The Internet's Impact on U.S. Airline Ticket Distributions

The Internet’s Impact on U.S. Airline Ticket Distributions

Timothy Stoudt

FIN 6644

November 18, 2010

The travel business has evolved since the airline industry was deregulated in the late 1970s. According to a report by the Air Transport Association in March 2002, consumers can purchase airline travel today for half of the purchasing power of a 1968 dollar, and only a third of a 1950 dollar. Online travel became a reality in the mid-1990s, and with it an integrated group of businesses followed suit including airlines, Computer Reservations Systems, travel agents and credit card companies all of which whose successes were interdependent upon each other. In other words, if an airline sold a ticketed reservation and made money, everyone else in this group made money also. Within this wide economic structure, relationships between airlines and travel agencies and between airlines and global distribution systems were not always mutually beneficial. As one part of the group increased its profits, another tended to suffer. From the airlines perspective, the significant number of bookings that were handled by travel agents presented high costs for them. Distribution costs were one of the airlines’ only controllable expenses apart from people, fuel and the aircraft they owned. In 1997, a survey by the International Air Transport Association (IATA) concluded that Computer Reservation System costs to airlines had nearly quadrupled in six years from a mere 2.1% of distribution costs in 1990 to 8.1% in 1996. By the mid-1990s, there were three key factors that drove the industry to implement the adoption of internet-based travel: high distribution costs, new technology that offered cheaper alternatives to the Global Distribution System technology which was accompanied by direct access to customers, and a consumer population eager and very enthusiastic to take control of their own travel plans.

The arrival of online travel created new business models that changed the...