Air Transport World

Living with Frankenstein: created by the airlines, CRSs are moving toward independent status; but the costs are turning out to be enormous. (computerized reservation systems)

Airline-owned CRSS are moving inexorably toward the stand-alone, neutral systems they should have been from the beginning. But the transition to that lofty state is proving to be painful, slow and exceedingly expensive.

Despite the trend, the impact of continuing airline ownership is still significant. Even where CRSs already have or expect to have multiple owners, the historic attitude that CRSS should be used to the airline owners' advantage is still evident.

For example, Covia established a separate company in Japan, not because of the tremendous booking-fee possibilities but because United, the single largest owner, has a big Asian route network. Barry Kotar, the former CEO of Covia, told ATW: "The international piece is 3% of the Japanese market and half of those sales are direct. Japan is important because of the owners [read United]. The CRS is minimal." Employees who never worked for United refer to the carrier as we," hardly a surprise when their benefits include air travel on United. An investor has no complaints about Covia's management; United's dominance "shows up in subtle ways" below that level.

Until the day he left Covia, Kotar maintained that United's share in the company was important to cement relationships. "If there is no pressure to work together, it falls apart," he maintained. What he didn't say is that the contract between Covia and United to provide reservations services for the latter is "outrageously profitable," as one observer put it. Covia is guaranteed cost plus 22%, ATW was told.

Not the only culprit

But Covia is not the only, or even the worst, culprit when it comes to airline-CRS links. Amadeus is far behind schedule because of its airline owners. The reason is no surprise to most outsiders. The four airline partners-air France, Lufthansa, SAS and Iberia-wanted to use Amadeus to defend their national market shares, not to create a travel-agent tool. All of the owners have different ways of doing that, which has made life difficult for Amadeus's contractor, IBM; its software subcontractor, System One, and its executives.

The pro-airline-owner instinct thrives at American, too. And why shouldn't it, since Sabre Travel Information Network is still an American subsidiary. Says STIN President Kathy Misunas: "When Sabre developed the Shoppers' Fare [a low-fare program], there were airline folks who said why do that?' It was the same with Best-fare." A low-fare system might chase passengers to competitors. Not offering it to agents would help American, they reasoned.

But the trend is clear. Continental Airlines Holdings-then called Texas Air Corp.-may have made it even clearer. In February, CAH sold its airlines' data-processing operations, including internal reservations, as well as half of the System One CRS, to Electronic Data Systems. The $5.4 billion subsidiary of General Motors, which characterizes itself as a "facilities manager," is striving for $25 billion in revenues, says Jose Ofman, president of EDS'S Transportation Division. "Transportation is 12% of GNP," he told ATW. If we want to be a major factor in information technology [IT to technology groupies], we have to be in transportation."

Actually, EDS has been itching to enter the airline business since the 1960s, when it tried to become United's information processor. it bought Braniff's Cowboy software when that carrier went bankrupt but the system was too small and unsophisticated to help EDS. Now EDS thinks it has found a way. The System One and EDS information networks total 1.43 billion transactions a month. Of that, System One accounts for 620 million. Sabre processes 60 million transactions daily. Even before the System One deal, EDS claimed that its private network, including Gm's business, was the largest in the world. it already earns 15% of revenues in Europe, where it has five data centers, and Ofman would like to expand that by using System One's airline contacts at Amadeus. EDS also has data operations in Latin America and Australia, and its network extends to Asia and Africa, too.

Focusing on airline needs

Ofman estimates that travel produces $10 billion worth of IT revenues and that $25 billion is possible. …

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