The U.S. airlines’ reliance on Internet bookings may end up costing
them more in revenue than it saves them in distribution costs, an
airline financial analyst said in a recent report.
“Unfortunately, the Internet is quickly moving from positive to
negative status,” J.P. Morgan analyst Jamie Baker told investors.
“We believe the industry is fast approaching the point where the
pricing transparency inherent to the Internet will cost carriers
more in lost average fare than it otherwise saves in distribution
expense.”
Baker made the comments in a report in which he estimated U.S.
airline Internet revenue likely surpassed 20% in the third quarter,
which, he added, is “not necessarily a good thing.”
“Combined with a growing discount sector, the Internet is
expected to significantly retard any improvement in industry
pricing that would otherwise accompany a strong economy or a
gradual relaxation of corporate travel restraint,” Baker said. “For
anyone anticipating a return to the yield levels of 1999 and 2000,
we would suggest you’ve underestimated the role of the
Internet.”
Meanwhile, a New York Times article last week cited the
success of the major airlines’ online travel agency, Orbitz, as
compounding the beleagured airline industry’s biggest problem:
falling revenue.
“By disseminating their Web fares so widely on Orbitz, the
airlines have created another way to rachet fares even lower when
they can least afford it,” the newspaper reported.
The Times quoted Edward P. Gilligan, president of
American Express Global Corporate Services: “The airlines are
shooting themselves in the foot. Web fares are so low that more
business travelers want them, even with the restrictions. The
airlines are cutting their fares by 50% or 60% to save 2% in
distribution costs.”
