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TIME: Almanac 1995
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<text id=89TT1270>
<title>
May 15, 1989: Big Eagles And Sitting Ducks
</title>
<history>
TIME--The Weekly Newsmagazine--1989
May 15, 1989 Waiting For Washington
</history>
<article>
<source>Time Magazine</source>
<hdr>
BUSINESS, Page 54
Big Eagles and Sitting Ducks
</hdr><body>
<p> Of all the competitive weapons in the major airlines'
arsenals, perhaps the most powerful is one that never leaves the
ground: the computerized reservation system. More potent than
frequent-flyer programs or discount fares, these systems have
become vital to an airline's ability to compete and survive.
Says Julius Maldutis, who follows the industry for the Salomon
Brothers investment firm: "Automated reservation systems are
dividing the industry into the haves and have-nots. Those with
them are becoming the big eagles. Those without, sitting ducks."
</p>
<p> Automated reservation systems are vast computer networks
that the major carriers, notably American and United, use to
dish out the most up-to-date flight information to travel
agents. When linked to the systems, agents can check schedules,
compare fares and book tickets. They can also make hotel and
rental-car reservations as well as order tickets for Broadway
shows or charter a private jet.
</p>
<p> What makes a network so vital to the airlines is its
ability to arrange a dizzying permutation of planes, routes and
available seats in the most profitable configuration possible.
Each day, 600,000 fares change in the airline industry, which
high-speed computers can constantly update to help an airline
allocate seats. Without the computer systems, for example,
airline managers might fill planes with passengers flying free
on frequent-flyer coupons when at least some seats could be sold
to business travelers at full fare.
</p>
<p> The travel-agency business has grown heavily dependent on
reservation systems and the airlines that own them, often at
the expense of carriers without their own computers. Nearly 87%
of all flights are now booked through the carriers with
computerized networks, compared with 61% in 1983. The most
dominant system is American's SABRE (an acronym for
Semi-Automated Business Research Environment), used by 14,000
agencies to keep up with some 45 million different fares at 281
airlines. United's Apollo, the second largest, is used by 10,000
agencies. Last year the SABRE system brought American profits
of $134 million, mainly in user fees collected from such
airlines as Pan Am and Southwest, which "lack systems of their
own.
</p>
<p> The have-nots are leery, and with reason. In recent years
the Government has charged both American and United with
violating antitrust laws by using the systems to put their
competitors at a disadvantage. The Department of Transportation
pressured American and United to reprogram their computers to
eliminate so-called display bias. The agency accused the two
airlines of rigging their systems so that their flight
information received more display-screen prominence than
competitors' flights. Richard Murray, who heads Texas Air's
reservation network, has been urging the Government to force the
major carriers to spin off their reservation systems. Says he:
"The only answer is divestiture, because they will always find
ways to use the systems as weapons to ground competition."
</p>
<p> Since divestiture is unlikely, smaller carriers fighting to
end American's dominance will settle for preventing SABRE from
growing larger. They are lining up to ask the Government to
stop a plan by American and Delta to merge their reservation
systems. Combined, the two would command a 45% share of the
market. Foes of the American-Delta deal say it would hurt
competition by reducing the number of players. That step, they
warn, would further widen the gap between the big eagles and the
sitting ducks.
</p>
</body></article>
</text>