The decline in travel brought on by the events of Sept. 11, 2001, and the weakened economy have forced airlines and travel companies to cut costs wherever they can. As a result, CTOs are using Web services and other technologies as strategic weapons to meet that itinerary. Underscoring the situation's seriousness is the Aug. 12 bankruptcy filing of U.S. Airways, which listed US$7.81 billion in assets and $7.83 billion in liabilities, and the fiscal troubles facing major carrier United Airlines.
"The big thing we are challenged with now is what to do about our distribution costs," says Rob Robless, CTO of United Airlines Loyalty Services (UALS), United's e-commerce subsidiary. UALS, based in Arlington Heights, Ill., also handles United's online operations.
As a result of that challenge, airlines are quickly turning to automated systems that can integrate data and streamline transactions for less money than older systems, CTOs and analysts say.
"We are seeing a structural overhaul coming about because of the convergence of technology, business models, and the changing traveler buying patterns," says Henry K. Harteveldt, a senior analyst at Cambridge, Mass.-based Forrester Research. The search for more effective technology is focusing on the technology providers of distribution technology such Orbitz. Alex Zoghlin, Orbitz CTO, says the ability to reduce distribution costs will be a central issue in the travel industry in the coming years.
New competition models
Travel distribution systems -- the managed information about flights, prices, and seats that seemed to be available almost instantly at travel agencies, ticket counters, and on airline call centers -- have been at the heart of the travel industry's technology implementations. And only a handful of these so-called GDS (Global Distribution Systems) vendors, including Galileo International of Parsippany, N.J., and Sabre of Southlake, Texas, have offered these complex legacy systems, albeit at a high cost, analysts say. Airlines are expected to pay $2.2 billion for licensing of these systems in 2002, according to the Washington-based travel industry research company Global Aviation Associates.
But the growing customer adoption of self-service, Web-based travel sites has created new opportunities for the travel industry to take advantage of less costly systems. Orbtiz, the Internet-based travel site formed in 2001 by a partnership of United Airlines, American Airlines, Delta Air Lines, Northwest Airlines, and Continental Airlines, represents this new service. Other sites in the online travel space include Expedia and Travelocity.
This service increasingly is being deployed as alternative to GDS, UALS' Robless says. "Galileo runs our airline reservation system, but we are trying to move as much as we can to online reservations. It's an evolution," he says. Robless is working in partnership with Orbitz and is increasing the functionality of United.com.
For Chicago-based Orbitz, CTO Zoghlin says his company is offering a model that will attract customers because it will offer the lowest prices. "We are all about using technology as a strategic advantage. You don't need giant mainframe-based systems to distribute travel information," he says.
Zoghlin, the first person hired by Orbitz and the architect of much of its strategy, says the GDS-based travel companies, which charge fees to travel agents and to airlines, will struggle to keep up.
Orbitz, running on Linux-based servers and able to bypass many of the channels to directly link customers with air schedules and other information, will be faster and cheaper than GDS sites. "We've had our heads down for a year and a half, using technology to drive costs down," he says. "For every carrier's CTO I talk to, that's what it's all about."
On Aug. 19, Orbitz announced Supplier Link travel system, which will enable the company to book tickets directly through airlines' reservations systems and bypass intermediary GDS. American Airlines has implemented the system, and is expected to save as much as 77 percent of booking costs on tickets bought through Orbitz. Three more carriers, including Northwest and Continental, are expected to have Supplier Links by year's end. Delta, Northwest, and Continental recently agreed to "code share," that is to book passengers onto each other's flights.
Orbitz is being challenged by online sites such as Travelocity and Priceline.com, that say Orbitz has an unfair competitive advantage because of its close links with its airline partners.
Sabre, Galileo, and other GDS vendors see the changes brought to the industry by Orbitz' Supplier Link and by these online sites in general and are taking steps to link their GDS to the Internet, says analyst Harteveldt. "But the GDS vendors are not out of the woods yet. They need to do more."
In June, Galileo announced it will begin to open up its GDS in a Web services model to selected travel organizations. Through the plan, Galileo's travel industry partners will be able to provide better services to customers by connecting directly to Galileo's systems using SOAP, providing a way for applications to communicate with each other over the Internet, says Robert Wiseman, Galileo's CTO.
Galileo trumpeted an agreement in August with AAA, the giant motoring and leisure travel organization, to deploy Galileo services in a Web services arrangement. And by December, the CTO plans to have ready several Web services for airlines and other travel services companies. Among the offerings will be Trip Planet, which will allow users to build booking engines that include information on hotels, cars, and airlines, Wiseman says.
"Web services offer speed to market to access travel inventory, ease of use and ease of operations, which allows us to provide it in an ASP model," Wiseman says. At the same time, Galileo's CTO says the GDS remains invaluable due to the huge amount of data it can access. "We link to 500 airlines and 50,000 hotel properties. There are things that can't be replicated by new [travel market] entrants."
Galileo's parent company, Cendant, recently announced that it will purchase Budget Group, which provides car and truck rentals.
Harteveldt says much more change is coming as competition continues to rage among the travel providers. "This is not an area the timid, weak, or squeamish plan on entering," he says. "Orbitz is owned by the airlines, and that backing gives it a unique advantage. There is ferocious competition from [online travel sites] Trips.com, Expedia, Travelocity, Priceline.com, and others. And you also have the battle of the GDS companies and their partnerships."
Customized service plans
The most important weapon the airlines possess to cut costs and maintain their customer base is to build their own sites, Forrester's Harteveldt says. "Airline Web sites are increasingly competitive. Most of the airlines invested in Web sites despite their financial problems."
And although United continues to work in partnership with Orbitz, Robless says he is adding services to his own site, United.com. "From a distribution perspective, we are starting to get away from all sorts of fees paid to travel agencies and GDS companies," Robless says.
The airlines are looking to the Internet to eliminate costs through streamlining innovations such as electronic ticketing, says Christine Traylor, a consultant and travel industry expert at New York-based Cap Gemini Ernst & Young. "Any [technology] that is customer-facing is key for them to reduce costs," she says.
United Airlines can distinguish itself from other online travel sites by offering unique, customizable information, Robless says. "The advantage we have is the ability to provide customers with things like frequent flyer points and customizable experiences for their trips."
"We are really concentrating on what customers want from United.com, and we're trying to offer it in a way that is cost-effective," says UALS' CTO. Further customizing the Web site, Robless is developing EasyUpdate, a United service that allows customers to receive automatic notification of flight delays, schedule changes, cancellations, rebookings, seat upgrades, and other valuable travel information.
"In the future, we plan on building around even more personalized services based on the customer's profile," Robless says. United.com's J2EE-based platform is in place and being beefed up. "We've built everything as a plug-and-play, component model." He is also working on adding interactive voice-response services.
"We have to find different ways of retrieving information. We are spending a lot of time making sure United.com is as good, if not better, than the competition," Robless says.