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To: TLindt who wrote (460)	1/12/1999 8:04:00 PM
From: kfdkfd	Respond to of 728

Travel agents challenged by online air ticket sales By Chris Reiter NEW YORK, Jan 12 (Reuters) - The Internet is helping airlines trim costs and helping consumers find bargains, but for travel agents, online ticket sales pose a serious challenge that is forcing them to find new ways of doing business. Jupiter Communications, a New York-based digital commerce research firm, projected Internet sales would become a larger and larger proportion of the airline market, with online sales forecast to increase from 2.5 percent of transactions in 1998 to 8.4 percent in 2002. ''We expect online sales to grow exponentially,'' said Laurie Salvano, marketing manager for the Web site of UAL Corp.'s (NYSE:UAL - news) United Airlines, which offers bookings on 500 other carriers and also serves 30,000 hotels and 45 car rental agencies. Salvano said that business through United's site currently account for $16 million in ticket sales a month, or 1.5 percent of United's total revenues. Airlines are also giving incentives to consumers who book directly through the airlines' own sites, thereby circumventing costly travel agent commission fees. United, for instance, is currently offering online buyers 1,000 bonus miles plus entry into a sweepstakes, Salvano said. She added that online booking is the airline's cheapest distribution channel. According to Jupiter, online transactions will save air and hotel suppliers $689 million over the next five years. This change in the airline market is not going over so well with travel agents. And responding in part to how the airlines are using the Internet, the American Society of Travel Agents (ASTA) recently filed a suit with the Department of Justice, charging the airlines with engaging in ''anti-competitive acts.'' Among other things, ASTA said that airlines are discriminating against travel agents on the Web by imposing commission caps which pay agencies a rate ''well below their cost of selling air travel.'' Airlines pay agencies lower commissions for tickets sold on-line than for tickets sold via traditional channels, and this makes agencies less competitive on the web, said Steve Loucks, an ASTA spokesperson. However, Joseph I. Daniel, professor of economics at the University of Delaware, said that what the airlines are doing with the Internet is advantageous to consumers, adding that travel agents do not guarantee competition and the Internet aids in price discovery. He said that airlines and consumers will benefit from lower distribution costs associated with Internet sales. But he added that a ''big shakeout in travel agencies will result,'' including consolidation. Daniel said that room for travel agents still exists in holiday packaging and more complex transactions, in which agents can leverage their knowledge and experience. ''Travel agents on the Web need to niche,'' said Sally Lewis, marketing manager of 1travel.com - a website that sells airline tickets and acts as a portal to other travel sites. She related an example of a small storefront agency that was prepared to close, until the agency decided to take advantage of its expertise in Caribbean spa travel to the Internet -- developing a market niche that turned it into an $8 million a year business. Meanwhile, Aaron Gellman, Director of the Transportation Center at Northwestern University, believes the Internet has positive effects beyond simply reducing distribution costs. Gellman said that airlines can improve their efficiency in a number of ways, including reducing the industry's $3 billion parts inventory and hedging risk through a type of futures market for seats. A transaction along these lines was completed last year, when financial services and travel company American Express Co. (NYSE:AXP - news) made a ''bulk purchase'' of airline seats from Continental Airlines Inc. (NYSE:CAIb - news), which allowed AmEx to resell the seats at discount prices, said Melissa Abernathy, a spokesperson for American Express. American Express did not assume full risk for the seats, and the deal enabled the company to dictate its own margins rather than relying on commissions, Abernathy added. Still, airlines need to be wary of the Internet as well, warns Warren Bonham, an airline consultant with Bain and Co. Bonham said that price-sensitive consumers who once bought tickets weeks in advance to secure the best deals are instead hopping on the Internet to get cheap last-minute fares, exposing airlines to greater risk.