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Asian Wall Street Journal

June 7th, 2000

Asian airlines aim to fare better with new web site

U.S. airlines are banding together to build a $100 million joint Internet site to lure Web surfers away from independent competitors such as Expedia Inc. A group of 11 European airlines said last month it would invest at least $50 million to do its own.

Coincidentally or not, major Asian-Pacific airlines are cooking up a site, too. Qantas officials say they are talking to six of the region's airlines, including Cathay Pacific Airways and Singapore Airlines, about setting up a site by year end.

But don't hold up your trip planning to wait for it. Even the U.S. site, announced eight months ago, has yet to announce a name, though it is supposed to launch this month. (SIA, Air New Zealand, All Nippon Airways and Korean Air Lines are among the airlines that agreed to be charter associations of the U.S. site and provide "comprehensive seat inventories at fares as low or lower than those available from any other source.")

Industry observers say Asia's leading airlines will face special obstacles to getting a site launched here, but add the carriers may have some advantages as well.

One factor that will have an impact on the U.S. site is a Justice Department probe into whether the site would give airlines improper access to one another's prices and allow for price collusion.

Asia's relatively undeveloped antitrust rules mean this shouldn't be much of an obstacle to an Asian airline site, say most observers. But Australia's competition authority could stand in the way. It already is investigating Qantas for several alleged instances of anticompetitive behavior; on Monday, it announced an inquiry into whether Qantas and rival Ansett Australia inhibit competition by giving customers unrealistic expectations about their ability to redeem frequent-flier points.

A cartel could be hard to form anyway, given the often intense competition among the major Asian carriers. Cathay, SIA and Malaysia Airline System used to operate a joint frequent-flier program that Lane Leskela, research director for the Gartner Group in Hong Kong, says was unsuccessful because of their rivalry. He is doubtful the carriers will get far with a joint site since, unlike other cooperative airline ventures such as the Abacus International reservation system, the site would involve targeting customers that each airline covets for itself. Mr. Leskela expects Web sites built around the global airline alliances, such as oneworld, which includes Cathay and Qantas, and the Star Alliance, which includes SIA, to hold together better.

Special Fares Available

Cathay, Qantas and SIA each introduced limited online booking on their own Web sites last year. Most of what they have made available so far are full-fare tickets, which have given travelers little reason beyond convenience to use the sites. SIA has some special fares available on its site. Cathay in April began offering travelers 1,000 bonus frequent-flier miles for booking online and has some promotional fares available with travel packages on a separate part of its site. None of them will disclose figures for registered users or ticket sales.

Jon Stonham, managing director of travel site asia-hotels.com, says the airlines are faced with the challenge of setting up a site that will offer enough discounts to attract new customers but not so much as to tempt loyal full-fare fliers. Asian airlines also will be wary of drawing away customers too fast from travel agents, as they depend more than American and European carriers on agents for their sales and have stronger ties to them, says Jaap Favier, a Senior analyst with Forrester Research in Amsterdam.

A Fine Line

But in the view of Timothy Ross, an airline analyst with UBS Warburg Asia Ltd., that greater use of agents means the airlines can take away some of that business while still leaving a lot behind. In a recent report, he wrote that travel agent commissions and other distribution costs represent 15% of Qantas's total revenue, compared with 10% for the average airline in the region. Increasing the share of international bookings done directly from 10% to 15% would save the airline A$18 million (US$10.4 million), Mr. Ross estimates.

Other factors that could hinder the takeoff of an Asian airline site are the reluctance of consumers in the region to make credit-car purchases online; the diversity of languages, cultures and regulations; and the higher proportion of travel that is international and potentially more complicated to handle. But the airlines have more reason to move forward than saving money: The U.S and European sites would likely expand this way otherwise. Moreover, successful independent U.S. sites such as Expedia and Travelocity.com Inc. are already looking at Australia and other markets, says Ahmed Fahour of Boston Consulting Group, which is putting together the U.S. site.

Zach Coleman


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