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The Honolulu Advertiser
Posted on: Tuesday, August 31, 2004

Northwest fees bring retaliation

By Dan Reed
USA Today

The fury about Northwest Airlines' new ticket fees is the latest battle in a bigger war between the financially struggling airline industry and dominant players in the business of travel reservations.

A Northwest Airlines fee of up to $10 on tickets from four main travel distribution systems has brought protests from the companies, corporate travel managers and frequent fliers.

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With its decision to impose fees of up to $10 on tickets not bought through the company Web site, Northwest is taking aim at the four main travel distribution systems — Sabre, Worldspan, Amadeus and Galileo.

Northwest's policy would add $3.75 — $7.50 for round trips — to tickets bought through agents using those reservation systems.

The companies, backed by travel agents, corporate travel managers and frequent fliers, have retaliated. They've protested, filed lawsuits, complained to the Justice Department and promised to give Northwest's flights secondary display.

However the dispute turns out, consumers will continue to pay the costs of distributing tickets.

At stake in this battle is how high future distribution costs will be, and which business gets the money.

Airlines now pay distributors between $12.50 and $14 per ticket. As some Web-oriented low-cost airlines have shown, the cost of issuing a ticket directly to the customer can be a fraction of that.

That makes ticketing costs a particularly inviting target to big, money-losing airlines such as Northwest.

Henry Harteveldt, travel industry analyst at Forrester Research, says today's low-fare environment means fares are unlikely to rise, increasing pressure on airlines to cut costs. Distribution costs, he says, are ripe for cutting.

Harteveldt says airlines can attack high distribution-systems costs in two ways — by encouraging customers to book directly via the Internet, or by encouraging lower-cost competitors to the current distributors.

Northwest's ticketing surcharge is an effort to drive more customers to a direct Internet ticket purchase. On Wednesday, it will begin charging extra for travelers who don't book online. Friday, it began levying a $10 fee for tickets bought at airport counters and $5 for phone purchases.

Northwest and other big airlines also are encouraging development of ticket distributors to provide the service at a lower cost.

Connecticut-based start-up Kayak software, for example, has the big airlines' tacit support for a new low-cost, Web-based comparison-shopping and referral service expected out this fall. CEO Steve Hafner says Kayak could cut airlines' per-ticket distribution costs by more than half.

Chicago-based G2 SwitchWorks plans a Web-based distribution network next year. Called Trueconnect, it will run on low-cost servers instead of the huge, expensive mainframes used by the big traditional distributors. For $3 per ticket, it will tap directly into an airline's internal reservations systems, bypassing the big distribution systems. Seven major airlines have signed on.

The big distribution systems are taking the threats seriously. Each is investing in new technologies to lower their costs.

"Whether it's new competitors or old ones, we've always found a way to stay a step ahead of them, and we will this time," says Sabre spokesman Michael Berman