The impact of regulations on computer reservation systems CRS in the airline industry Group 4

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The impact of regulations on computer
reservation systems (CRS) in the airline industry
Group 4

• Rong Liu Ruth Chapman

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Review of Original Article

• IS redraws competitive boundaries
• written in 1985
• An inteorganizational system can give a
  corporation an edge over its competitors. But, an
  IOS can also shift the balance of power between
  the supplier and the buyer, making for a possible
  unhealthy dependence on either side.

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   Authors  

• Mrs. Cash is professor of business administration
  at the Harvard Business School. Among his
  publications are articles in accounting and
  information technology journals, two Harvard
  Business Review articles, etc.
• Benn Konsynski is currently in the Decision and
  Information Analysis area in the Goizueta
  Business School at Emory University. Konsynski
  joined Brainworks Ventures' Board of Advisors.

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The advent of CRS

• Mid-1970's
• CRS technology works as follows The proprietary
  airline installs the system for the travel agency
  and lists its flight schedules on the system so
  that the travel agents can peruse the listings
  and select the most appropriate flights for
  customers.

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Barriers and Entry

• Smaller airlines lacked the financial resources
  to enter the CRS business.
• A scarcity of technical expertise in this area
  created an additional barrier to entry.
• Proprietary airlines have had chance to exploit
  subscriber airlines and reap significant market
  advantages.

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Impact of CRS technology

• A dramatic economic impact on the airline
  industry.
• CRSs produced 57 percent of the airline
  industry's ticket revenues in 1985.

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Apollo and Sabre

• Each spent over 100 million to develop their
  respective systems.
• United Air Lines and American Airlines dominated
  the industry,estimated that these two systems
  accounted for 40 to 50 percent of all travel
  agency sales.

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Competitive Advantages

• Screen bias. Proprietary airlines had control
  over the format of flight schedules, they could
  arrange that format so as to bias agents'
  bookings. Proprietary airlines established
  criteria for arrangement such that their flights
  were listed at the top of the first screen of
  information to appear in response to an agent's
  query, while the toughest competitors flights
  were listed at the bottom of the last screen.
• Results A considerable effect on agents
  bookings and created a significant advantage for
  the proprietary airlines.

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Advantages Cont.

• The timely availability of market-share data for
  all travel agents and airline using the system.
  Helped conduct marketing and product planning.
• Had advance notice of how and when their
  competition would change a product line, because
  responsible for updating subscriber airlines
  flight schedules

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Cohost Status

• To reduce part of bias. A cohost's flights
  would be displayed in a preferred way in exchange
  for a fee paid to the proprietary airline for
  each booking.
• To secure their position, the booking fees raise
  from 25 cents to three dollars per booking.

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The advent and impact of regulations

• Antitrust Litigation
• Continued regulation change
• Some thoughts of regulations

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Before Antitrust litigation

• Subscriber airlines and travel agents complained
  to Congress.
• The Civil Aeronautics Board (CAB) issued its
  final rules on July 27, 1984.
• The rules required elimination of screen bias.
  Proprietary airlines justify differences in fees
  charged subscriber airlines by demonstrating
  corresponding cost variations.

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Cont.

• Antitrust Division of the Department of Justice
  (DOJ ) suggested urging that CRS services be
  provided to subscribing airlines free of charge.
• The CAB rejected the zero fee proposal
• Also, declined to regulate another discriminatory
  practice proprietary airlines attempt to print
  all multiple-carrier flight tickets only on their
  own ticket stock.

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Antitrust Litigation

• The plaintiffs, several regional airlines, filed
  suit against the defendants, American Airlines
  and United Air Lines.
• Results The court dismissed the claim of
  monopoly of that market and of the claims based
  on monopoly leveraging in that market

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Continued Regulation Change

• 1992 required that information offered through
  CRSs be objective and unbiased and that
  participation in each CRS be open to all carriers
  on a nondiscriminatory basis.
• In November 2002, address changes in airline
  distribution and ownership.

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Cont.

• June 2003 - The Justice Department agreed with
  federal transportation officials that rules
  governing computer reservation systems for
  airline tickets should be eased because they
  dont result in lower prices.

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Thoughts of Regulations

• The Potential for Anti-Competitive Conduct
• Potential Anti-competitive Practices
• The Continuation of Rules on Display Bias

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Cont.

• Considerations Favoring Fewer Regulations
• The Specific Rule Proposals
• The Scope of the Rules
• The Mandatory Participation Rule

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Conclusion

• Screen bias has been eliminated for the most part
  due to the regulations.
• The airlines have been divesting their CRS
  ownership interests. Such as Sabra, Apollo.
• The possibility of the rules termination or
  phasing out.

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Questions??