Continental Trying Direct Settlement Through ARC
<B> Continental Trying Direct Settlement Through ARC</B>
By Mary Ann McNulty
<I>Chicago</I> - In one of the latest distribution cost-cutting initiatives, Continental Airlines is trying a new carrier submission program in which the airline, rather than the travel agency, submits its sales to the Airlines Reporting Corp. for settlement.
Andersen Worldwide, through its Via World Network unit, is currently the only corporation testing carrier settlement, but more than 200 agencies and corporations have contacted Continental about this simpler way to reconcile direct purchases, said Steve Cossette, Continental's electronic distribution vice president. The benefit is that the corporation or agency buying direct from the carrier has no additional reporting to file.
Cossette acknowledged that by itself, carrier submission might not sound like a revolutionary development, but when taken together with electronic ticketing, speech applications and other recent developments, it represents another strategic way to lower costs. In the future, a corporation or agency might even be able to use one desktop application to submit both standard and direct purchase reports, he said.
ARC spokesman Allan Mutén said Continental is the only carrier to participate in this first phase of its offering, which began in late August in response to a carrier initiative.
Some suggest they should be looking to bypass ARC altogether as they overhaul the distribution system, but Cossette, an ARC board member, noted that "ARC is so far at the bottom of the distribution chain, it's a fraction of a dollar, compared with the $8 to $9 per ticket cost of the CRS."
In a lively debate about the benefits and beneficiaries of bypassing the CRS and other distribution standards during Travel Technology World (see story, page 3), Seth Perelman of Automated Travel Systems, New York, speculated that a company might be able to save 1 percent of its air volume in bypassing the CRS. For a company with small spend, 1 percent savings hardly seem worth any changes, but on a $50 million air volume, the efforts might add up, panelists said.
With more than $15 billion tied up in infrastructure costs in the air transport sector, there's no question that the "channel today is very long, confusing and expensive," said Cossette. He and other panelists noted that the push toward electronic ticketing, bookings via Internet and intranet and direct settlement are all aimed at reducing costs.
Panelists estimated that travel vendors currently are paying an average $4 for every hotel and car booking, $8 to $10 for every airline ticket issued and 2 to 2.25 percent for credit card transactions.
Leaving no doubt in anyone's mind that the motivation of direct booking initiatives is to cut costs and that any savings would be shared with corporate clients and agencies, US Airway's Shafiq Khan, senior director of distribution planning, said he is dumbfounded at the increase in computer reservation system and credit card fees over the past few years.
Khan said the "components that contribute to costs--hardware, software development and telecommunications--are all declining. CRS and credit card companies are not understanding the pressures to reduce costs."
Picking up on Khan's theme, John Davis, president and CEO of hotel booking firm Pegasus, Dallas, noted that last year, his company got 50 cents for every hotel booking; this year, it's getting 40 cents per booking. Three years ago, his company spent $3 million on the hardware to run its reservation business. To replace it all next year will cost just $500,000.
"I know what happened: the margins got a lot better," Davis said.
Defending CRS pricing, Scott Smith, vice president of sales and marketing for Sabre Business Travel Solutions, said the margins haven't changed that much. Smith argued that costs for CRSs are fixed, as they pay off investments made over the past 15 years.
Despite the attack on these two cost items, all of the panelists agreed that the real cost reduction opportunities in travel distribution lie in reducing agency and airline labor by moving to automated systems.
"There needs to be systemic pressure to lower all these costs, but there also needs to be fundamental changes in the process," said Elmer Baldwin, president of Via World Network, Minneapolis.
Panelists agreed that any changes must have little impact on travelers, but might require investments by corporations and vendors. To eliminate the credit card fees, a company must find another means besides card data to consolidate its travel spend, Baldwin said.
Even more basic, airlines need to find a common language in which to communicate to other computer systems, Cossette said. That's what is behind an industry effort called Open Travel Initiative that Continental is spearheading to select a language that can be used over the Internet--perhaps XML--and then develop an industry dictionary with which anyone could easily and cheaply develop applications.