MikeB525

My second post tonight...

We all know that sites like Travelocity and Orbitz drag down the industry by basically giving away airline tickets. But how exactly do these sites work? How do they get the authority from the airlines to sell seats on their aircraft?Airline seats and marketing are legally considered proprietary, so the airlines (maybe all the Legacies jointly) could theoretically pull out of these sites and prohibit anyone but themselves to sell tickets.

????

CE750

BRAVO BRAVO!

Someone has finally found the big elephant in the living room..

I keep waiting for the greedy idiots at the airlines to figure this one out.

I used to work in the car business and we had a company in Northern CA that was called "Sports Auto Brokers" and it made it's money by calling around to all the dealers to find that exact car the customer was looking for and then working out he best price.. we called dealers from all over and over time they figured out that their short sighted greed to sell a car to a distant customer was in the long run undercutting them.. the dealers eventually got wise and quit dealing with us, or any brokers.

These Priceline, Orbitz, and travelocity are doing THE SAME THING..

This is wy flights are ALWAYS full and make no money.. they airlines are competing with themselves!

Southwest is the only one smart enough to say NO!

I wish we could somehow get this thru the CEO's heads..

Duksrule

Uhhh Orbitz was started by the Airlines.

Orbitz was the airline industry's response to the rise of online travel agencies such as Expedia and Travelocity, as well as a solution to the continued increase in Global Distribution System GDS fees. Continental Airlines, Delta Air Lines, Northwest Airlines, and United Airlines, subsequently joined by American Airlines, invested a combined $145 million to start the project in November 1999. It was code-named T2 — some claimed, meaning "Travelocity Terminator" – but adopted the brand name Orbitz when it commenced corporate operations as DUNC, LLC (the initials of its first four founding airlines) in February 2000. [1] The company began Beta testing early the next year, and Orbitz.com officially launched in June 2001.[

Spaceman Spliff

If the seats are going out empty anyway...might as well get a few bucks for them! But...

I'd have to think the marketing folks are a little smarter than we're giving them credit for. They're not going to let their highest demand/revenue seats go at a discount.

Maybe only excess inventory or a couple of seats on each flight goes at a steeply discounted rate.

daytonaflyer

I think you've got these websites wrong. They sell the tickets for the exact same price as the airlines do on their own websites, but they usually charge an additional fee, usually $5. You will almost never find a ticket cheaper on travelocity, orbitz, expedia or any other vendor site than you will find on the airline's own website. They just let you compare fares, routes, and times between airlines so that you can choose which best meets your needs. You can still go to the airline's website to purchase the ticket and save the $5 vendor fee.

ImEbee

As far as I understand it, the airlines "sell" a package of seats to these sites that are to be sold at the discounted price. I believe that as the departure date gets closer the price changes or the airline takes them back to sell at the higher rate. I occationally use the airline seat chart to gauge the loads. It sometimes will jump 10-15 seats a day or two prior, which I guess is the unsold seats from travelocity etc. Like Daytona said, I know Frontier and Alaska have a lowest price guarantee that are usually $5 lower than the best price at the discount sites.

I'm not sure that these site are particularly hurting the airlines. I think we just have to look at the willingness of the airlines to sell super-cheap seats.

socal swede

there are 4 large CRS systems, Amadeus, Galilleo, Sabre and Worldspan. They are interconnected with all major Airlines, Hotels, Crusie Lines and Trains.

The Sabre system was developed in order to help American Airlines, who were facing a serious problem by the 1950s. Their system for booking flights was entirely manual, having developed from the techniques originally developed at their Little Rock, Arkansas reservations center in the 1920s. Their system used a rotating file with cards for every flight, which a team of eight operators would sort through. If a seat was booked they would place a mark on the side of the card, and knew visually whether it was full. This part of the process was not all that slow, at least when there weren't that many planes, but the entire end-to-end task of looking for a flight, reserving a seat and then writing up the ticket could take up to three hours in some cases, and 90 minutes on average. The system also had limited room for growth. It was limited to about eight operators because that was the maximum that could fit around the file, so in order to handle more queries the only solution was to add more layers of hierarchy to filter down requests into batches.

AA had already attacked the problem to some degree, and was in the process of introducing their new Magnetronic Reservisor in 1952 to replace the card files. This consisted of a single magnetic drum, each memory location holding the number of seats left on a particular flight. Using this system a large number of operators could look up information at the same time so the ticket agents could be told over the phone whether a seat was available. On the downside a staff member was still needed at each end of the phone line, and actually handling the ticket still took considerable effort and filing. Something much more highly automated was needed if AA was going to enter the jet age, booking many times more seats.

It was during the testing phase of the Reservisor that a high-ranking IBM salesman, Blair Smith, was flying on an American Airlines flight from Los Angeles back to IBM in New York in 1953. He found himself sitting next to AA president C. R. Smith. Noting that they shared a family name, they began talking.

Just prior to this chance meeting, IBM had been working with the US Air Force on their Semi Automatic Ground Environment (SAGE) project. SAGE used a series of large computers to coordinate the message flow from radar sites to interceptors, dramatically reducing the time needed to direct an attack on an incoming bomber. The system used teletype machines located all around the world to feed information into the system, which then send orders back out to teletypes located at the fighter bases. It was one of the first online systems.

It was not lost on either that the basic idea of the SAGE system was perfectly suited to AA's booking needs. Teletypes would be placed at AA's ticketing offices to send in requests and receive responses directly, without the need for anyone on the other end of the phone. The number of available seats on the aircraft could be tracked automatically, and if a seat was available the ticket agent could be notified instantly. Booking simply took one more command, updating the availability and even printing out the ticket for them.

Only 30 days later IBM sent a research proposal to AA, suggesting that they really study the problem and see if an "electronic brain" could actually help. They set up a team consisting of IBM engineers and a large number of AA's staff, taken from booking, reservations and ticket sales, calling the effort the Semi-Automated Business Research Environment, or SABRE.

A formal development arrangement was signed in 1957, and the first experimental system went online in 1960, based on two IBM 7090 mainframes in a new data center located in Briarcliff Manor, New York. The system was a success. Up until this point it had cost the astonishing sum of $40 million to develop and install (about $350 million in 2000 dollars). The system took over all booking functions in 1964, at which point the name had changed to the more familiar SABRE. In 1972 the system was moved to IBM System/360 systems in a new underground location in Tulsa, Oklahoma.

Originally used only by AA, the system was expanded to travel agents in 1976. It is currently used by a large number of companies, including Eurostar and SNCF. Today the system connects more than 30,000 travel agents and 3 million consumers with more than 400 airlines, 50 car-rental companies, 35,000 hotels and dozens of railways, tour companies, ferries and cruise lines.

With SABRE up and running, IBM offered its expertise to other airlines, and soon developed Deltamatic for Delta Air Lines on the IBM 7074, and PANAMAC for Pan American World Airways using an IBM 7080. In 1968 they generalized their work into the PARS system, which ran on any member of the IBM System/360 family and thus could support any sized airline. This evolved into ACP (Airlines Control Program), and later to TPF (Transaction Processing Facility).

By the 1980s, SABRE offered airline reservations through the CompuServe Information Service under the Eaasy SABRE brand. This service was extended to America Online in the 1990s.

American spun off Sabre on March 15, 2000. Sabre was publicly traded corporation, Sabre Holdings, stock symbol TSG on the NYSE until taken private in March 2007. The corporation introduced the new logo and changed from the all-caps acronym "SABRE" to the upper and lower case "Sabre", when the new corporation was formed. The Travelocity website is owned by this company and, along with many of its associated websites, serves as a consumer interface to the system.

Galileo was founded in 1971 by United Airlines under the name Apollo Reservation System. During the 1980's and early 1990's, a significant proportion of airline tickets were sold by travel agents. Flights by the airline owning the reservation system had preferential display on the computer screen. Due to the high market penetration of the Sabre and Apollo systems, owned by American Airlines and United Airlines, respectively, Worldspan and Galileo was created in an attempt to gain market share in the computer reservation system market and, by inference, the commercial airline market. In response and to prevent possible government intervention, United Airlines started computer reservation systems and sought minority partners. Galileo was the product of this reaction.

In 1981 a study by American Airlines found that travel agents selected the flight appearing on the first line more than half the time. Ninety-two percent of the time, the selected flight was on the first screen. This provided a huge incentive for American to manipulate their ranking formula, or even corrupt the search algorithm outright, to favor American flights. American eventually did just that under the name "screen science."

At first this was limited to juggling the relative importance of factors such as the length of the flight, how close the actual departure time was to the desired time, and whether the flight had a connection. But with each success American became bolder. In late 1981, New York Air added a flight from La Guardia to Detroit, challenging American in an important market. Before long the new flights suddenly started appearing at the bottom of the screen.[8] Its reservations dried up, and it was forced to cut back from eight Detroit flights a day to none.

On one occasion, Sabre deliberately withheld Continental's discount fares on 49 routes where American competed. A Sabre staffer had been directed to work on a program that would automatically suppress any discount fares loaded into the computer system.

Congress investigated these practices and in 1983 Bob Crandall, president of American, was the most vocal supporter of the systems. "The preferential display of our flights, and the corresponding increase in our market share, is the competitive raison d'être for having created the system in the first place," he told them. Unimpressed, in 1984 the United States government outlawed screen bias.

Even after biases were eliminated, travel agents using the system leased and serviced by American were significantly more likely to choose American over other airlines. The same was true of United and its Apollo system. The airlines referred to this phenomenon as the "halo" effect.

The fairness rules were eliminated/allowed to expire in 2004.

Worldspan was formed in early 1990 by Delta Air Lines, Northwest Airlines, and Trans World Airlines to operate and sell its GDS services to travel agencies worldwide. Worldspan operated very effectively and profitably, successfully expanding its business in markets throughout North America, South America, Europe, and Asia. As a result, in mid-2003, Worldspan was sold by its owner airlines to Citigroup Venture Capital and Ontario Teachers' Pension Fund which in turn sold the business to Travelport in 2007.

Worldspan was formed in 1990 by combining the PARS partnerships companies (owned by TWA and Northwest Airlines, Inc.) and DATAS II, a division of Delta Air Lines, Inc. One of Worldspan’s predecessors – TWA PARS – became the first GDS to be installed in travel agencies in 1976. ABACUS, an Asian company owned by a number of Asian airlines, owned a small portion of Worldspan, and Worldspan owned a small portion of Abacus. Worldpsan and Abacus entered into a series of business and technology relationships. These relationships were terminated after Abacus engaged in fraudulent and deceptive practices, for which Worldspan received a sizable judgement in an arbitration in London.

Amadeus was formed in 1987 by an alliance between Air France, Lufthansa, Iberia Airlines and Scandinavian Airlines System. Today, it is the leader in terms of number of bookings worldwide.

socal swede

Ticket revenue

Airlines assign prices to their services in an attempt to maximize profitability. The pricing of airline tickets has become increasingly complicated over the years and is now largely determined by computerized yield management systems.

Because of the complications in scheduling flights and maintaining profitability, airlines have many loopholes that can be used by the knowledgeable traveler. Many of these airfare secrets are becoming more and more known to the general public, so airlines are forced to make constant adjustments.

Most airlines use differentiated pricing, a form of price discrimination, in order to sell air services at varying prices simultaneously to different segments. Factors influencing the price include the days remaining until departure, the booked load factor, the forecast of total demand by price point, competitive pricing in force, and variations by day of week of departure and by time of day. Carriers often accomplish this by dividing each cabin of the aircraft (first, business and economy) into a number of travel classes for pricing purposes.

A complicating factor is that of origin-destination control ("O&D control"). Someone purchasing a ticket from Melbourne to Sydney (as an example) for $200 (AUD) is competing with someone else who wants to fly Melbourne to Los Angeles through Sydney on the same flight, and who is willing to pay $1400 (AUD). Should the airline prefer the $1400 passenger, or the $200 passenger plus a possible Sydney-Los Angeles passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing decisions daily.

The advent of advanced computerized reservations systems in the late 1970s, most notably Sabre, allowed airlines to easily perform cost-benefit analyses on different pricing structures, leading to almost perfect price discrimination in some cases (that is, filling each seat on an aircraft at the highest price that can be charged without driving the consumer elsewhere).

Price discrimination is considered an anti-business practice, and is defined as price discriminations definition: different prices for identical products. Technically this is the total of the specific action of the other airline, without violating laws. The archaic airlines, with hub-systems and unprofitable pricing structures, have legally defined this term as an attack on business, although this act is not outside of law. The low cost carriers (LCC's) are new on the scene and did not have the contacts or resources to outlaw this definition of a purely legal business practice (in which they chose to participate) as a monopolistic practice to those with the aforementioned archaic pricing structure. The national carriers have yet to define how discrimination is an intenionally harmful and volitionally detrimental act upon their business by a competitor. Laws protecting business can be applied, or those who have the greatest impact may insinuate without proof that they are treated unfairly, and can thus use their legal status as the defendant to limit LCC's manuevaribility within the market. An example is that they demand taxes from the US government for specific airports, for which the National's receive exemption or subsidy for either a)seniority/grandfathering treatment, or b)legal status as financially on the brink (i.e. pre-bankruptcy).

The intense nature of airfare pricing has led to the term "fare war" to describe efforts by airlines to undercut other airlines on competitive routes. Through computers, new airfares can be published quickly and efficiently to the airlines' sales channels. For this purpose the airlines use the Airline Tariff Publishing Company (ATPCO), who distribute latest fares for more than 500 airlines to Computer Reservation Systems across the world.

The extent of these pricing phenomena is strongest in "legacy" carriers. In contrast, low fare carriers usually offer preannounced and simplified price structure, and often quote prices for each leg of a trip separately.

Computers also allow airlines to predict, with some accuracy, how many passengers will actually fly after making a reservation to fly. This allows airlines to overbook their flights enough to fill the aircraft while accounting for "no-shows," but not enough (in most cases) to force paying passengers off the aircraft for lack of seats. Since an average of ⅓ of all seats are flown empty, stimulative pricing for low demand flights coupled with overbooking on high demand flights can help reduce this figure.

CE750

Good info Swede.. but I still stand by the statement that these sites are bad for the industry.. not solely responsible for our ills, but a large part of it.

socal swede

With the start of Southwest some 40 years ago and others that sold fares for less than the majors, started the price wars. It changed the industry. It's just the legacy carriers probably thought for the first 20 years southwest would go away,,the next 20 trying to catch up. Now hopelessly behind as far as operating expenses and overall profitability.