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Consumers to get airsick?
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June 9, 2000: 1:42 p.m. ET
Net plane ticket sales rise, but will airline mergers shoot down bargains?
By Staff Writer Rob Lenihan
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NEW YORK (CNNfn) - For many travelers, the ability to buy airline tickets over the Internet is the greatest thing since the Wright Brothers hit Kitty Hawk.
They can book flights any time day or night from their homes using a variety of online agencies, such as Travelocity and Expedia, without dealing with travel agents or airline reservation departments.
"I think consumers can really save a lot of money," said travel expert Laura Powell, a columnist for www.womenbusinesstravel.com, "particularly if they're booking last-minute."
 Last year, U.S. consumers booked $6.5 billion of travel online, according to media research company Jupiter Communications Inc. (JPTR: Research, Estimates), nearly triple the previous year's figure, with air travel taking off with 77 percent of the market.
"The Internet makes it pretty easy for the consumer to research airline fares and buy tickets," said Fiona Swerdlow, senior analyst at Jupiter.
But there could be some turbulence on the horizon in the form of airline mergers and online initiatives.
 In a recent report, Jupiter said online travel agencies held onto their customers in 1999, maintaining 51 percent market share despite aggressive moves by suppliers—primarily airlines.
The report noted suppliers are becoming more aggressive in getting customers, using such tactics as offering bonus points for direct online booking. Also, a group of major U.S. air carriers announced they were funding a joint venture to sell tickets on the Internet.
"Suppliers are positioned to capture 55 percent of total online bookings in 2005," the Jupiter report said, "as long as they don't stumble on internal organizational confusion or channel conflict controversy."
Competitive wind shear?
Airline merger stories have been lighting up the sky recently. Reports on Wednesday said AMR Corp. (AMR: Research, Estimates) subsidiary American Airlines and Delta Air Lines (DAL: Research, Estimates) had held preliminary talks about a combination. Also, British Airways confirmed it had held talks with KLM Royal Dutch Airlines.
And late last month, UAL Corp. (UAL: Research, Estimates) announced that it had agreed to buy US Airways Group Inc. (U: Research, Estimates), the nation's sixth-largest carrier. 
Then there's T-2.
Though it may sound like a summer movie sequel, T-2 is a proposed site funded by a group of major U.S. air carriers. The site would give access to the fares of all major airlines and allow travelers to shop based upon either desired travel schedule or best fare available.
The airlines forming T-2 maintain their portal will satisfy all regulatory requirements, while travel agents have blasted the plan as "a serious threat to consumer welfare."
The U.S. Justice Department is reviewing the project, while European carriers and Asian airlines have similar plans. In addition, the Senate Commerce Committee has scheduled hearings for June 22 on Internet airline ticket sales with Arizona Senator John McCain presiding. Among those scheduled to appear are representatives from T-2, the American Society of Travel Agents and Travelocity.com Inc. (TVLY: Research, Estimates), the No.1 online travel destination.
Should consumers be concerned about all the activity? Experts are divided, with some saying travelers could be closed out of a newly configured Internet frontier, while others said the online air ticket market is too big and too competitive to be dominated by an industry consortium.
Clear skies
The people at Priceline.com (PCLN: Research, Estimates), the Web site where customers submit their own prices for airline tickets, groceries, hotel rooms and other items, say they are not concerned about the merger activity.
"They still fly upwards of 600,000 empty seats every day and need help filling them," said company spokesman Brian Ek. "That's not going to change.  Once a flight takes off with an empty seat, the airline gets no money."
Mark Rowen, senior analyst with Prudential Securities e-commerce section, said it is difficult to say what the future holds.
"Any time there's a huge industry consolidation," he said, "there's a possibility suppliers would take a capacity out of the system. But there are lots of hurdles and things to unfold yet."
Richard Gritta, finance professor at the University of Portland's Robert B. Pamplin Jr. School of Business Administration, said the airline industry overall does not have a good track record when it comes to pricing. When a smaller airline is bought or goes under, he said, prices usually go up.
"Ultimately, they may create their own central warehouse," he said. "You've got three or four big players running the game you're going to get socked.
"To me," Gritta added, "it would be perplexing if the government goes after Microsoft (MSFT: Research, Estimates) and does not come out against these major airline mergers."
Multiple channels
Ultimately, experts say, airlines want to sell tickets and at least for now, they're looking at all possible channels, including the online travel agencies.
"T-2 could certainly pose a pretty strong competitive threat to Travelocity and Expedia (EXPE: Research, Estimates)," said Swerdlow of Jupiter Communications, "but airlines have always supported their multiple channels. They know multiple channels are a good thing."
Steve Weinstein, vice president and senior research analyst at Pacific Crest Securities, said the T-2 portal would need a long runway before it could take off.
"This is a start-up business," he said, "with no brand, no management, no infrastructure, entering what is a well-established and very competitive space."
In addition, Weinstein said, several competing airlines may not work together effectively and an air carrier may be more inclined to list a great deal on its own Web site rather than on the group site.
"There is a lot of excess capacity," he said. "By the time it gets up and running, it's going to be a tough battle for T-2 to really gain any significant market share to be a threat to Travelocity or Expedia. You're talking about a massive market. There's certainly room for a handful of players." 
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