oversight

Airline Ticketing: Impact of Changes in the Airline Ticket Distribution Industry

Published by the Government Accountability Office on 2003-07-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




July 2003
             AIRLINE TICKETING
             Impact of Changes in
             the Airline Ticket
             Distribution Industry




GAO-03-749
             a
                                                July 2003


                                                AIRLINE TICKETING

                                                Impact of Changes in the Airline Ticket
Highlights of GAO-03-749, a report to           Distribution Industry
congressional requesters




In 2002, when major U.S. airlines               Since the mid-1990s, two major changes occurred in the airline ticket
posted net operating losses of                  distribution industry, and these have produced cost savings for some major
almost $10 billion, they paid over              U.S. airlines. First, airlines developed less expensive Internet ticketing sites
$7 billion to distribute tickets to             that bypass global distribution systems and their fees and encouraged
consumers. Of these total                       passengers to book via Internet sites. Between 1999 and 2002, on average,
distribution expenses, airlines paid
hundreds of millions of dollars in
                                                the percentage of tickets booked on-line, including airline-owned Websites
booking fees to global distribution             and on-line travel agencies, grew from 7 percent to 30 percent. Second, in a
systems—the companies who                       related effort to trim costs, airlines cut the commissions they traditionally
package airline flight schedule and             paid to travel agencies. However, these changes have not eliminated airline
fare information so that travel                 dependence on global distribution systems.
agents can query it to “book” (i.e.,
reserve and purchase) flights for               Less expensive Internet-based airline bookings have increased over time
consumers. Each time a consumer
purchases an airline ticket through
a travel agent, the global
distribution system used by the
travel agent charges the airline a
set booking fee. Concerns have
been raised that the global
distribution systems may exercise
market power over the airlines
because most carriers are still
largely dependent on each of the
global distribution systems for
distributing tickets to different
travel agents and consumers and
therefore must subscribe and pay
fees to each. Market power would
allow global distribution systems to
charge high, noncompetitive fees to             These changes have had mixed effects on travel agents and consumers. Very
airlines, costs that may be passed              large travel agencies (those with more than $50 million in annual air travel
on to consumers.                                sales revenue) appear to have benefited from volume-based incentive
                                                payments from airlines and global distribution systems, while smaller travel
GAO was asked to examine                        agencies have closed or lost business, especially to on-line travel Websites.
changes in the airline ticket                   Consumers who use the Internet have benefited from lower internet-only
distribution industry since the late            fares. Travelers who do not buy airline tickets on line may be at a
1990s and the effects on airlines,              disadvantage in not having access to these fares.
the impact of these changes on
travel agents and consumers, and
what the relationship between
                                                Because we lacked access to proprietary company information, we could not
global distribution systems’                    determine the precise relationship between global distribution system
booking fees and related costs                  booking fees and related costs, and thus could reach no conclusions about
suggest about the use of market                 potential exercise of market power by global distribution systems in the
power.                                          airline ticket distribution industry. Since 1996, booking fees and some costs
                                                related to the booking function—computing costs and travel agent incentive
www.gao.gov/cgi-bin/getrpt?GAO-03-749.
                                                payments—both increased. However, we could not obtain data on all
To view the full product, including the scope   expenses related to the booking function, and thus could not accurately
and methodology, click on the link above.       compare these costs to booking fees. DOT provided us with technical
For more information, contact JayEtta Z.
Hecker, 202-512-2834, HeckerJ@gao.gov.          comments, which we incorporated as appropriate.
Contents



Letter                                                                                                     1
                             Results in Brief                                                              3
                             Background                                                                    5
                             Major Changes Occurred in the Use of the Internet and Travel Agent
                               Compensation in the Airline Ticket Distribution Industry                   14
                             Changes in the Airline Ticket Distribution Industry Appear to Have
                               Benefited Very Large Travel Agencies and Consumers Who Use
                               the Internet                                                               28
                             Sufficient Data Were Not Available to Determine the Relationship
                               between Booking Fees and Costs and the Presence and Use of
                               Market Power                                                               32
                             Concluding Observations                                                      34
                             Agency Comments                                                              36


Appendixes
              Appendix I:    Objectives, Scope, and Methodology                                           37
             Appendix II:    Computing Cost Trends at Global Distribution Systems                         40
             Appendix III:   GAO Contacts and Staff Acknowledgments                                       41
                             GAO Contacts                                                                 41
                             Acknowledgments                                                              41


Figures                      Figure 1: Summary of Historic Airline Ticket Distribution
                                       Relationships Prior to the CRS Rules                                8
                             Figure 2: CRS Relationships with Travel Agencies and Airlines                10
                             Figure 3: Summary of Historic Airline Ticket Distribution
                                       Relationships under the CRS Rules                                  12
                             Figure 4: U.S. Domestic Booking Share of Global Distribution
                                       Systems Bookings, 2002                                             13
                             Figure 5: Average Airline Booking Costs Per Distribution Method,
                                       1999-2002                                                          20
                             Figure 6: Average Airline Bookings Per Distribution Method,
                                       1999-2002                                                          21
                             Figure 7: Number of Airline Tickets Processed through and outside
                                       GDSs, 1999-2002                                                    23
                             Figure 8: Average Annual Airline Total Distribution Costs,
                                       1999-2002                                                          25
                             Figure 9: Average Payments to U.S. Travel Agents by Each GDS,
                                       1995-2002                                                          26




                             Page i                                    GAO-03-749 Airline Ticket Distribution
Contents




Figure 10: Summary of Payment and Fee Flows in the Current
           Distribution of Airline Tickets                                             27
Figure 11: The Number of Travel Agencies, by Amount of Annual
           Revenue and Volume of Air Travel Sales                                      29




Abbreviations

CRS          Computer Reservation System
DOJ          Department of Justice
DOT          Department of Transportation
GAO          General Accounting Office
GDS          Global Distribution System
NCECIC       National Commission to Ensure Consumer Information and
             Choice in the Airline Industry


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Page ii                                             GAO-03-749 Airline Ticket Distribution
A
United States General Accounting Office
Washington, D.C. 20548



                                    July 31, 2003                                                                     Leter




                                    The Honorable Mike DeWine
                                    Chairman, Subcommittee on Antitrust, Competition
                                      Policy and Consumer Rights
                                    Committee on the Judiciary
                                    United States Senate

                                    The Honorable Herbert Kohl
                                    Ranking Minority Member, Subcommittee on Antitrust,
                                      Competition Policy and Consumer Rights
                                    Committee on the Judiciary
                                    United States Senate

                                    In 2002, when major U.S. airlines posted net operating losses of almost $10
                                    billion, they paid approximately $7.3 billion to distribute tickets to
                                    consumers. Of these total distribution expenses, airlines paid hundreds of
                                    millions of dollars in booking fees to global distribution systems (GDS)—
                                    the companies whose computer systems display airline flight schedule and
                                    fare information so that travel agents can query it to “book” (i.e., reserve
                                    and purchase) flights for consumers. Although distribution costs represent
                                    relatively small amounts of an airline’s total costs (labor and fuel represent
                                    nearly half an airline’s expenses), ensuring a competitive distribution
                                    system is important to the industry because it represents the link between
                                    airlines and the traveling public. In the United States, three domestic global
                                    distribution systems dominate the industry. Traditionally, each time a
                                    consumer purchases an airline ticket through a travel agent, the global
                                    distribution system used by the travel agent charges the airline a set
                                    booking fee. Concerns have been raised that the global distribution
                                    systems may exercise market power over the airlines because most major
                                    carriers are still largely dependent on each of the global distribution
                                    systems for distributing tickets to different travel agencies and consumers.
                                    Market power, which can arise where competition is lacking, may result in
                                    high, noncompetitive fees charged for services or goods. In this case,
                                    market power may be indicated by booking fees that bear little relation to
                                    booking costs.

                                    The precursors to global distribution systems, called computer reservation
                                    systems (CRS), were owned by the airlines. Since 1984, rules enforced by
                                    the Department of Transportation (DOT) have regulated the conduct of
                                    these systems to prevent airline owners of computer reservation systems
                                    from using their influence to benefit themselves by reducing competition



                                    Page 1                                       GAO-03-749 Airline Ticket Distribution
from other airlines, which could ultimately harm consumers. DOT
regulations, commonly referred to as the “CRS rules,” were developed to
prevent airlines that owned a computer reservation system from biasing
the information on flights and fares that consumers received in order to
impede competition. Effectively, the rules, which apply to computer
reservation systems and global distribution systems, ended bias in the
computer screen display of information that was used by travel agents to
book tickets and now require major U.S. airlines to "participate" equally in
each global distribution system. They also require computer reservation
systems to charge airlines similar booking fees for similar levels of service,
which limited airlines’ ability to negotiate over booking fees. As of July
2003, when most airlines have sold off their shares in global distribution
systems and the global distribution systems have become independent
entities, DOT was reviewing the CRS Rules to determine if and how they
should be revised. Many parties provided comments with differing opinions
to DOT. Department of Justice officials stated that the global distribution
systems have had and continue to have market power over the airlines.

In light of the airlines’ dependence on the global distribution systems
during this time of unprecedented financial losses, and in the context of the
ongoing debate on the CRS rules, you asked us to examine issues related to
the airline ticket distribution industry. As agreed with your office, this
report focuses on the following questions:

• What have been major changes in the airline ticket distribution industry
  since the late 1990s, and how did these changes affect airlines?

• How have these changes in the airline ticket distribution industry
  affected travel agents and consumers?

• What does the relationship between global distribution systems’
  booking fees and booking-related costs suggest about the presence and
  use of market power?

To determine how the airline ticket distribution industry has changed and
the effects on airlines since the late 1990s, we analyzed aggregated
proprietary industry booking trend and cost data; examined DOT
documents; and interviewed officials with the global distribution systems,
several major airlines, and other industry experts. To describe how changes
in the airline ticket distribution industry have affected travel agents and
consumers, we analyzed travel agent and consumer ticketing fee data;
reviewed major airline and various travel agency consumer fee policies;



Page 2                                       GAO-03-749 Airline Ticket Distribution
                   and interviewed travel agents, industry group representatives, and DOT
                   officials. To determine what the relationship between global distribution
                   systems’ booking fees and related costs indicated about the presence and
                   use of market power, we analyzed and compared data on global
                   distribution system operating cost data, certain booking-related costs, and
                   booking fees. To protect the confidential proprietary nature of individual
                   global distribution system and airline information, we reported all costs
                   and fees in terms of averages calculated from the companies that provided
                   data. We limited the scope of this review to the three major U.S. global
                   distribution systems--Galileo, Sabre, and Worldspan. These three systems
                   handle 92 percent of the U.S. bookings. We were limited in our review
                   because we did not have full access to proprietary airline, global
                   distribution system, and travel agent data. However, we reviewed the
                   comments submitted to DOT as part of its CRS rulemaking, including those
                   of the Department of Justice’s (DOJ) Antitrust Division --government
                   antitrust experts who conducted a market structure analysis of the ticket
                   distribution system. We also discussed those comments with officials from
                   the Antitrust Division. Because of a lack of historical data, we limited our
                   review to the 4 years covering the period 1999 through 2002. Appendix I
                   contains additional information on the objectives, scope, and methodology
                   of this review.



Results in Brief   Two major changes have occurred in the airline ticket distribution industry
                   as airlines began to sell their shares in the global distribution systems in the
                   mid-1990s, and these changes have helped airlines to cut distribution costs.

                   • First, airlines have created and provided incentives to expand the use of
                     various types of Internet-based applications that can bypass global
                     distribution systems and their associated booking fees. These include
                     airline Websites (e.g., www.continental.com), which bypass global
                     distribution systems by using the airlines’ own internal reservation
                     systems, and Orbitz, a travel technology company developed by a
                     consortium of large U.S. airlines that has recently developed technology
                     that allows it to book tickets without using a global distribution system.
                     Other Internet-based travel agencies (e.g., Expedia, Priceline, or
                     Travelocity—a subsidiary of one of the global distribution systems) use
                     global distribution systems to book tickets but nevertheless cost airlines
                     less than traditional travel agencies. Through various incentives, airlines
                     have encouraged some passengers to book a growing portion of tickets
                     on less costly Internet-based booking sites.




                   Page 3                                        GAO-03-749 Airline Ticket Distribution
• Second, in another effort to cut distribution costs, airlines cut their sales
  commissions to travel agents. In response to overtures by the large
  travel agencies, on whom global distribution systems depend to reach
  large numbers of consumers, global distribution systems subsequently
  increased sales incentive payments to travel agencies. At the same time,
  both large and small travel agencies began charging consumers ticketing
  fees. Airlines, however, continue to provide commission payments,
  particularly to the largest travel agencies—both traditional and Internet-
  based.

These changes have helped major airlines to reduce their total distribution
costs by 25.8 percent, from 1999 to 2002, from an average of $732.9 million
to $543.6 million, or 43.6 percent on a per booking basis. However, airlines
continue to depend on global distribution systems to reach consumers,
because over 60 percent of bookings (including the majority of all
traditional travel agency bookings and some Internet-based bookings), and
nearly all the relatively high yield business traffic, continue to be processed
by global distribution systems. Furthermore, airlines continue to need to
subscribe to each of the global distribution systems, and no new entry has
occurred since the enactment of the rules in the 1980s to reduce the market
power of each global distribution system.

These changes in the airline ticket distribution industry—the growing
significance of the Internet and shifts in the payments to travel agents--
appear to have benefited very large travel agencies (those with more than
$50 million in annual air travel sales revenue) and consumers who use the
Internet. Very large travel agencies—whose total annual sales have almost
doubled since 1995--appear to have benefited from a combination of
increasing global distribution system incentive payments, some continued
airline sales commission payments, and customer service fees. In contrast,
total annual sales at small travel agencies (those with less than $2 million in
annual air travel sales revenue) decreased by 32 percent since 1995, driven
in large part by a shift toward on-line bookings by leisure consumers.
Consumers who use the Internet may benefit from being able to
independently access and compare airline ticket pricing and scheduling
information, as well as from being able to access special low fares available
only on the Internet. Consumers who do not use the Internet may be at a
disadvantage in not having access to Internet-only fares and in having to
pay relatively higher travel agent service fees. But they may have more
flexibility regarding schedule changes, and they may benefit from travel
agents’ industry expertise.




Page 4                                       GAO-03-749 Airline Ticket Distribution
             Because we lacked access to proprietary company information, we could
             not determine whether the relationship between global distribution system
             booking fees and related costs suggest that global distribution systems
             exert market power in the airline ticket distribution industry. In response
             to your request, we found that global distribution system booking fees rose
             by nearly 31 percent between 1996 and 2001. Of total global distribution
             system costs, two costs available to us that relate specifically to the
             booking function—computing costs (i.e., total data center operating costs)
             and travel agency incentive payments—have increased during the same
             time period. The precise rate of increase for computing costs is difficult to
             determine because global distribution systems do not report the data in the
             same way, but the incentive payments to travel agencies by global
             distribution systems is measurable and it has increased by an average of
             over 500 percent. However, we could not obtain data on all expenses
             related to the booking function (e.g., software development costs), and
             thus could not accurately compare total booking costs to booking fees.
             Consequently, we are not able to independently assess whether the booking
             fees are indicative of the existence and use of market power by global
             distribution systems over airlines. On June 9, 2003, the Department of
             Justice, based on its antitrust analysis of the industry, offered conclusions
             to DOT about the existence of market power in the industry as part of its
             ongoing review of the CRS rules. Justice concluded that despite recent
             growth of Internet ticket distribution, the GDSs continue to have market
             power over the airlines and the CRS rules do not prevent them from
             charging airlines fees above competitive levels. DOT and DOJ provided us
             with technical comments, which we incorporated as appropriate.



Background   An airline “booking” occurs when a passenger reserves and purchases a
             seat for a trip. In 2002 in the United States, an estimated 255 million
             passengers flew more than 611 million flight segments (e.g., a traveler who
             flew between Baltimore, Maryland, and Portland, Oregon, who connected
             over Chicago both outbound and inbound represents a single passenger
             that flew four flight segments). Information included in the booking
             consists of the traveler’s name; an address; price and billing information;
             the full itinerary origins, destinations, and possible connecting airport with
             flight numbers and times; and perhaps other information as well, such as
             loyalty program (i.e., frequent flyer) information, including program status
             or seat and meal preferences. When a booking is entered in a computer
             system by a traditional travel agent, it is created in a GDS. The GDS-
             generated booking is then sent to the airline’s internal reservation system.




             Page 5                                       GAO-03-749 Airline Ticket Distribution
The GDS charges an airline a “booking fee” based on the total number of
flight segments in the traveler’s itinerary.1 For example, if a booking fee is
$4 per segment and a passenger reserves and purchases an itinerary that
consists of four flight segments (an outbound flight that connects over an
airline’s hub to the ultimate destination and two similar return flights), the
airline will be charged approximately $16 in booking fees. Changes made to
the booking may cost extra for the airline. For example, if a passenger
changes the day of his return flight, the airline may be refunded all but a
fraction of its booking fees for those segments, and charged again for the
booking of the new segments.2

Sometimes, a passenger may book an itinerary with an airline through a
traditional travel agent, but may choose not to pay for the ticket pending a
final decision on the trip. Such cases are called “speculative” or “passive
bookings.” In an effort to maintain the booking as a service to the potential
customer, a travel agent may continue to cancel and re-book the itinerary.3
Each cancellation and re-booking costs the airline (sometimes
cancellations and re-bookings result in “churn”). The final cost to the
airline is called a “net booking fee.”4

The precursors to GDSs, CRSs, first automated the selling of airline seats
and the tracking of flight and schedule information for use by airline
employees in the late 1960s. Beginning in the mid-1970s, these systems
were offered to travel agencies. These CRSs were owned by (i.e., vertically
integrated with) the airlines. American Airlines and IBM jointly developed a
system called Sabre (Semi-Automatic Business Research Environment) to
automate American’s bookings. United Airlines and TWA followed with



1
 Travel agents and consumers shop using a GDS without charge. Much data processing
occurs to support this shopping process, which may or may not result in a booking.
2
 Airlines may be refunded for a cancelled segment by all but 40 cents of the booking fee.
Using the above example (four flight segments for $16), a change to the passenger’s return
date (i.e., a change to two segments) would finally cost the airline $16.80.
3
 The inventory has already been deducted from the carrier host system, so the travel agent
enters the flight segment data into the CRS using transaction codes that may not generate a
message to the carrier advising of the sale. The travel agent must then notify the carrier
either by phone or by sending a GDS message that they now have control of the booking.
4
 Airlines can avoid churn by requiring payment at the time of the original booking, but some
airlines make a business decision to allow passive bookings with traditional travel agents in
order to potentially secure the passenger’s business.




Page 6                                               GAO-03-749 Airline Ticket Distribution
Apollo and PARS, respectively.5 Delta and Eastern followed with DATAS II
and System One, respectively. These CRSs replaced manual booking
systems, and thus allowed the airlines to quickly and reliably process a
large number of transactions. By extending use of the systems to travel
agencies, airlines were able to reduce expensive telephone calls from travel
agencies to airline reservation offices and were able to offer real time
access to fares and inventory to its agency partners, improving the
marketability of their services.

Under airline ownership, certain CRS practices created competitive
disadvantages for some carriers and often did not expose consumers to all
available carrier options and prices. Before the industry was deregulated in
1978, interline travel-–a practice in which passengers fly on more than one
airline to reach a destination--was common.6 To serve passenger needs,
travel agencies also needed CRSs to provide information and booking
capabilities on all airlines. However, CRSs did not treat every airline
equally.

• An airline with its own CRS (“owner airline”) did not pay fees for
  booking passengers through that CRS, and it displayed schedule
  information in a way that favored its own flights at the expense of these
  other airlines—even if other airlines offered more direct service
  between two cities at less cost to the traveler. Typically, an owner airline
  would market its CRS to travel agencies in cities where it flew a
  significant number of flights.

• In the early 1980s, to expand CRS-travel agent market share in cities
  where they provided limited air service, owner-airlines developed “co-
  host” programs with other airlines that had a significant presence in
  targeted cities. In exchange for discounts on fees for bookings made on

5
 By 1988, five CRSs were in use by travel agents: Sabre, owned by American Airlines; Apollo,
principally owned by United with a consortium of other airlines; PARS, owned by TWA and
Northwest; System One, owned by Texas Air Corp., which acquired Eastern Airlines and its
system; and DATAS II, owned by Delta Air Lines. Apollo since became Galileo. PARS and
DATAS II since became Worldspan. System One was acquired by Amadeus, the largest
foreign-based GDS. Since the mid-1990s, all major airlines have fully sold their interest in the
GDSs.
6
 Interline agreements between airlines provide for the mutual acceptance by the
participating airlines of passenger tickets, baggage checks, and cargo waybills, as well as
establish uniform procedures in these areas. These agreements are common, but not
universal, among the major U.S. airlines. Interline agreements typically do not include
reciprocal frequent flyer and airport lounge rights.




Page 7                                                 GAO-03-749 Airline Ticket Distribution
   that CRS and for more prominent display of its flight information on the
   CRS computer screen, the co-host airline would market the owner
   airline’s CRS to its local travel agencies.

• Other airlines that were not co-hosts (“subscriber airlines”) would pay
  higher fees for any booking made on that CRS and continued to be
  disadvantaged by a bias in the display of their available flights.

In essence, airline owners of CRSs used them to gain an unfair advantage in
the marketplace, and struck deals with certain airlines giving them
competitive advantages over other airlines. Figure 1 illustrates the typical
financial transactions that took place among airlines, CRSs, travel
agencies, and consumers prior to the enactment of the CRS rules.



Figure 1: Summary of Historic Airline Ticket Distribution Relationships Prior to the
CRS Rules




Owner airlines had an incentive to service as many travel agencies as
possible in order to gain greater booking share. This, in part, is because
CRSs benefit from economies of scale: CRS profits increase as passenger
traffic and bookings increase, and both of those depend on access to more
travel agents. While CRS market positions tend to be strongest in specific
geographic areas consistent with their airline owners’ markets (and any
markets they were able to negotiate from nonowner, or co-host, airlines),



Page 8                                           GAO-03-749 Airline Ticket Distribution
each U.S. GDS has developed a national, and subsequently, global footprint.
In addition, owner airlines also recognized that travel agents’ familiarity
and comfort with their CRSs produced something of a halo effect that gave
owner airlines a greater share of bookings. While airlines paid commissions
to travel agencies based on the value of the purchased tickets, carriers also
encouraged travel agents to make additional passenger bookings by paying
commission “overrides” to travel agencies for surpassing set sales goals.7

Though three domestic CRSs existed, an individual travel agent office
typically relied on only one system. This was due in part to the multiyear,
often exclusive, contracts under which they historically operated with
CRSs. Using more than one system was also inefficient from the standpoint
of most travel agents.

These structural relationships produced two major effects:

• Because airlines—dependent on the systems—paid the booking fees,
  rather than the other users of the systems (travel agents and, ultimately,
  consumers), there was no competitive pressure constraining CRS
  booking costs.

• Airlines had little choice except to participate in each CRS, and CRSs
  did not have to compete for airline participants. As DOJ stated in
  comments submitted to DOT in 1989, each CRS constituted a separate
  market for air carriers because of the near-exclusive relationship with
  separate groups of travel agencies, and each is a monopolist with
  market power over carriers that want to sell tickets in areas where the
  CRS has a significant number of travel agencies. Thus, unless an airline
  was willing to forego access to those travel agencies and the consumers
  they served, it needed to participate in every CRS.

To illustrate, consider Sabre’s relationship with American Airlines, and
Galileo’s relationship with United Airlines. Because American has
significant operations in the Dallas/Ft. Worth area, many travel agencies in
Texas historically subscribed to Sabre, while United has similarly
significant operations in Chicago and many travel agencies there likely
were Galileo users. However, because American wanted to be available to
travel agencies located in United’s traditional territory that subscribe to


7
 An override commission is a payment made based on the travel agency meeting a set goal
of sales.




Page 9                                             GAO-03-749 Airline Ticket Distribution
Galileo, it had to use Galileo as a CRS, as with other GDSs. Similarly, United
wanted to be available to travel agencies in what was historically
dominated by American in Texas and therefore had to be available on
Sabre. Figure 2 illustrates the exclusive relationships that CRSs had with
travel agencies, and the airlines’ dependence on each CRS to reach the
most number of travel agencies.



Figure 2: CRS Relationships with Travel Agencies and Airlines




Prior to the enactment of the CRS rules, consumers only paid airfare,
regardless of the complexity of the itinerary. Presumably, those airfares
reflected the airlines’ total costs, including overhead expenses associated
with ticket distribution.

In 1984, the Civil Aeronautics Board (CAB), in one of its last official acts,
adopted CRS rules to protect consumers and help ensure fair competition
among airlines. The goal of these rules was to dissipate or constrain the
power of the airlines and their CRSs to manipulate the competition for
passenger traffic. DOT inherited the CAB’s duties, and in 1992 found that
the rules were still necessary. DOT concluded that without them, CRS
owners could use their control of the systems to prejudice airline




Page 10                                        GAO-03-749 Airline Ticket Distribution
competition, and the systems could bias their displays of airline services.8
Three main requirements in the CRS rules attempt to ensure that each
owner airline and its CRS would treat other airlines equitably:

• Screens displaying flight information are not to favor one airline over
  another (“unbiased screens”);

• For the same level of service, prices for bookings must be the same for
  all airlines, including owner airlines, eliminating differences such as co-
  host or subscriber airlines (“price nondiscrimination”); and

• The “mandatory participation” rule requires airlines with a 5 percent
  ownership interest or more in a CRS (“owner airlines”) to participate in
  competing systems at the same level at which it participates in its own
  system.9

Figure 3 illustrates how the airline ticket distribution industry changed
after the implementation of the CRS rules.




8
57 Fed. Reg. 43780, September 22, 1992.
9
 The mandatory participation rule does not preclude nonowner airlines from participating in
CRSs to varying extents. Fees paid per booking depend on an airline’s participation level.
For instance, according to information from Sabre, its simplest participation level—“Basic
Booking Request”—costs an airline $2.12 per segment. Sabre’s highest level of
participation—“Direct Connect Availability”—costs an airline $4.39 per segment.




Page 11                                             GAO-03-749 Airline Ticket Distribution
Figure 3: Summary of Historic Airline Ticket Distribution Relationships under the
CRS Rules




DOT’s 1992 revisions to the CRS rules included a sunset date of December
31, 1997, which DOT subsequently extended to January 2004. DOT is
currently reviewing additional possible revisions to the CRS rules.

As CRSs evolved as corporate entities, they added other lines of business to
the original airline ticket booking function. They currently book not only
airline reservations, but also hotel, rental car, train, tour, and cruise
reservations. CRSs also sell other professional services to airlines, such as
software and Information Technology services for personnel and aircraft
scheduling, and for baggage handling. CRSs provide outsourced internal
reservation systems for airlines, as well. In the expansion of their activities
they became known as GDSs, reflective of the increasingly international
and diverse nature of travel they encompassed.

Since the mid-1990s, U.S. airline owners have sold their shares in their GDS
businesses. Three domestic GDSs have evolved to dominate the U.S. travel
agent market: Sabre, Galileo, and Worldspan. Sabre became a separate
legal entity of AMR Corp. (American Airlines’ parent company) in July of
1996, followed by an initial public offering of Sabre in October 1996; it has
since been fully divested by AMR Corp. In 1997, Galileo International
became a publicly traded company, and in 2001 became a subsidiary of
Cendant Corp. Worldspan was sold in June 2003 to private investors. These



Page 12                                         GAO-03-749 Airline Ticket Distribution
changes ended the vertical integration of these airlines and GDSs. Figure 4
illustrates the GDS shares for all U.S. domestic bookings that relied on a
GDS in 2002.10



Figure 4: U.S. Domestic Booking Share of Global Distribution Systems Bookings,
2002




Note: All figures are approximations.
a
 “Other” refers to all internationally based GDSs, such as Amadeus, Abacus, Axess, Infini, and Topas.
Amadeus’ booking share is about 8 percent, while the remaining international GDSs comprise less
than 1 percent of total U.S. bookings.




10
 The scope of this report is focused on domestic global distribution companies and we
therefore do not include foreign companies, such as Europe-based Amadeus, in our review.
For more information on the scope of our review, see app. I.




Page 13                                                   GAO-03-749 Airline Ticket Distribution
Major Changes                  Since the airlines began selling their shares in the GDSs in the mid-1990s,
                               the ticket distribution system has undergone two major changes. These
Occurred in the Use of         changes have helped airlines, faced with generally high operating expenses,
the Internet and Travel        cut distribution costs. First, airlines and others have increasingly sold and
                               processed tickets through Internet-based applications (e.g., airline
Agent Compensation in          Websites, on-line travel sites), some of which bypass GDSs. These
the Airline Ticket             distribution methods are less expensive to the airlines than traditional
Distribution Industry          travel agencies. Second, airlines have reduced commission payments to
                               travel agents. At the same time, in response to overtures by large travel
                               agencies, GDSs partially offset that reduction in airline commission
                               payments by significantly increasing incentive payments to travel agents,
                               on whom they depend to reach a large number of consumers.11 In part,
                               these changes have enabled major airlines to reduce their total distribution
                               costs by 25.8 percent from an average $732.9 million in 1999 to $543.6
                               million in 2002, or 43.6 percent on a per booking basis.12 However, these
                               changes have not eliminated the airlines’ dependence on the GDSs for the
                               selling of air tickets. Airlines continue to need to subscribe to each GDS to
                               reach the universe of travel agents and potential consumers.



Internet Sites That Cost       Airlines have developed new Internet-based ticket booking processes that
Airlines Less Are              bypass GDSs and their associated booking fees. Others have developed
                               Internet-based travel agencies that use GDSs to book tickets but whose
Increasingly Used to Book      bookings still cost airlines less than tickets booked through traditional
Tickets, Some without the      travel agents. An increasing percentage of tickets are booked through the
Use of Global Distribution     Internet, and an increasing percentage of bookings are made without the
Systems                        use of GDSs.

Airlines are Using New         The airlines have used the Internet to change the way bookings are
Processes to Bypass the GDSs   processed by creating ways to work around the GDSs and their booking
and their Fees                 fees. Airlines have developed two basic ways to use the Internet to avoid
                               the cost burden associated with standard GDS booking fees.

                               First, airlines have developed their own Websites (e.g.,
                               www.continental.com) that allow consumers to reserve and book seats


                               11
                                We do not have access to the individual contracts between various travel agents and
                               airlines. Therefore, these descriptions are general and may not be the case for all airlines.
                               12
                                    Examples of other airline cost-cutting efforts include a reduction of labor costs.




                               Page 14                                                   GAO-03-749 Airline Ticket Distribution
directly with airlines. Bookings made through these sites do not use a GDS
booking function, and therefore do not incur booking fees. Rather, airlines
maintain pricing, flight, and seat availability in their own internal
reservation systems. For example, a booking made through Continental’s
Website is processed by a data vendor that is not a GDS. Bookings made
when a consumer telephones an airline’s “call center” (e.g., via a toll-free
number such as Continental’s 1-800-523-FARE) are also routed through that
same vendor.13 But, unlike call centers that rely on personnel to process
bookings, airline proprietary on-line site bookings are processed
electronically and therefore incur lower labor costs.

Second, five major U.S. airlines collectively underwrote the development of
a travel technology company called Orbitz. Because consumers can go to
the Orbitz Website (www.orbitz.com) to query fare and schedule
information for most major airlines as well as to book and purchase tickets,
it performs similar functions as a travel agent. Orbitz now has two methods
by which it books tickets, one of which uses a GDS and one of which
bypasses GDSs and their associated booking fees.

Originally, and in many cases still, Orbitz uses the Worldspan GDS to obtain
airline availability data and to place the booking, and airlines pay booking
fees to Worldspan for tickets booked in this manner. Orbitz receives
volume-based rebates from Worldspan, flat transaction fees
(approximately $5.34 charter associate fee or $10 per ticket from
noncharter associates) from airlines, and it charges fees to consumers ($6
per ticket).




13
  Some airlines’ internal reservation systems are “hosted” by various GDS’ data processing
systems. Reservations and other transactions initiated by the hosted airline’s employees and
the airline’s branded Websites (e.g., AA.com) are covered by a separate technology services
agreement different from the agreement that covers the distribution of the airline’s
inventory to the GDS agency subscribers (i.e., Participating Carrier Agreement). The
compensation to the GDS for such technology services is separate from the booking fees
described earlier and may take several forms, including a fee per transaction, a fee per
computer message and a fee per information technology capacity unit utilized and also
include separate charges for software development services.




Page 15                                              GAO-03-749 Airline Ticket Distribution
Through Orbitz, however, some airlines can generate significant cost
savings relative to traditional and on-line travel agent booking methods.14
“Charter airlines” have negotiated special arrangements with Orbitz, under
which they receive rebates on a portion of the booking fee.15 According to
Orbitz officials, these rebates generally save charter airlines about $3 of the
approximate $16 paid in booking fees per ticket compared to bookings
made through traditional travel agencies. Airlines that are not charter
members of Orbitz pay the full Worldspan booking fee. These arrangements
contrast with the CRS rules requirement of price nondiscrimination and
mandatory participation, which have limited carriers’ ability to negotiate
reduced booking fees with GDSs. Airlines are allowed to negotiate special
arrangements with Orbitz because DOT has not defined Orbitz as a CRS,
and thus did not extend the application of the CRS rules to cover Orbitz.

Recently, Orbitz, with airline cooperation, has also developed technology
that enables it to book tickets by directly accessing each participating
airlines’ internal reservation system, bypassing the GDS and its booking
fees. This technology, which (unlike the technology used to access an
airline’s internal reservation system) can query and get information from
multiple airlines, functions similarly to the technology used by GDSs.
According to Orbitz officials, its new technology, which is called “Supplier
Link,” could result in participating airlines saving about $12 of the typical




14
  When airline flights are booked through Orbitz, airlines pay booking fees to GDSs,
commissions or transaction fees to Orbitz, and other distribution costs. Airlines’ costs can
vary. For airlines that enter into agreements with Orbitz (i.e., charter airlines), Orbitz
rebates the net booking fee by 60 percent of the total Orbitz rebate received from
Worldspan, or up to $3, and the transaction fee paid to Orbitz by the charter airlines for each
ticket is $5.34. (The transaction fee for tickets that are more than $150.00 is $5.34, and $2.67
for tickets that are less than $150.) In comparison, airlines that do not enter into agreements
with Orbitz do not receive the $3 rebate and pay a higher commission of about $10 per ticket
to Orbitz.
15
  A charter airline, or Airline Charter Associate, is an airline that enters into an agreement
with Orbitz. Under the Charter Associate Agreement, Orbitz provides discounted
distribution costs in return for an assurance that it would have access to airlines’ publicly
available fares, including web fares. Charter airlines account for 93 percent of all airlines
that book through Orbitz. These airlines include all of the largest U.S. airlines (excluding
low fare carriers Southwest and JetBlue) and most of the regional carriers. Other airlines
that participate in Orbitz but are not charter associates include AirTran and ATA.




Page 16                                                GAO-03-749 Airline Ticket Distribution
$16 paid in booking fees per ticket.16 Since its implementation in 2002, 11
major airlines have signed up to participate in Supplier Link. As of July
2003, four airlines—America West, American, Continental, and Northwest--
have begun to use the technology. Currently, these airlines process over 70
percent of their Orbitz bookings through Supplier Link. These airlines’
remaining Orbitz bookings need to go through the Worldspan GDS because
of their complexity. Complex bookings that cannot at this time be handled
by Supplier Link might include bookings with itineraries that involve trips
flown by interlining airlines (i.e., two or more airlines that collectively
transport a passenger from origin to destination) or international
destinations.

In light of its new Supplier Link technology, Orbitz may be the first entity in
the U.S. to perform functions similar to GDSs since finalization of the CRS
rules in 1984. Furthermore, some believe that Orbitz represents a new
entrant into the GDS market.17 However, Orbitz is a creation of the major
airlines—as were the CRSs—and questions have been raised about
whether Orbitz charter member airlines could use Orbitz to gain a
competitive advantage over other airlines. DOT and DOJ have been
involved in examining this issue. In its June 27, 2002, report to Congress,
DOT found that Orbitz is not anticompetitive and more specifically, has
shown no evidence of biased presentation of airline services. However,
DOJ has not yet commented on the topic. As of July 2003, DOJ was
continuing its review of Orbitz.




16
  All airlines that participate with Supplier Link, which must be a charter associate, pay
Orbitz the same transaction fee as before ($5.34 or $2.67 depending on price of ticket) and a
Supplier Link fee ($4 per ticket), but do not pay booking fees. However, there are start-up
costs for airlines that choose to participate with Supplier Link. Orbitz charged $200,000 for a
“first in type” Supplier Link connection. This fee covers the development costs for the
interface between Orbitz’ system and an airline internal reservation system. Subsequent
implementations connecting other airlines that use the same data processing company to
“host” their internal reservation system costs those airlines $75,000. According to Orbitz, its
messaging costs are inconsequential. But, the airline may be charged by its internal
reservation system owner for internal messaging costs both for bookings and for the
“polling” queries necessary to maintain Orbitz’ availability cache.
17
 As noted earlier, other GDSs operate predominantly in foreign countries and have not
penetrated the U.S. domestic market to any significant extent. These include Abacus,
Amadeus, Axess, Infini, and Topas.




Page 17                                                GAO-03-749 Airline Ticket Distribution
Internet-Based Travel Agencies     Other participants in the airline ticket distribution industry have also
That Use GDSs Also Book            developed Internet sites that, like traditional travel agencies, book tickets
Tickets at a Lesser Cost to        through a GDS. Sabre entered the Internet market by creating Travelocity,
Airlines than Traditional Travel   which is a web-based booking engine that uses the Sabre GDS to query and
Agents                             book tickets. In general, Travelocity functions as an on-line travel agent:
                                   airlines make payments to Travelocity as well as pay booking fees to Sabre.
                                   As with other travel agencies, consumers pay it ticketing fees. For
                                   accounting purposes, Sabre pays Travelocity incentive payments, but the
                                   payments stay within the parent company.

                                   Independent on-line travel sites have also emerged to sell airline tickets to
                                   consumers. One notable example is Expedia.com. In general, the
                                   relationships and flow of payments among Expedia.com, its GDS
                                   (Worldspan), airlines, and consumers resemble those of traditional travel
                                   agencies. Major independent on-line travel agencies continue to subscribe
                                   to a GDS and pay a subscription fee if they do not meet the high volume
                                   requirements for fee waivers. In turn, the GDS pays the on-line agency
                                   incentive payments for bookings, while charging airlines booking fees. In
                                   addition, some airlines make payments to these independent on-line travel
                                   agencies. Consumers also typically pay a $5-$10 fee to the new on-line sites
                                   for each ticket. In Expedia’s case, since it is Worldspan’s largest subscriber,
                                   it does not pay GDS subscription fees. Furthermore, since it books in such
                                   high volumes, it receives negotiated payments from its GDS and certain
                                   airlines.

                                   Other independent on-line travel agencies, sometimes referred to as
                                   “opaque” travel distributors, have also entered the airline ticket
                                   distribution industry, typically offering low-cost tickets to consumers in
                                   exchange for less flexibility or choice. Opaque travel distributors book
                                   through GDSs to sell what the industry refers to as “distressed inventory.”
                                   Analogous to a deep discount store or an outlet store, opaque distributors,
                                   such as Priceline.com, take bids from consumers for airline tickets.
                                   However, the consumer will know neither the carrier nor the exact
                                   departure times for his itinerary until after an airline accepts the
                                   consumer’s bid, and the ticket is bought and paid for.

                                   Despite the fact that airlines pay commissions and overrides as well as GDS
                                   fees for these on-line travel agency bookings, these bookings cost airlines
                                   less than bookings made through traditional travel agencies. This is in part
                                   because on-line consumers generally must purchase the ticket at the time
                                   of reservation, reducing “churn” that airlines claim is costly, by not
                                   allowing repeated bookings, cancellations, and rebookings prior to



                                   Page 18                                      GAO-03-749 Airline Ticket Distribution
purchase. A traditional travel agent has the capacity to make changes to a
consumer’s itinerary; however, for any changes to a reservation, additional
GDS processing is required. GDSs charge the airlines a small amount for
each cancellation and rebooking, so each such change adds to total airline
distribution costs.

In 1999, on average, each ticket booked via a traditional travel agent cost an
airline a total of $45.93, compared to $23.40 and $25.12 for airline Website
and on-line travel agency sites, respectively. 18 Although costs associated
with each of these distribution methods have decreased, bookings made
through traditional travel agencies continue to cost much more than those
made on line. From 1999 through 2002, the average cost to an airline for a
booking made through a traditional travel agency decreased by 33 percent
to $30.66, while the average cost to an airline for a booking on its own
Website decreased by 50 percent to $11.75. Over the same period, the
average cost to airlines for bookings made through on-line travel agencies
decreased 23 percent to $19.43. Figure 5 illustrates the change in average
airline distribution costs by the different distribution methods.




18
 Throughout this report, we report the data in averages. We calculated the averages by
aggregating data provided by a number of entities, and dividing that total by the number of
entities providing data. See app. I for additional information on the scope and methodology.




Page 19                                              GAO-03-749 Airline Ticket Distribution
                                   Figure 5: Average Airline Booking Costs Per Distribution Method, 1999-2002




With Airline Encouragement, the    Airlines have taken steps to encourage travelers to book tickets through
Percentage of Airline Tickets      less expensive, on-line distribution methods. Some airlines have instituted
Booked through the Internet Has    a fee for travelers who receive a paper ticket through a traditional travel
Increased, as Has the Percentage   agent. For example, Northwest charges a $50 fee for a paper ticket as
of Bookings Processed without      opposed to electronic tickets. Airlines may also reward on-line bookers
GDSs                               with loyalty incentives (i.e., frequent flyer program bonuses). For instance,
                                   travelers booking on line with American may earn up to 1,000
                                   AAdvantage® Bonus miles. Airlines—both directly and through on-line
                                   travel agencies—have also offered special “Webfares” and last minute
                                   Internet-only deals to encourage consumers to book tickets on the Internet.


                                   While airlines continue to sell a significant proportion of their tickets
                                   through traditional travel agencies, the number of tickets sold through
                                   on-line distribution methods, including airline Websites and on-line travel



                                   Page 20                                        GAO-03-749 Airline Ticket Distribution
                                          agencies, has increased rapidly since the late 1990s. Between 1999 and
                                          2002, on average, the percentage of tickets that consumers booked through
                                          traditional travel agents fell from 67 percent to 46 percent. By comparison,
                                          the percentage of tickets booked on line (using both on-line travel agencies
                                          and airlines’ own Websites) increased from 7 percent to 30 percent from
                                          1999 to 2002. Throughout that same time period, airlines sold the remainder
                                          (roughly 25 percent) directly to consumers via their call centers (1-800
                                          numbers). Figure 6 illustrates the change in distribution methods between
                                          1999 and 2002.



Figure 6: Average Airline Bookings Per Distribution Method, 1999-2002




                                          While business travelers generally continue to rely on traditional travel
                                          agents, trends suggest that leisure travelers are adopting the Internet as an
                                          alternative to traditional travel agents. The National Commission to Ensure




                                          Page 21                                     GAO-03-749 Airline Ticket Distribution
Consumer Information and Choice in the Airline Industry (NCECIC)19
reported in 2002 that business travel—usually the highest yield traffic for
airlines—is often contracted out to travel agencies to manage. As a result,
airlines report that traditional travel agencies (and therefore GDSs) will
continue to play a vital role in the distribution of airline tickets. On the
other hand, an increasing percentage of leisure travel is now booked via the
Internet.

Bookings continue to be predominantly processed by GDSs, but since the
late 1990s the percentage of on-line booking processed through airline
internal reservation systems and Orbitz Supplier Link technology has
increased. However, the sales through traditional travel agents continue to
account for the majority of airline revenue, in large part because higher-
priced business travel continues to be managed through traditional travel
agencies. Figure 7 illustrates how the number of major U.S. airlines
bookings processed through GDSs and GDS bypasses has changed from
1999 to 2002.




19
 NCECIC was authorized by Section 228 of the Wendell H. Ford Aviation Investment and
Reform Act for the 21st Century (P.L. 106-18) on April 5, 2000.




Page 22                                           GAO-03-749 Airline Ticket Distribution
Figure 7: Number of Airline Tickets Processed through and outside GDSs, 1999-2002




                                         Note: GDS bypasses include bookings made through Orbitz Supplier Link, airline proprietary
                                         Websites, and airline call centers. GDS bookings include those performed by traditional travel agents
                                         and on-line travel sites that go through a GDS.




Airlines Reduced Travel                  Travel agent reimbursement patterns have shifted significantly since the
Agent Payments, While                    late 1990s. Much of the shift was caused by the airlines, which by 1998
                                         reduced or ultimately ended the traditional practice of offering a flat
GDSs’ Payments to Travel                 published “base” commission (traditionally a percentage of each ticket
Agents Increased                         price, which later was a flat fee for each ticket) to all travel agents as a
                                         means of reducing distribution costs.20 Partly the CRS rules do not govern
                                         airlines’ relationships with travel agencies, airlines were free to change
                                         their payments to travel agents in a way they were not free to do with

                                         20
                                            Airlines continue to pay service fees, in essence ticket commissions, for each booking
                                         made by certain on-line travel sites, and override commissions to travel agents that reach an
                                         established sales goal. Override commission policies vary from airline to airline. For
                                         instance, Delta no longer offers a flat base commission to all travel agents in the U.S. for its
                                         ticket sales, but instead negotiates private relationships to provide financial incentives that
                                         reward key travel agencies for their sales.




                                         Page 23                                                    GAO-03-749 Airline Ticket Distribution
GDSs, and now use a system of privately negotiated commission
arrangements with individual travel agencies. Not all travel agencies are
able to negotiate such individual commission arrangements, and the terms
of such agreements vary among travel agencies and among airlines. From
1999 to 2002, average annual payments by airlines to travel agencies
decreased by 57 percent, from $370 million to $159 million, as airlines
provided override commissions predominantly to those travel agencies
with high ticket sales.

Figure 8 illustrates the decline in average commission payments by airlines
to travel agencies in relation to total distribution costs. From 1999 to 2002,
on average, major airlines reduced their total distribution costs by 25.8
percent, from $732.9 million to $543.6 million, or 43.6 percent on a per
booking basis. Most of that reduction occurred in the payments by airlines
to travel agencies, which decreased by 57 percent, from $370 million to
$159 million. Despite a decrease of 8.5 percent in passenger traffic between
2000 and 2002, remaining distribution costs--which include rising GDS fees,
as well as overhead, personnel, advertising, and credit card fees--were
essentially unchanged over the period.




Page 24                                      GAO-03-749 Airline Ticket Distribution
Figure 8: Average Annual Airline Total Distribution Costs, 1999-2002




Note: Amounts shown are in nominal dollars.


The largest travel agencies—those with total annual revenues in excess of
$50 million—represent less than 1 percent of travel agencies, but book
almost 60 percent of total travel agent sales. By definition, because of their
large volumes of sales, these large travel agencies are most likely to receive
the majority of the airlines’ override commissions.

As airlines cut traditional travel agent ticket commissions, GDSs began
increasing incentive payments to travel agencies.21 According to an official
of a domestic GDS, since airlines (and, subsequently, other travel suppliers)
reduced travel agent commissions, travel agencies sought out replacement


21
   We do not have access to specific agreements between GDSs and travel agents, and are
therefore limited in our ability to detail overall financial flows between GDSs and travel
agents.




Page 25                                              GAO-03-749 Airline Ticket Distribution
sources of revenue, and GDSs responded with incentive payment
increases. Large travel agencies were able to use their position in the
industry between the GDSs and large segments of the traveling public to
convince the GDSs to provide some form of incentive payment. At the same
time, GDSs use incentive payments to compete for travel agent market
share and to incentivize travel agents to book on their particular GDS.
Generally, as with airlines’ override commissions, a GDS pays incentives to
those travel agencies with high booking volumes, as each booking results
in the GDS receiving a fee from the airline. Between 1995 and 2002, on
average, each GDS paid travel agencies an increasing amount of incentive
payments, from $22.3 million to $233.4 million (over 900 percent). Figure 9
illustrates the average change in each GDS’s payments to U.S. travel agents
since 1995.



Figure 9: Average Payments to U.S. Travel Agents by Each GDS, 1995-2002




Note: Amounts shown are in nominal dollars.


Shifts in travel agent payments have also occurred between travel agents
and consumers. After airlines ended automatic base commissions, many
travel agencies began to charge consumers service fees for booking
tickets—previously included in the ticket price in the form of a commission
that was invisible to the consumer. Figure 10 illustrates the current flow of
payments among the four participants in the airline ticket distribution



Page 26                                       GAO-03-749 Airline Ticket Distribution
                                          industry. Compared to figure 3, it illustrates some changes that have taken
                                          place in the airline ticket distribution industry since the late 1990s—
                                          particularly the advent of various Internet booking methods, airline-
                                          initiated sites that bypass GDSs, the new flow of payments to travel
                                          agencies, and new service fees imposed on consumers.



Figure 10: Summary of Payment and Fee Flows in the Current Distribution of Airline Tickets




                                          a
                                              Consumers pay services fees.
                                          b
                                           Airlines that subscribe to Orbitz Supplier Link pay less fees (including the commission per transaction)
                                          than GDS booking fee.
                                          c
                                           Airline commission and override payments vary and are based on travel agencies meeting certain
                                          sales goals.




Airlines Continue to Be                   While each change—increased use of the Internet to process and sell
Dependent Upon the GDSs                   tickets and reductions in airline payments to travel agencies—has
                                          contributed to the lowering of overall airline distribution costs, neither has
                                          reduced the effective requirement that nearly every major airline
                                          participate in and pay booking fees to each GDS. As previously stated,
                                          airlines continue to process over 60 percent of their tickets—mostly high
                                          yield business traffic—through the GDSs. Furthermore, airlines continue to
                                          need to subscribe to each GDS in order to reach all consumers. As DOJ
                                          described it in comments submitted to DOT during a 1997 review of the



                                          Page 27                                                     GAO-03-749 Airline Ticket Distribution
                         CRS rules, from an airline’s perspective, because each CRS provides access
                         to a large, discrete group of travel agencies, each CRS constitutes a
                         separate market. And unless the airline is willing to forego access to those
                         travel agencies and the consumers they serve, it must participate in every
                         CRS.



Changes in the Airline   Large travel agencies and consumers who use the Internet appear to have
                         benefited most from recent changes in the airline ticket distribution
Ticket Distribution      industry.22 Small travel agencies and the consumers who patronize them
Industry Appear to       appear to have benefited least, if not been disadvantaged. Since the late
                         1990s, the number of very large travel agencies (i.e., those with total annual
Have Benefited Very      sales in excess of $50 million) has stayed approximately the same, but their
Large Travel Agencies    total annual air travel sales have almost doubled.23 Because the largest
and Consumers Who        travel agencies sell more air travel than any other category of travel agency,
                         by definition they would likely qualify for both GDS incentive payments
Use the Internet         and airline override commissions. During this same period, the number of
                         small travel agencies has steadily declined, as have their total annual air
                         sales. Figure 11 illustrates changes in the number of different sized travel
                         agencies and their sales of air travel over time.




                         22
                          For additional information, see U.S. General Accounting Office, Domestic Aviation:
                         Effects of Changes in How Airline Tickets Are Sold, GAO/RCED-99-221 (Washington, D.C.;
                         July 28, 1999).
                         23
                          For the purposes of categorization, very large travel agencies generate more than $50
                         million annual revenue. Midsize travel agents generate between $2 million and $50 million
                         annual revenue. Very small travel agencies generate less than $2 million annual revenue.




                         Page 28                                             GAO-03-749 Airline Ticket Distribution
Figure 11: The Number of Travel Agencies, by Amount of Annual Revenue and
Volume of Air Travel Sales




Note: Amounts shown are in nominal dollars.


The increase in on-line bookings appears to have had a more negative
effect on smaller travel agencies than on large travel agencies because of
general differences in the nature of their clientele. Leisure travelers
increasingly book on line—usually well in advance with simple itineraries.
According to the DOJ, leisure travelers with relatively simple itineraries are
best suited to using the Internet. On-line travel agencies sell most tickets to
price-sensitive leisure passengers.24 In contrast, business consumers, who
often use large travel agencies, are not likely to book on line because of
restrictive corporate policies and complex business itineraries that are
often subject to short notice changes. Those travel agencies also may


24
   Reply Comments of the Department of Justice to DOT on the Notice of Proposed
Rulemaking Computer Reservation System Regulations, June 9, 2003, p. 16.




Page 29                                           GAO-03-749 Airline Ticket Distribution
provide reporting and record keeping services for large business
customers.

According to officials from the NCECIC and the American Society of Travel
Agents, small travel agencies are confronting financial pressure from both
airlines and GDSs. First, small travel agencies may have difficulty securing
airline override commissions or GDS incentive payments because of sales
volume requirements. In addition, small travel agencies often must pay for
GDS service and equipment, while these fees are frequently waived for
agencies with high sales volumes. To survive, many smaller travel agencies
have become focused on niche travel markets–for example, regional travel,
hiking/biking travel, and cruise line travel–and charge service fees to
clients.

The availability of Internet distribution methods appears to have positively
affected Internet users. These methods provide fare and schedule
information to consumers, and provide consumers with a number of
Websites on which they can compare fare and schedule options. Moreover,
consumers who use the Internet have access to less expensive webfares
offered by the airlines. Airlines use such fares to encourage consumers to
use Internet travel sites, as they are less expensive to the airlines. For
instance, the results of a 2001 Forrester Research25 survey of Internet users,
which the NCECIC included in their 2002 report to Congress and the
President, found that people who booked on line preferred doing so
because they can readily compare various on-line travel sites, as well as
access more diverse fares (i.e., webfares) than they can through a
traditional travel agent. Furthermore, on-line customers may also avoid the
higher ticketing fee that some travel agencies now charge (up to $50),
although many on-line travel agencies may charge their own smaller
ticketing fees ($5-$10). Finally, the public perceives that booking on line is
less expensive than booking through a traditional travel agent. Conversely,
consumers purchasing tickets on airline Websites may not have complete
and unbiased information when booking flights, which is important in a
competitive industry. For example, Orbitz.com does not include schedule
and fare information for certain low fare airlines, such as Southwest and
JetBlue because these airlines have chosen not to participate.




25
 Forrester Research is a firm that identifies and analyzes trends in technology and their
impact on business.




Page 30                                              GAO-03-749 Airline Ticket Distribution
Travelers who choose not to buy airline tickets on line, or who do not have
Internet access, may be at a relative price disadvantage. Travelers using a
traditional travel agent may pay a service charge of up to $50. In addition,
travelers who do not choose to use the now standard “electronic ticket”
may be charged an extra fee by the airline for a paper ticket.26 And as noted
before, a travel agent may not have access to special webfares.27 But
travelers who do use traditional travel agents may benefit from the added
flexibility of being able to change their reservation. An on-line travel
agency booking is often difficult to change, especially if it is a low fare that
is nonrefundable or subject to other restrictions. On the other hand, with
the power to change a booking through the GDS, travel agents say they act
as the consumer’s advocate with an airline, with consumers benefiting from
the detailed knowledge and personal interaction that a travel agent can
provide.

Business travelers are continuing to use traditional travel agencies to
manage their travel because of corporate travel policies, including
negotiated “private fares.”28 According to the National Business Travel
Association, less than 10 percent of corporate travel is booked through the
Internet and many corporations forbid their employees from booking travel
on the Internet, even if employees find a lower fare through that
distribution method. Corporate travel policies can limit the employees’
ability to use the Internet in booking travel because they often require
employees to use a contracted travel agency, through which they are
booked on corporate contract carriers.29




26
  Travel agency customers who accept electronic tickets would not pay a fee for paper
tickets, but would still pay a service fee to the travel agent.
27
  Some airlines are offering traditional travel agents access to their “webfares.” Through
American Airlines’ EveryFare® program, a travel agent can access full fares in exchange for
the travel agent picking up some of the GDS booking fee. In addition, GDSs have created
similar programs in an effort to provide travel agents with greater access to airlines’ special
fares. For instance, Sabre has created its “Direct Connect Availability 3 year Option,” which
rolls back approximately 12.5 percent off 2003 booking fee rates and freezes those rates for
3 years in exchange for full content of the participating airlines’ fares.
28
     See app. II for more discussion of the effect of private fares on GDS costs.
29
 On-line business travel management services, such as Sabre’s GetThere.com, are emerging.
These services manage company travel, including compliance with travel policies.




Page 31                                                  GAO-03-749 Airline Ticket Distribution
Sufficient Data Were     Because we lacked access to proprietary company data on costs and
                         revenues, we could not develop the sort of evidence that would allow us to
Not Available to         determine whether GDSs exert market power in the airline ticket
Determine the            distribution industry.30 Booking fees charged by GDSs to airlines have risen
                         over the past several years. From 1996 to 2001, the typical booking fee paid
Relationship between     by a major airline has increased by 30.9 percent, from $3.27 in 1996 to $4.28
Booking Fees and         in 2001, a change greater than the overall inflation rate (as measured by the
Costs and the Presence   Gross Domestic Product chain-type price index) of 9.4 percent during this
                         same time period. According to GDS officials, during this time period, the
and Use of Market        services and products offered by GDSs were enhanced and deliver
Power                    substantial benefits to airlines (e.g., e-ticketing). Furthermore, one GDS
                         official estimates that about 40 percent of its self-reported software
                         development costs are meeting supplier (e.g., airlines) needs.

                         Because much financial information is proprietary,31 we were therefore
                         unable to obtain a full breakdown of GDSs’ costs in order to isolate the
                         specific costs directly associated with the booking function (“transaction
                         costs”). However, two GDS-reported costs associated with the booking
                         function for which we were able to get data both rose between 1996 and
                         2002: GDS computing costs (i.e., total data center operating costs) and
                         travel agent incentive payments.

                         • Computing costs have increased but because of inconsistent data
                           reported by the GDSs, we were unable to determine the precise
                           increase. However, the GDS computing cost increase is in contrast to
                           general industry computing cost trends, which decreased by over 60
                           percent since the mid-1990s. According to officials with the GDSs, their
                           computing costs per booking rose relative to commercial sector


                         30
                          The link between the price of a product and the cost of producing it is an important
                         element in determining the level of competition or exercise of market power. Generally
                         speaking, in competitive industries, revenues are closely related to costs (including a
                         reasonable profit margin). Conversely, in industries that are less competitive, prices tend to
                         be higher than costs (including a reasonable profit) and output tends to be less than in
                         competitive industries. As demonstrated by their Horizontal Merger Guidelines (United
                         States Department of Justice and Federal Trade Commission Revision to the Horizontal
                         Merger Guidelines, Apr. 8, 1997), the Department of Justice and others who analyze
                         competition and market power would also examine the structure of the market, including
                         the number of competitors, the ease with which new competitors could enter the market,
                         and other contributing or mitigating factors in forming a conclusion about competition or
                         market power.
                         31
                              See app. I for more information on limitations associated with obtaining proprietary data.




                         Page 32                                                 GAO-03-749 Airline Ticket Distribution
     computing costs because (1) bookings have become more complex,
     requiring more processing to complete and (2) the volume of
     transactions shopping for low fares that do not result in a booking has
     risen, especially for on-line travel agencies used by consumers. They
     stated that the additional processing required offset any general
     decrease in computing costs.32 For example, airlines have offered more
     types of fares to consumers (e.g., “private fares” available to large
     corporate clients, government fares, and conference specials). Many of
     these fares are stated as a percentage of the full coach fare, which
     airlines can change several times daily. GDSs must quickly match the
     correct fare with each customer for each specific flight. Moreover, GDS
     officials also stated that airlines are keeping more detailed Passenger
     Name Records with all reservations. The amounts of data that the GDSs
     track with these records have also increased over time, as airlines have
     made efforts to better serve passengers (e.g., frequent flyer accounts
     and seating preferences). It is unclear how much of this increasing GDS
     functionality, the costs of which are presumably passed on to the
     airlines through increases in booking fees, adds value for the airlines.
     Some airlines have complained that they do not need certain elements
     of the increased functionality (e.g., seat maps) and are paying for
     something they do not want at a time when they are struggling
     financially.

• As discussed above, GDSs’ incentive payments to travel agencies have
  increased. GDSs provide incentive payments to travel agencies to
  reward them for using their system. The largest travel agencies were
  able to use their position in the industry between the GDSs and large
  segments of the traveling public to convince the GDSs to provide
  increased incentive payments. On average, incentive payments from
  GDSs to travel agencies increased by over 500 percent from 1996 to
  2002, rising from $34.9 million to $233.4 million.

Computing costs and travel agent incentive payments do not encompass all
airline ticket booking-related costs, and we were unable to get financial
data on other costs (e.g., booking-related hardware costs) related to GDSs’
airline ticket booking function, which might have allowed us to determine a
relationship between booking fees and related costs and to consider what



32
 See app. II for further discussion of how GDS computing costs compare to commercial
sector computing costs.




Page 33                                           GAO-03-749 Airline Ticket Distribution
               the relationship indicated about the presence and possible exercise of
               market power by the GDSs.

               To identify other information about the possible existence and use of
               market power, we reviewed the comments submitted to DOT since its
               November 2002 Notice of Proposed Rulemaking of the CRS rules. GDSs
               stated that they do not have market power. However, some airlines contend
               that they do operate under GDS market power. For example, America West
               contends that each CRS exercises monopoly power over it. In its June 9,
               2003, comments to DOT, DOJ concluded based on its market structure
               analysis that despite the recent growth of Internet distribution, GDSs
               continue to have market power over airlines.33 DOJ found no evidence that
               existing regulations designed to erode that power had succeeded in the
               past or are likely to improve the situation in the future. Rather, they
               concluded that many of the existing regulations have been ineffective in
               reducing GDS market power, which derives from the inability of most
               airlines to withdraw from any GDS. DOJ noted that while the CRS rules
               have been effective in eliminating discriminatory pricing (charging
               different fees to target specific airline competitors), it has not prevented
               GDSs from charging fees above competitive levels. Nevertheless, DOJ
               concluded that recent changes in the industry have eliminated the need or
               utility for most of the CRS rules and that anticompetitive practices be
               enforced through case-by-case antitrust investigations.



Concluding     A competitive airline ticket distribution industry, which includes the
               airline, GDSs, and travel agent industries, continues to be important
Observations   because noncompetitive practices may adversely affect airlines and
               consumers. Originally, the CRS rules were focused on reducing the market
               power of airline-owned CRSs to prevent owner airlines from using the
               CRSs to gain a competitive advantage over nonowner airlines. With the
               GDSs now independent from the airlines, questions have been raised
               regarding the GDSs’ exercise of market power over all airlines. Among
               other things, because GDSs do not compete with each other for airline
               business, airlines and consumers may be subject to prices that are higher
               than in more competitive markets. While our limited ability to get complete
               booking cost and fee data from the GDSs did not allow us to independently
               evaluate whether GDSs currently exercise market power, the market

               33
                Reply Comments of the Department of Justice to DOT on the Notice of Proposed
               Rulemaking Computer Reservation System Regulations, June 9, 2003, p. 2.




               Page 34                                          GAO-03-749 Airline Ticket Distribution
position of large travel agencies or the overall performance of the industry,
evidence that we developed in this review provides suggestions of both a
functioning market and competitive flaws.

On the one hand, our review provides some indications of a market that is
functioning and adaptive. For example, the use of the Internet has grown
significantly, and overall prices for airlines for each form of distribution
have fallen. In addition, the development and evolution of Orbitz and
expansion of direct airline Internet booking reflects that at least some
lower-cost substitutes for GDSs have emerged. Airlines and other
participants in the ticket distribution system have developed an ability to
use Internet innovations to limit distribution expenses. Similarly, the
Internet’s ability to provide consumers with access to a wide variety of,
often low cost fares (i.e., transparency) has arguably benefited them.

On the other hand, our review also highlights issues that suggest the
continued possibility of GDS market power as well as the growing power of
large travel agencies. The structure of the industry, in which airlines are
dependent upon the GDSs to obtain ultimate access to large portions of
travel agents and potential passengers (especially high yield business
traffic), perpetuates the potential for the existence and exercise of market
power by GDSs. Although Orbitz may offer a technological substitute that
mitigates the market power of GDSs for some airlines, Orbitz’ relationship
with major airlines has raised different concerns about the potential for
owner airlines once again using their ownership position to distort airline
competition. Our review also indicates that the largest travel agencies,
upon whom both airlines and GDSs depend to reach a large percentage of
the higher-paying business travelers, currently have considerable leverage
in the industry. This leverage is reflected by their ability to obtain rising
incentive payments from GDSs as well as commission and override
payments from airlines.

The innovation that has occurred in the airline ticket distribution industry--
particularly the growth of the Internet—is noteworthy. These innovations
occurred under the framework of federal regulations, which DOT is
currently reviewing. DOJ stated that some of these rules have failed to
accomplish their goals and therefore need to be removed. At the same time,
DOJ’s antitrust review of Orbitz continues. Thus, the federal interaction
with the industry continues on both an industry-wide and case-by-case
basis. At the same time, it will be important to continue monitoring how
developments in the industry affect competition and consumers.




Page 35                                     GAO-03-749 Airline Ticket Distribution
Agency Comments   We provided a draft of this report to DOT for review and comment. DOT
                  provided us with technical comments, which we incorporated where
                  applicable. We also provided relevant sections of this report to DOJ, the
                  three major U.S. GDSs, Orbitz, and most major U.S. airlines for review.
                  These organizations provided technical corrections, which we
                  incorporated as appropriate.


                  We will send copies of this report to the Honorable Norman Mineta,
                  Secretary, Department of Transportation. We will make copies available to
                  others on request. In addition, the report will be available at no charge on
                  our Website at www.gao.gov.

                  If you or your staff have any questions about this report, please call me at
                  (202) 512-2834. I can also be reached at HeckerJ@gao.gov, or Steve Martin
                  at MartinS@gao.gov. Appendix III lists key contacts and key contributors to
                  this report.




                  JayEtta Z. Hecker
                  Director, Physical Infrastructure Issues




                  Page 36                                     GAO-03-749 Airline Ticket Distribution
Appendix I

Objectives, Scope, and Methodology                                                             AA
                                                                                                ppp
                                                                                                  ep
                                                                                                   ned
                                                                                                     n
                                                                                                     x
                                                                                                     id
                                                                                                      e
                                                                                                      x
                                                                                                      Iis




              This report examines three questions:

              • What have been major changes in the airline ticket distribution industry
                since the late 1990s, and how did these changes affect airlines?

              • How have these changes in the airline ticket distribution industry
                affected travel agents and consumers?

              • What does the relationship between global distribution system’s
                booking fees and booking-related costs suggest about the presence and
                use of market power?

              We limited the scope of this review to the three global distribution systems
              (GDS) that handle over 90 percent of U.S. airline bookings. These three
              GDSs are Galileo, Sabre, and Worldspan. We excluded other GDSs that
              operate predominantly in other countries. Those excluded from this review
              include Abacus, Amadeus, Axess, Infini, and Topas. In addition, we did not
              have access to the individual contracts between the various industry
              entities; and therefore, the descriptions of the relationships are
              generalizations.

              To determine how the airline ticket distribution industry has changed and
              the effects on airlines since the late 1990s, we analyzed industry booking
              trend and cost data (e.g., airline and GDS payments, annual airline
              expenditures per distribution method). These data are proprietary, so we
              agreed to aggregate them so that no private company materials or
              information would be publicly disclosed in an identifiable form.
              Consequently, all data are reported in averages. Furthermore, since these
              data are proprietary, we were unable to independently verify them because
              we have no authority to require access to the underlying data. However, we
              applied logical tests to the data and found no obvious errors of completion
              or accuracy. Along with our use of corroborating evidence, we believe that
              the data were sufficiently reliable for our use. In addition, we examined
              documents from the Department of Transportation (DOT). We interviewed
              DOT officials, Department of Justice (DOJ) officials, industry experts, the
              three domestically based GDSs, seven major airlines, and four travel
              agencies (e.g., a small traditional travel agency, and the three leading
              on-line travel sites—Travelocity, Expedia, and Orbitz). We attempted to
              interview all of the major travel agencies, but the top three would not agree
              to meet with us. In addition, we were unable to obtain any airline or GDS
              cost data related specifically to those travel agencies.




              Page 37                                     GAO-03-749 Airline Ticket Distribution
Appendix I
Objectives, Scope, and Methodology




To describe how changes in the airline ticket distribution industry have
affected travel agents and consumers, we analyzed travel agent data (e.g.,
sales and revenues). We obtained these data from the National Commission
to Ensure Consumer Information and Choice (NCECIC), a commission
authorized under Section 228 of the Wendell H. Ford Aviation Investment
and Reform Act for the 21st Century (P.L. 106-181, AIR-21) to study two
distinct issues—first, the current state of the travel industry, and the impact
of changes in the industry on consumers; and second, the potential for
impediments to distribution of information to cause injury to agencies and
consumers. We contacted the Airline Reporting Corporation (ARC), the
source of the NCECIC travel agent data, to clarify the nature of the data
and thus we decided the data were reliable for our purposes. Lastly, we
interviewed travel agents, industry group representatives, and officials
from the NCECIC.

To determine the relationship between GDSs booking fees and booking-
related costs and what it may suggest about the presence and use of market
power, we analyzed GDS booking fee and cost data (e.g., computing costs
and travel agent incentives). We obtained these data from the three U.S.
GDSs. Since these data are proprietary, we agreed to aggregate them so
that no private company materials or information would be publicly
disclosed by us in an identifiable form. Consequently, all data are reported
in averages. Furthermore, since these data are proprietary, we were unable
to independently verify them because we have no authority to require
access to the data. However, we applied logical tests to the data and found
no obvious errors of completion or accuracy. We believe that the data are
sufficiently reliable for our use. We analyzed specific booking fee-related
costs that were available to us—computing costs and travel agent incentive
payments. Computing costs are based on data center operations costs,
including hardware, software, leases, and personnel costs. We compared
trends in these computing costs with industry computing cost trends using
mainframe data center costs from the Gartner Group, a well-known
research and advisory firm that helps its clients understand technology and
drive business growth.

We were limited in our review because we did not have full access to
proprietary data. One of the GDSs (Worldspan) is privately held and does
not file financial data with the U.S. Securities and Exchange Commission
(SEC). Although Sabre and Galileo are publicly held and file financial data
with the SEC, they are not required to disaggregate cost data. Moreover, it
is difficult to compare even the data that Sabre and Galileo did provide,
since they may report their costs differently, as the Generally Accepted



Page 38                                      GAO-03-749 Airline Ticket Distribution
Appendix I
Objectives, Scope, and Methodology




Accounting Principles allow companies to allocate costs in various ways.
Therefore, we were not able to obtain complete and detailed data from the
GDSs on all costs directly related to booking transactions. However, we did
review the comments that were submitted to DOT regarding its review of
the CRS rules. Prominent among those were the June 9, 2003, DOJ
comments, which were based on DOJ’s expert, market structure analysis.
We also discussed with DOJ the comments they submitted. In addition, we
sought cost and booking data that dated from 1978 to the present. However,
no airline was able to provide data for a time earlier than 1996.
Consequently, we limited our review to the 4 years covering the period 1999
to 2002.

We conducted our review between September 2002 and July 2003 in
accordance with generally accepted government auditing standards.




Page 39                                    GAO-03-749 Airline Ticket Distribution
Appendix II

Computing Cost Trends at Global Distribution
Systems                                                                                                  Appendx
                                                                                                               Ii




               According to the Gartner Group,1 overall mainframe data center costs
               continued to decrease every year from 1994 through 1998.2 The Gartner
               Group found that on a per-millions-of-instructions-per-second (MIPS) basis
               (a common measure of usage), data center costs have decreased during the
               same time period. Our analysis of the global distribution systems (GDS) per
               MIPS computing cost (cost per MIPS) suggests that GDS per MIPS costs
               also decreased from 1995 through 2002. Thus, on a per MIPS basis, the
               general trend of computing costs incurred by the GDSs seem to be
               consistent with the industry trend reported by Gartner Group for the years
               1994 through 1998.

               For technology-based companies like GDSs, an important cost measure is
               the computing cost per booking. This measure is significant because GDSs
               generate revenue largely based on the volume of booking transactions
               processed. On an annual basis, we found that the computing cost per
               booking increased slightly over the years 1996 and 2001, the years for
               which we had relevant data from most of the GDSs. According to the GDSs,
               the per-booking computing cost has risen because each booking has
               become more complex over time, requiring more processing—more
               MIPS—to complete a booking, thereby more than offsetting any decrease
               in per MIPS computing costs. One way to explain the increasing complexity
               of bookings is through the number of messages that are required to
               complete a booking. A message is typically a single command typed by a
               travel agent in a GDS reservation system. A message is sent every time a
               travel agent types a command and hits the Enter key on the keyboard. For
               example, for one GDS, the number of instructions needed to process each
               message increased by 58 percent from 1999 to 2002. For that GDS, the
               average number of messages required for each booking increased by 118.6
               percent from 1993 to 2002. In addition, a message can be very simple (e.g.,
               what gate is flight 442 scheduled to arrive at in Dallas today) or very
               complex (e.g., what is the cheapest itinerary available to fly roundtrip
               between Los Angeles International Airport and any of New York City’s
               three major airports, departing next Tuesday morning).



               1
                The Gartner Group is a well-known research and advisory firm that helps its clients
               understand technology and drive business growth.
               2
                For the years 1994 through 1998, the Gartner Group analyzed the costs of operating a
               typical mainframe data center using a budget model that included seven key areas:
               hardware, software, business resumption, occupancy, operations, technical services, and
               finance and administration.




               Page 40                                             GAO-03-749 Airline Ticket Distribution
Appendix III

GAO Contacts and Staff Acknowledgments                                                           Appendx
                                                                                                       iI




GAO Contacts      JayEtta Z. Hecker (202) 512-2834
                  Steven C. Martin (202) 512-2834



Acknowledgments   In addition to those individuals named above, Naba Barkakati, Triana Bash,
                  Carmen Donohue, Brandon Haller, David Hooper, Joseph Kile, Sara
                  Moessbauer, and Alwynne Wilbur made key contributions to this report.




(544055)          Page 41                                   GAO-03-749 Airline Ticket Distribution
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