Big Eagles and Sitting Ducks

By Thomas McCarroll/New York

Of all the competitive weapons in the major airlines' arsenals, perhaps the most powerful is one that never leaves the ground: the computerized reservation system. More potent than frequent-flyer programs or discount fares, these systems have become vital to an airline's ability to compete and survive. Says Julius Maldutis, who follows the industry for the Salomon Brothers investment firm: "Automated reservation systems are dividing the industry into the haves and have-nots. Those with them are becoming the big eagles. Those without, sitting ducks."

Automated reservation systems are vast computer networks that the major carriers, notably American and United, use to dish out the most up-to-date flight information to travel agents. When linked to the systems, agents can check schedules, compare fares and book tickets. They can also make hotel and rental-car reservations as well as order tickets for Broadway shows or charter a private jet.

What makes a network so vital to the airlines is its ability to arrange a dizzying permutation of planes, routes and available seats in the most profitable configuration possible. Each day, 600,000 fares change in the airline industry, which high-speed computers can constantly update to help an airline allocate seats. Without the computer systems, for example, airline managers might fill planes with passengers flying free on frequent-flyer coupons when at least some seats could be sold to business travelers at full fare.

The travel-agency business has grown heavily dependent on reservation systems and the airlines that own them, often at the expense of carriers without their own computers. Nearly 87% of all flights are now booked through the carriers with computerized networks, compared with 61% in 1983. The most dominant system is American's SABRE (an acronym for Semi-Automated Business Research Environment), used by 14,000 agencies to keep up with some 45 million different fares at 281 airlines. United's Apollo, the second largest, is used by 10,000 agencies. Last year the SABRE system brought American profits of $134 million, mainly in user fees collected from such airlines as Pan Am and Southwest, which lack systems of their own.

The have-nots are leery, and with reason. In recent years the Government has charged both American and United with violating antitrust laws by using the systems to put their competitors at a disadvantage. The Department of Transportation pressured American and United to reprogram their computers to eliminate so-called display bias. The agency accused the two airlines of rigging their systems so that their flight information received more display- screen prominence than competitors' flights. Richard Murray, who heads Texas Air's reservation network, has been urging the Government to force the major carriers to spin off their reservation systems. Says he: "The only answer is divestiture, because they will always find ways to use the systems as weapons to ground competition."

Since divestiture is unlikely, smaller carriers fighting to end American's dominance will settle for preventing SABRE from growing larger. They are lining up to ask the Government to stop a plan by American and Delta to merge their reservation systems. Combined, the two would command a 45% share of the market. Foes of the American-Delta deal say it would hurt competition by reducing the number of players. That step, they warn, would further widen the gap between the big eagles and the sitting ducks.