Airline Competition

Impact of Computerized Reservation Systems Gao ID: RCED-86-74 May 9, 1986

Pursuant to a congressional request, GAO examined the effects of airline-owned computerized reservation systems (CRS) on competition in the airline industry, focusing on: (1) conflicting studies on system profitability conducted by two system-vendor airlines and a consultant; and (2) a Department of Justice report on the structure and performance of the market.

GAO found that: (1) a group of airlines has charged that the airlines that own the two largest systems have used them to create an unfair competitive advantage; (2) before the now-defunct Civil Aeronautics Board (CAB) promulgated system rules in 1984, systems used biased screens which displayed the owning airlines' flights first in the listings of available flights; and (3) other airlines have charged that vendor airlines also charge unreasonably high rates to competitors for system participation and use information gained from their systems to gain an unfair advantage. GAO also found that: (1) the consultant study reported that the two airlines underreported the profitability of their systems; (2) the consultant overestimated potential incremental revenues for the two vendor airlines, but the airlines erroneously determined that they would earn no incremental revenues for the period after CAB implemented its regulations; and (3) while the study was flawed, its conclusion that the two airlines underestimated potential profitability was accurate. In addition, GAO found that Justice reported that: (1) the market will probably remain highly concentrated, with the two largest airline-owned systems controlling about 70 percent of all domestically booked travel revenue; (2) the prospects for a new entry into the market are slim unless a competitive group buys out a smaller system and attempts to make it more competitive; and (3) vendor airlines could still use their market power to increase booking fees for airlines using their systems.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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