their web-sites.
- Advantages of Orbitz.com is (theoretically) that it has more tickets to offer than
any other previous system, it has in average lower prices and offers improved
searching facilities just as extra services. In the long run these are going to turn
into real advantages. Finally there is now a real competition on the air ticket
market.
Disadvantages for the customers:
- Agencies using one of the systems claim to quote the lowest available price to the
customers, though that is only the lowest price among the airlines using the particular
booking system.
- Customers must learn to use the new technology to be able to profit from the retail
web-sites.
- Airlines’ company websites offer only the tickets of the owner and give no facility to
compare prices.
- Those not having access to the internet have disadvantages compared to those who
have.
5.d
How does this new booking system fit in with their own core business? If it is not part of their
core business, why are they developing this system?
Even without running any online system an airline company’s core business contains some
form of selling tickets (own outlet at airports and in the offices of the company), from this
point of view building an online booking system is the technological development of this
activity and belongs to the core business.
However, if we consider the traditional ticket and travel agencies selling the tickets of the
company, the online system can be viewed as a closer co-operation between the parties, which
contributes to the increase in both parties’ efficiency. In this case it is rather a supporting
activity.
If the company takes one more step and builds a web-site for the retail trade, the judgement of
this website depends rather on the airline’s corporate policy. If they regard the selling of the
tickets as their core business, then the retail web-site is also part of it. In our opinion, the
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traditional presence of intermediaries separates the selling of tickets from the core business
and such a website means a vertical integration in the distribution channel.
The developing of an online booking system providing direct access fort the customers is the
result of a strategic decision and its main objective is to create the possibility of totally
skipping the agencies in the future and turning their commission in profit and/or value for the
customers.
We think that the new system is not really different from the previous ones in its
objectives and features. It has the same idea. What has changed is that the airlines
realized there is now point any more in investing in different systems that compete with
each other in order to gain competitive advantage. It is rather worth developing a
common system and with improved services attract more customers than ever before. If
we consider the earlier online booking systems part of the airlines’ core business, than
Orbitz.com should also be regarded as that.
5.e
How does this system restructure the travel market?
From the customers’ point of view the new system means not more than a new site they
can check for the lowest price. If, in turn, Orbitz.com offers more reliable and valuable
services, if the airlines are willing to quote here lower prices than on Travelocity or
Amadeus, than in short time it is going to grow to an ultimate global marketplace where
all the members can utilize from the extra value provided to the users. If Orbitz.com is
even able to give lower prices than online agents, it is going to take their place as well
and shorten the distribution channel.
5.f
Which kinds of different booking models can you determine? (in terms of airlines, agencies,
customers, intermediaries, systems).
- The simplest model is the customer’s buying the ticket directly from the airline
company, either in its office or at the airport, at an outlet run by the company or
through telesales. This is usually the most expensive solution.
- Most of seats are booked with high-street agencies, that can be travel agencies,
specialised air ticket agencies etc. The prices are usually lower because an agency
offers tickets from several airlines and is always able to quote several possibilities to
the customer, such as different routes and number of changing, last-minute tickets etc.,
which influence the price. The agencies get a commission from the airlines. These
days most of the agencies have terminal to one of the online booking systems.
- Recently there are online agencies, that do not have an office but can quote tickets of
several airlines and even can be attached to several online booking systems. They are
usually the best way to find the lowest price. An example is www.cheapflights.co.uk
They are also paid commission by the airlines.
- The online booking system run by a number of airlines can have its own web-interface
where the customers can order tickets. This way of buying does not involve any
intermediary and the customer can compare prices but only from those companies that
have joint the system.
- It is also possible that an airline company equips its corporate website with online
booking facility. This of course run again attached to the same online booking system,
but here the customer can only see the offer of the particular company, not that of the
other members of the system. Here the prices are usually lower than if you buy at an
outlet, because of the less need for personnel etc.
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Question 6
Why did the American company United Airlines, who had its own reservation system, partner
with the European system Galileo? Would it not be more logical to partner with SABRE from
American Airlines?
The major competitor of United is AA, and both companies’ core business was the American
continent. Both SABRE and APOLLO had several partner airlines integrated in them, most of
them American, thus it would have made no sense to integrate APOLLO in SABRE. It would
not have given any extra market to United and probably no extra advantages.
Integrating two reservation systems provides the member companies with facilities to share
codes and to use each other’s network in order to offer more flights (through routing). United
had already had several partners in the USA and their common network covered all important
US cities. Strategically it was much more important to have links to the old continent. Merger
with the biggest existing European system also means that AA and Apollo can not have a
similarly strong cooperation with European airlines. And that is competitive advantage over
AA.
Question 7
Why was another large (third) booking system like Amadeus necessary?
We cannot say for sure what was the main reason, but we have the following ideas, which
could have driven the founder companies towards the establishing of Amadeus:
- After the integration of United’s Apollo and the previous European Galileo system in
1971 the Galileo dealt more and more with trans Atlantic flights and European airlines
found there is a need for a new system focusing on flights within the continent.
- Possibly the “outsiders” of Galileo found the conditions of entering the system
unfavourable (e.g. because of Galileo’s concentrating on long-distance flights) and
favoured to run their own system.
- According to the policy of Galileo there is no web-based interface of the system for
customers, so as to eliminate competition between the airlines and their agencies.
maybe this policy was emphasised by United and the European airlines wanted to
establish a system including this feature.
- The establishing of Amadeus resulted competition on the European market, which was
earlier dominated by Galileo.
Question 8
Why does SABRE have three different systems, two websites, plus a traditional mainframe
computer system? Why don’t they integrate these to one combined booking system?
In our view SABRE is exactly the latter one: One combined booking system. It has not three
different systems, but it has three different interface to the one system. These have different
functions and they are tailored to these functions, that’s why they are not integrated. A simple
proof of SABRE’s being one system is an example: One ticket sold through an agency at once
becomes unavailable for the customers browsing travelocity.com
The three interfaces and their functions are the following:
1. The traditional mainframe system was established before what we call internet existed.
It provided the agencies with terminal access to the central computer(s) through dial
up. (no internet was needed for that)
2. Since the introduction of Sabre.com, the web-based interface for agencies, the
previous system became unnecessary, thus Sabre.com offers the same features through
an open network and the most simple web-browser. Though the introduction of a new
technology does not mean that the previous one is put out of use at once. Most
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agencies have the terminal system installed and it takes long before all of them change
for the new, web-based system. In the long run, the later will take over the place of the
former.
3. Travelocity.com is the web-based interface for customers, a web-site, SABRE’s own
online outlet. It is the shortening of the distribution channel, and has all the advantages
and disadvantages of that.Travelocity.com is the result of a strategic decision of
SABRE, i.e. to integrate the channel vertically and in the long run to compete or even
eliminate the traditional agencies.
Of course all the three interfaces are based on the SABRE system, but they structure and
functionality are different according to the strategy of SABRE. (In addition the ticket ordering
features on the member airlines’ corporate websites also rely on the SABRE system, though
they are the own initiative of these companies.)
Question 9
A research study in the current case, tells us that buying books on the internet is found to be
much easier than buying airline tickets. Why is airplane tickets much more difficult than
buying books? What can you say about the supporting IT-systems in this context?
If a book is offered by several (online) bookshops, the only difference is practically the price.
The content of the book is the same. Thus in order to find a book on the internet one only
needs to know the author, the title and perhaps the publishing house.
Buying a plane ticket is different in the sense that a flight between two points can be different
in the number of changes, the take-off and destination airports (there are possibly more
airports within a town), the class, etc. and these all, along with the date of the flight, influence
the price of the ticket. One looking for an air ticket knows all about his expectations
concerning these characteristics and sometimes it is difficult to check everything on a website.
On the other hand the web-site of several airlines offers only a feature to look up a ticket price
if all the flight details are precisely given, it is not possible say to compare prices on different
days or that of flights different in the number of changes. Sometimes it is also restricted,
which customers may use the online ordering (only for certain geographical regions or only
credit card holders etc.)
Probably the databases and the IT technology would be sufficient to cover these needs only
the programs running on the websites should be developed in a way.
Question 10
What are the advantages and possible disadvantages of the online booking systems for the
marketing strategy of those airline companies?
The biggest advantage for the marketing strategy is the fact that online booking systems with
a web-based interface for retail trade represent a new distribution channel. This can increase
the sales. Skipping the intermediaries (shortening the distribution channel) the prices can be
lowered and still keeping the former profit margin. Airline companies get closer to the
customers and the direct connection between the supplier and the customer increases the
efficiency of the communication, enables the supplier to offer extra services etc.
The main disadvantage of the system is that air tickets became a commodity product.
Additionally the presence of two parallel distribution channels can lead to a conflict in the
future between the agencies and the airlines (e.g. price war).
For a more detailed list of advantages and disadvantages, please see the answers to Question
5.c.
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Appendix
Air ticket prices for the roundtrip London - Los Angeles
Source of information
Trip "A"
Corporate site Flights.com Travelocity.com Cheapflights.com
AC 2865 1723 4502 n/a
Airlines
BA 1794 665 1590 2549
Delta* 1255 669 n/a n/a
United 1780 765 1780 n/a
Source of information
Trip "B"
Corporate site Flights.com Travelocity.com Cheapflights.com
AC 1832 1723 3902 653
Airlines
BA 751 665 712 n/a
Delta* 499 669 n/a n/a
United 765 765 729 687
Source of information
Trip "C"
Corporate site Flights.com Travelocity.com Cheapflights.com
AC 866 n/a 452 n/a
Airlines
BA 451 n/a 450 457
Delta* 315 345 n/a n/a
United 459 n/a 459 444
Prices are given in USD. Prices given originally in GBP were converted using the ratio:
1 GBP = 1,43 USD
Sites visited and data collected on 4th March 2002.
* Delta Airlines' planes fly from London Gatwick Airport
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