Low-Cost Carriers Seek To Reduce CRS Expenses

<H1> Low-Cost Carriers Seek To Reduce CRS Expenses</H1>B Jay Campbell

Matching Southwest and other low-cost airlines on distribution innovations such as ticketless travel has been easy for the major network carriers so far. Easy, that is, relative to what could be the next major shift-circumventing the CRSs.

The beginnings of that change occurred when ValuJet and Southwest proved that it doesn't take full display in the CRSs to sell seats. Now, as other low-cost carriers are frantically trying to reduce or eliminate CRS costs, industry observers are debating whether the effort will prove to be an advantage over CRS-owning airlines.

"Creating direct links between the airline and corporate customer is a lot easier for small carriers that don't have deeply entrenched systems on which they've spent millions of dollars," said Tom Wilkinson, president of Travel Management Group, Alexandria, Va. "They are leaders in developing new distribution channels because they can be more flexible in taking advantage of them."

"It is absolutely a competitive advantage to low-cost airlines that the traditional system is no longer the only option," said Ron Cole, vice president of sales for America West. "Ten years ago, ValuJet would never have been able to start up and reject the CRSs."

But others argue that distribution changes will actually hurt the low-cost carriers' competitive position relative to the majors because smaller carriers have benefited from widespread distribution through the CRSs and ARC.

"Avoiding those entities to keep costs down makes it more difficult for carriers to secure sufficient distribution," said Robert Moss, president of Belmont, Mass.-based Travel Intelligence. "Travel agents will have more incentive to book the major carriers as those airlines look more for incremental market shift rather than order taking."

According to Phillip Wolf, president of Sherman, Conn.-based consultancy PhoCus Wright, "If you're a low-ticket carrier, you're concerned with CRS fees; if you're a high-ticket carrier, agency commissions are higher. In all cases, however, you want to grow your business, and I think the majors have more to gain."

Regardless of what consultants believe, the low-cost airlines themselves are ready for distribution changes-perhaps even more ready than the technology itself.

America West (<I>BTN</I>, April 8) and Reno Air are both laying down plans to set up direct booking systems with corporate customers that skirt the CRSs. While it will be several months before either program takes off, buyer interest is high. "We get 10 calls a month from corporate customers asking how the program is going," said Bill Spilman, director of distribution planning for America West.

The two airlines are awaiting the third-party development of the appropriate technology, but these and other airlines also have implemented traditional practices to reduce CRS costs.

Reno has for several months been paying a 12 percent commission to travel agents who book directly with the airline, but only 10 percent to those who use a CRS. "Our focus is on CRS costs, which have allowed us to grow while those costs stay flat," said Steve Sarner, Reno's vice president of sales and marketing. "I think we'll always be in the CRSs, but if you access us directly, it will be cheaper."

In another example, Vanguard Airlines shows only its schedules on the Apollo and Worldspan displays in exchange for a modest "look" fee.

Part of what is enabling these moves is the promise, or at least the possibility, of alternative channels. The most likely alternative could be Internet-based booking, which Southwest said has been a success since its introduction in April and in fact reached its limits due to high demand during a sale this summer. Other low-cost carriers will follow Southwest's lead onto the Web.

"We will introduce an interactive Web page by first quarter of next year," said Richard Haller, vice president of marketing for Eastwind Airlines. "The CRSs have to be concerned. People are getting used to the Internet and once they fully trust it, more and more people will buy directly."

Despite these alternatives, few believe the CRSs will outright disappear. "They'll reinvent themselves," said Alec Pratt, president of Burlington, Mass.-based Novus, a company that is developing Internet sites for airlines. "There will still be situations where they make a lot of sense.