Database Key in Airline Merger

BOSTON (05/26/2000) - So far, much of the talk surrounding the proposed merger between United Air Lines Inc. and US Airways Group Inc. has been about schedules and hub cities. But one of the biggest issues the combined company would face is the consolidation of two of the largest customer databases in the travel industry.

Customer information could be a compelling enough reason to justify Chicago-based UAL Corp.'s plan to buy Arlington, Virginia-based US Airways in an $11.6 billion deal that was announced last week, said Inc. co-founder Bruce Yoxsimer., in Menlo Park, California, hosts the booking services for United's Web site. United owns 28% of GetThere.

"That customer data is going to be critical to anyone moving forward in this industry," Yoxsimer said. "Airlines want to know their customers intimately and build loyalty, and this deal would give United the largest database out there."

Representatives from United and US Airways declined to comment on this issue.

Jeffrey Osborn agreed with Yoxsimer. The Peachtree, Georgia-based analyst at Science Applications International Corp. said airlines are looking to create detailed and extensive customer databases to gain a competitive advantage.

"The reality is, that's a big part of this play.... [Customer relationship management] is everything right now," Osborn said.

United is the world's largest airline, while US Airways is the sixth largest in the U.S., according to analysts. The sizes of their frequent-flier databases weren't available last week.

Kate Rice, an analyst at online travel research firm PhoCusWright Inc. in Sherman, Connecticut, noted that airlines' frequent-flier programs are "among the most successful marketing tools ever" and that repeat customers are highly valued in industry circles.

She cautioned that whether the real benefits of the deal lie in added customers or in added routes might not be apparent at this time. "A merger is never as simple as it looks," Rice said.'s Yoxsimer said merging the online sales operations of the two airlines shouldn't prove difficult. But, he said, uniting the frequent-flier programs may take a feat of engineering.

"The frequent-flier programs exist on these giant proprietary mainframe host systems, and these airlines have been very careful to guard that information," he said.

Analysts also saw potential fallout for the online ticketing Web site formed by United, Delta Air Lines Inc., American Airlines, Northwest Airlines Inc. and Continental Airlines Inc.

Site Probes

The Web site, dubbed T2 within the travel industry, last week learned it will go before the Senate Commerce Committee on June 22 to determine if it poses the threat of an airline ticketing cartel. Also, the U.S. Department of Justice has initiated a probe into the site, which the companies hope to launch this summer.

"This merger doesn't do T2 any favors," said Henry Harteveldt, a senior analyst at Cambridge, Massachusetts-based Forrester Research Inc. "This is going to make a lot of people nervous about competition in this industry."

He said that, as a way to prevent United from controlling too much of the airline industry, the merged company should be forced to give up its equity stake in the T2 site.

Fiona Swerdlow, a senior analyst at Jupiter Communications Inc. in New York, said she doubted that United would give up its T2 holdings without a fight.

"The top, top airlines all want to be a part of this," she said. "United won't want American and Delta to be in there when they can't be."

Swerdlow added that T2 should get a fair hearing on its own merits.

"People may talk about [the merger and the T2 investigation] in the same breath, but they really are two separate issues," she said.

United CEO James Goodwin acknowledged the inevitability of government scrutiny during a press conference announcing the deal.

"In my opinion, there are two major hurdles," he said. "The first is to get US Airways shareholders to approve this transaction. I don't think that is a major hurdle. The real work ahead of us is the regulatory work."

T2 officials wouldn't comment on the merger between United and US Airways or its possible effect on them.

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More about American AirlinesContinental AirlinesDeltaDelta Air LinesDepartment of JusticeForrester ResearchGetThereJupiterJupiter CommunicationsNorthwest AirlinesPhoCusWrightScience Applications InternationalUALUS Airways

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