A Brief History of How Airlines Sell Tickets

Welcome to “Distribution Week” here on The Cranky Flier. Today I’m looking at a brief history of how airlines sell their tickets, aka distribution. Tomorrow I’ll look at how the airlines want to sell tickets in the future. Then on Thursday I’ll wrap it up with a look at the hurdles the airlines face in making this a reality.

A couple weeks ago I wrote about the new Farelogix interface and promised I’d follow up soon with why you can’t use that today. But as I started digging in, I found that this issue was far more complex than even I thought it would be and I’ve been looking into this for quite some time. I’ve talked to airlines, Global Distribution Systems (GDSes), corporate travel managers, and more, and now I’m wrestling with the tough task of trying to boil this down into something coherent. As Cory Garner at American Airlines said, this is the kind of stuff a grad student will write a thesis on.

The problem is that there are a lot of different players in airline distribution and there are some very old, goofy business models that have created incentives to stifle innovation. Let’s start with this basic snapshot of how airlines sell tickets today.

Current Airline Distribution

The funny thing is that this model doesn’t have to actually change much for the airlines to do what they want to do. It’s the responsibility of each player that needs some tweaking to support the kind of innovation airlines would like to see. One thing is clear: you can’t stop innovation if it’s good for the end user. That’s the beauty of disruption. But when you’re a big player with a lot of clout, you can slow it down. In the end, you lose if you play that game, and I think that all players involved are going to realize that sooner or later. But we aren’t there yet, so it’s quite the slog.

Naturally, it’s hard to predict the future, but there are airlines out there that have a strong vision of how they’d like to sell tickets someday. And that’s where I’m going to take this tale tomorrow. But first, we need to look at how we got to where we are today.

A Brief History of Airline Distribution
A long, long time ago in a galaxy far, far away, airlines did everything by hand. You would call the airline or a travel agent for a reservation. They might not have been able to confirm immediately because they had to go to find the file where that flight availability was written down and then check off a seat for you. Pricing was fixed by the government, so it was never an issue of what the price would be – just if there were seats available.

As things got more complex, the airlines began working on a computerized reservation system (CRS). The first was American’s Sabre system and that was a huge leap forward because the airline could instantly look up availability from throughout its network. But soon American realized that if it could roll out its computers in a network to travel agents, then it could make millions. American knew that it would have to display all airline flights or it wouldn’t be compelling enough for agents to bother, but it could put its flights at the top of the list (using what today they call “bias”) and sell more seats, stealing share from other airlines. United did the same with its Apollo system and the race was on. Eventually bias was outlawed, though today it is legal in the US even though it’s banned in many other places around the world.

When deregulation occurred in 1978, airfares became much more complex and the CRS became necessary not just for availability but for performing these complicated calculations. The system that was in place back then is effectively the same that’s in place today. Fares were filed with a third party group called ATPCO while schedules were filed elsewhere. These fares were filed in specific “buckets” of availability. If there was a seat made available by the airline in the required bucket, that fare could be sold.

So the CRS (which morphed into a Global Distribution System – GDS), took the schedules and fare information from those relatively static sources and then sent a real-time request to the airline for bucket availability. Bringing those three pieces together, the GDS could calculate and push out all offers. The travel agent could make a decision and then book a flight with the GDS. When that happened, the GDS would send the booking back to the airline electronically. It’s quite an impressive system considering it was built before the internet.

Originally, regular travel agents were the only GDS users outside of the airlines. Travelers either had to call airlines or travel agents to book a flight. But then the internet magically appeared (or something like that). And online travel agents (OTAs) were set up to show the results from the GDS directly to travelers online. People could book directly, or so they thought. In reality, the same GDS processing was still happening behind the scenes – it just removed the human intermediary. For the GDSes, this was like a cash register. Every time anything was booked, the GDSes collected several dollars per flight segment from the airlines. It plowed some of that back into the OTAs to make sure they didn’t think about jumping ship to another system. They were able to mint money.

Of course, the airlines themselves built their own websites early, and have now succeeded in pushing a big chunk of their sales to those sites. These allow the airlines to bypass the GDSes and sell direct, and that has given the airlines some leverage at getting fees reduced. Throughout the 2000s, as airlines started changing the way they sold tickets from just “price and schedule” to include ancillary options, the websites became the only vehicles that could adequately support that. But it’s not just about having ancillary options displayed. It’s now about being able to know more about the traveler so airlines can tailor the offers they provide. If this sounds scary, it’s not a surprise. But it really is a good thing, and I say this as someone who certainly has concerns about privacy.

Tomorrow, I’m going to get into the details of how airlines would like to sell tickets and why it’s good.


14 Responses to A Brief History of How Airlines Sell Tickets

  1. Hi
    you seem to have missed out Travcom as the forefather of technological distribuion of seats and price. I think you might find that we are about to compleat the circle and finsih up with a similer methodoligy

  2. Back in my TWA days, it was fun to listen to the ‘old timers’ who were around before computers and listen to how they used to book reservations. Walls of chalkboards with flights written on them and having to go look up in a card file type system set up for each flight/day to see if there was room.

    Calling up people to let them know space was available for them and hearing how happy they were to get on the flight they wanted.

    Now it seems the less human contact there is the more problems there are and the more stressful it all is. And when you do talk to a human they no very little on how to do their job or about the company they work for.

    And technology was to make things better?????????

    • I remember reading that on the old system the error rate was huge, and when things were computerized the error rate came down by a factor of ten. So while people were happy that they could fly in the old system, I’m sure there were problems that annoyed people as well.

  3. Pedro says:

    Nice post. I wrote two posts about the particular beginning of airlines reservations systems at Iberia and Aviaco airlines. If you are interested, please visit this posts:
    http://www.aeriaa.com/tag/reservations/

  4. Mke says:

    hi cranky,

    you dont seem too worried the GDSs of this world will cut you (cranky concierge) off ;-) ?

    • CF says:

      Mke – I think you’ll be surprised that on Thursday, I won’t be bashing the GDSes. There are some that are enlightened and there are good examples of success cooperation out there today.

  5. Marcus says:

    Thanks for writing this, very enlightening. Interesting that online travel agencies aren’t as “direct” ways of buying airline tickets as most people would think.

  6. On a slight tangent, how do Hotels do their online booking?

    • CF says:

      Noah – Hotels are a whole different story and I have more limited understanding of that. But in general, hotels use platforms like Pegasus or Synxsis for their internal system. The those third parties interface with the GDSes to sell in there. But the GDSes don’t push the same kind of constraints on selling outside the system. That’s why I, as a travel agent, can book any hotel on its website and enter my IATA (agency identifier) number and still earn commission. Revenues then flow directly between the hotel and the agency, but that’s not the case with flights.

  7. JayB says:

    Cranky, You do a very good job with a minimum of words.

    There is a wonderful history to all of this. For those of us who lived during the CAB era and when, well, you think we have Big Government today and too many regulations, you should have grown up back in the yester-years.

    Government was really something. Trying to do business with the Government meant you really had to design one system for the Gov and another for the rest of the world.

    Obviously, the Government was a huge customer, even back then. Government travel procurement was by something called a Government Transportation Request, like the freight Government Bill of Lading, which were designed by bureaucrats to allow the accounting of the various accounts and audit. God’s gifts to the world of transportation documentation, certainly not something to aid in progress in the private sector.

    No internet, no charge cards, and no using travel agents. Travel agent use was prohibited until 1984, fully supported by the airlines and the Air Transport Association, basically over the matter of commissions. But, we had real, live tickets, and timetables. Wonderful!

    CAB was put out to pasture and no one, not even the Goverment could stop progress. For many of us, of course, progress meant that we could no longer simply call up the airline and ask if there was a seat available on such and such flight and day (never mind the fare, there was really only one). No, no, now there is seemingly a million fares in every market, with scads of rules and regulations (like a bureaucraft might write) plus this new thing called inventory control. “Look as us right and we might open a seat at that fare. Otherwise, get out of my life!”

    Well, that was then and this is now. But, if you like to delve into history, oh my, there is a lot of stuff out there. And to the Airlines for America folks, quit complaining about all the regulations. This is nothing like way back when.

  8. Pingback: A Vision of How Some Airlines Want to Sell You Tickets - >> The Cranky Flier

  9. William S says:

    Lovely article.

    I look forward to seeing what you have to say on GDSs’ on Thursday :)

    I don’t think they are the ‘big bad’ as years before the internet they were booking flights, hotels, car hire and excursions.

    I know airlines don’t like GDS’s much now because they do things like search availability and price the cheapest option for a specific route which doesn’t suit them. And how annoying to have to share your shop window with your arch rival!

  10. Dale says:

    Nicely written history of airline reservations/ticketing. One of your commenters brought up the Civil Aeronautics Board [CAB] and compared government regulation then (pre-1978) and now. The theory back then was industries eventually ‘captured’ the agencies that were initially created to regulate them. That seems a quaint view given the prevalence of corporate money in elections/lobbying/legislation today.

    The push for deregulation back then made for strange bedfellows–Ted Kennedy and the American Enterprise Institute, both for; all airline CEOs (except Dick Ferris of United) and all unions, against. It’s taken 35 years for the airline industry to find a measure of stability–thanks to mergers, ridding themselves of debt through bankruptcies, limiting the number of seats made available, and focusing on profitability versus market share.

    Part of Kennedy’s push for airline deregulation was that it would be a ‘democratization of flying.’ I’m not sure that’s actually happened. Sure the supporters of deregulation cite the much higher percentage of Americans who have flown; but I think, it’s another chapter of an older story–“the rich get richer.” There was an early (Brookings?) study that showed the much of the increase in flying was the result of the wealthy flying more. Given the growth in income inequality since the 70s/80s it would be interesting to see an update of such a study. Lastly, the frequent flyer programs–which for more than a decade have been a boon for airlines because of the hundreds of millions of dollars they derive each year from banks ‘purchasing’ miles–is an bizarre example of giving 6-9% the product (seats) away to those customer most able and likely to actually purchase the product. My apologies for going on. Once again a good job on your history!

  11. Pingback: Why Changes in Airline Distribution Take So Long – A Look at What the Players Stand to Gain and Lose - >> The Cranky Flier

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