Phoenix Forum: Agents, CRSs Must Cut Air Ties

<H1>Phoenix Forum: Agents, CRSs Must Cut Air Ties</H1><H3>By Jay Campbell</H3><I>Phoenix </I>- Computer reservations systems and travel agencies will need to decrease their dependence on airlines if they are to survive, according to Sabre president Jeffrey Katz and American Society of Travel Agents senior vice president of industry and legal affairs Paul Ruden.

Speaking last month at the Fifth Annual Phoenix International Aviation Symposium, Katz and Ruden contested the belief that the role of CRSs and travel agencies in distribution will diminish.

"Travel agencies can't continue to derive 60 percent of their revenues from airlines," said Ruden. "Airline ticketing is only one of seven major functions they have, and 40 percent of travel agency activity involves non-airline work."

On the other hand, Ruden illustrated the dependence airlines have on agencies: "Agents sell roughly 80 percent of airline seats in the United States. That amounted to 170 million consumers in 1995."

Katz predicted that travel agencies will remain a major force for "at least the next 10 years, if not until 2010. Corporations have little intention of moving away from travel agencies."

Sabre, which was legally separated from American Airlines last month (<I>BTN</I>, April 22), is looking to reduce its dependence on airline reservations for revenue, according to Katz. At the same time, he added, airlines are rethinking their ownership of CRSs. "They're already doing so, but we don't know what the outcome will be," he said.

Katz said that while CRSs must prepare for a multichannel environment, they do have the ability to adapt.

"There are a couple of interesting fictions in the press; the perception that CRSs use tired technology is not true," he said. "We use all kinds of up-to-date technology, and Sabre will invest over $100 million in its core product."

He acknowledged that technology investment is one of several CRS expenses that have gone up, resulting in higher costs to airlines as well.

Responding as the representative for the airlines was Al Lenza, who serves as vice president of marketing distribution for Northwest Airlines. He said that while CRS costs are on average 2 to 3 percent, those costs through over 20 percent of travel agency distributors are as high as half of the commission expense.

"CRS costs are a significant issue that we view as an increasing problem," Lenza said. "It's something we're looking at carefully, and as a CRS owner it presents some interesting challenges for us."

Lenza also said that travel agents are "caught in the middle" of the airline-CRS relationship because "whatever we do impacts their ability to sell us. We need to bring the travel agent into the cost-benefit relationship, so they win when the CRS cost is low and they lose when it isn't."

As far as Northwest is concerned, Lenza said the carrier is "focusing on providing the incentive where the decision is made" in terms of carrier choice, but determining where that is "gets complicated by the growing participation of the consumer in the process."

Addressing the possibility of airline consolidation, New York-based Furman Selz managing director Ray Neidl said he expects the domestic airline industry to shrink to four major network carriers, as well as Southwest and a few niche players to serve the point-to-point market.

"The country is still overhubbed," said Neidl. "Everybody is staying out of each other's way right now, but I have to believe down the road that someone will set off industry consolidation. I don't think it's necessary, but it will probably happen."

Referring to talks between United and USAir last fall, Neidl said he thinks an acquisition is still possible. He expects USAir to turn things around under new CEO Stephen Wolf, but said that Wolf probably will sell the airline once that's accomplished, perhaps to United. "I think they're reconsidering that involvement," he said.