DISTRIBUTION / HISTORY
SETTING THE SCENE To appreciate today’s intricate distribution landscape it’s helpful to understand its circuitous backstory, writes Michael Baker . With additional reporting from Betty Low and Elizabeth West
1960s CREATING A COMPUTER RESERVATION SYSTEM In the mid-1950s, IBM developed a data processing system, dubbed SAGE, for the US air defence system. The story goes that a chance meeting on an American Airlines flight between an IBM salesperson and then-American Airlines CEO C.R. Smith resulted in a pitch for IBM to build an airline reservations solution based on learnings from SAGE technology. Smith understood the opportunity and partnered with IBM to introduce Sabre in 1960. Sabre ran on two IBM mainframes connected to 1,500 terminals across the US and Canada and by 1964 could process 7,500 bookings per hour. On each terminal, an American Airlines ticketing agent could search American’s inventory of flights, make bookings and receive confirmations in seconds. The error rate was nearly zero. They could also access a passenger’s name, itinerary and contact information – the origin of today’s passenger name record, or PNR. Sabre instantly became a competitive advantage for American. Other carriers realised they’d better follow suit. I n 2015 the Lufthansa Group shook up the European travel industry when it imposed a surcharge on tickets purchased through global distribution systems, breaking from full content participation in the GDS distribution model and moti- vating travellers and agents to book direct on Lufthansa Group websites. There were few carveouts on that surcharge and plenty of consternation that Lufthansa had not fully accommodated corporate travel interests before forcing the move. As with many dynamics in managed travel, there’s a significant backstory.
1970s TRAVEL AGENCY CONTRACTS AND AIRLINE DEREGULATION
By the early 1970s, all the major carriers experimented with bringing the CRS to travel agencies. At the time, travel agents manually checked their books for flight schedules and fare information, then called airline ticket agents, to enquire about seat availability and reservations. Under an exclusive, long-term contract, a CRS provider would equip an agency with hardware, installation, software and training. They charged a monthly subscription fee based on usage. To lower the monthly fee, the agency had to make more bookings on the system. Travel agencies, however, wanted access to broad airline content, not just one airline’s. CRS providers saw the opportunity to open their content platforms to other carriers. For non-competing airlines, CRSs established co-host agreements, which allowed the co-host airline to pay the CRS for favourable placement in content displays. Along with biasing fees, the CRSs also charged co-hosts a booking fee for each reservation made on the system. CRSs did not offer co-host agreements for competing airlines. Rather, they charged competitors higher booking fees. The landscape in which CRS providers operated changed dramatically in 1978 when the US government lifted restrictions on fares, route coverage and market entry. Airlines could fly wherever they wanted and charge whatever they wanted for flights, and airfares and schedules could fluctuate monthly, weekly or even daily. Passengers now demanded seats at the best prices. To stay on top of customer enquiries, travel agents needed real-time access to airfares and flight schedules. Wanting to cut costs, airlines started shifting the bulk of their ticket distribution from city ticket offices to travel agencies.
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businesstravelnewseurope.com | SPRING 2023
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