Global Experience Industries. Jens Christensen

such as Air Berlin. The USA aviation industry is also hit by the discount wave, Southwest Airlines being now one of the largest US airlines. The discount attack has threatened to ruin large and traditional airlines in United States and Western Europe. In order to survive, radical reforms have taken place in these airlines, cutting down costs by outsourcing and reorganizing from bureaucratic to flexible and market-oriented organizations.

FIGURE 10 Regional Revenues of the Global Airlines Industry in $bn, 2005

      Source: ATW (2006). World Airline Financial Results 2005: www.atwonline.com.

      The global airline industry is a gigantic business sector, including about nine hundred airline companies.³⁰ Annually, they transport a continuously growing number of passengers that reached about 2 billion in 2005, served by seventeen hundred airports and a route net counted in millions of kilometers. Until the 1990s, the majority of the global airline traffic took place in or between North America, Western Europe, Japan and Oceania. Within the past decade, the Chinese development has made East Asian aviation expand enormously. The three leading regions of North America, Western Europe and East Asia and Oceania now comprise more than 90 percent of global aviation (Figure 10). Airlines are crucial to international tourism and an important economic sector with global annual revenues of $500 billion. More than half of this income is made by the world’s 20 largest airlines, such as Air France, Lufthansa, British Airways, SAS, and Ryanair in Western Europe, American Airlines, United Airlines, Delta Airlines, Northwest Airlines, and Continental Airlines in the US, and Japan Airlines and All Nippon in Japan.³¹

      Even though airlines for historic reasons have been divided into many national companies, they have for decades cooperated on a global scale enabling passengers to fly easily to most parts of the world. As a consequence of standardized tickets and economic sharing organized via IATA (International Air Transport Association), with one ticket you can reach your goal by way of all airlines needed.³² Because discount airlines only sell tickets point-to-point they are excluded from this service.

      Although the consolidation of airlines is moving on only slowly, liberalization and globalization have made airlines join in less binding ways. Three global alliances have emerged to achieve benefits of rationalization and improved customer services: Star Alliance, One World, and Sky Team.³³ The leading members of Star Alliance include United Airlines, US Airways, Air Canada, Lufthansa, SAS, Varig, Singapore Airlines, Thai Airlines and South African Airways. Included in One World are American Airlines, British Airlines, Iberia, Cathay Pacific Airways, Qantas Airways, Aer Lingus, Finnair, LAN and Japan Airlines. The third global alliance, Sky Team, comprises Delta Air, Continental Airlines, Northwest Airlines, Air France and KLM Royal Dutch Airlines, Alitalia, Aeroflot, CSA Czech Airlines, Aeromexico and Korean Air. The route net of each of the three alliances embraces practically the whole world, making them work almost as three large airlines. The majority of all business and holiday travelers fly by way of the members of the three alliances and their individual airlines that offer web-based booking and ticket sales, too. Furthermore, airlines cooperate with most of the other actors in international tourism, including tour operators, travel agencies, insurance companies, electronic card providers, car rental companies, etc.

      Reservation Systems

      The large American airlines played an active role in developing international tourism. Not only did they transport people, they also used the emerging liberalization of the 1980s to turn their reservation systems into a dynamic driver of many sub-sectors of tourism. The majority of travel agencies were being linked to the leading airlines’ reservation systems, and by 1990 in the United States a triopole of American Airlines’ SABRE, United Airlines’ APOLLO, and WORLDSPAN, merged Trans World Airlines, Delta Air and Northwest Airlines, controlled 90 percent of all American travel agencies.³⁴

      Threatening to enter Europe, West European airlines quickly responded to the American challenge in reservation systems. First they tightened their hold on national travel agencies. British Airways took control of Travicom and thereby most British travel agencies. In Germany, Lufthansa did the same through Start, and SAS through Smart in Scandinavia. Next, the airlines prepared for an approaching liberalization of West European aviation that inevitably would bring the larger American reservation systems into a stronger position, if no countermeasures were taken. In the late 1980s, the leading European airlines initiated the building of two common international reservation systems that on a global scale were able to make a stand against the American systems. Lufthansa, Air France, Iberia and SAS developed AMADEUS, while GALILEO was established by British Airways, Alitalia, Swissair, and KLM in cooperation with American APOLLO of United Airlines, which formed the basis of Galileo. Both systems ‘took off’ in the early 1990s, just before the liberalization of the European aviation market.

      By way of the alliance with United Airlines, the four European airlines behind Galileo bridged the Atlantic, while Sabre was already moving into Western Europe. A similar development took place in Asia. Japan’s largest airline company, All Nippon Airways, Hong Kong’s Cathay Pacific Airways, and Singapore Airlines, developed their common reservation system ABACUS. By the end of the 1990s, Abacus merged with Sabre. Since the late 1990s, four reservation systems dominated world air transportation: Sabre, Galileo, Worldspan and Amadeus (reduced to three since 2006 when Galileo merged with Worldspan under the name Travelport).

      As a consequence of liberalization or deregulation, the four global reservation systems eventually separated from their mother companies and were turned into independent global distribution companies open to any customer, although mother companies kept a preferred position in a transition period. Large databases of these distribution systems contained all vital travel information and became the basis of linking sellers and buyers of travel services and eventually many other kinds of tourism services, including every form of transportation, accommodation, car rental, insurance, travel agencies, etc. At the same time, the booking systems of the individual airlines were reduced to internal warehouses.

      Hardly had the four systems conquered the world market of travel information distribution when they were challenged by a new technology, the Internet. The breakthrough of the Internet since the late 1990s paved the way for web-based travel agencies that threatened to reduce the global reservation systems into pure transaction systems. At the same time, these online travel agencies and tour operators were not only customers of the large distribution systems but also their competitors. Sabre, Galileo, Worldspan and Amadeus met the new challenge in two ways. Firstly, they developed improved search and decision support systems to their many customers in the travel business. Secondly, they started or bought strong and expanding online travel agencies to create the vital direct link to consumers.

      The competition in consumer distribution channels intensified. All actors moved their activities upwards in the value chain from simple distribution to online services. In the same way, airlines built web-based links to their customers, as did Sabre, Galileo, Worldspan and Amadeus, as well as web-based travel agencies and tour operators. Since the early 2000s, distribution companies, airlines, travel agencies and tour operators, and even hotels and other services providers of the tourism industry, have all established online relations to consumers.

      Travel Agencies and Online Distribution

      Until recently, travel agencies have been the key intermediary between travel suppliers and consumers. However, the breakthrough of IT and in particular the Internet has allowed travel suppliers and consumers to interact directly, thus threatening the existence of the traditional travel agent.³⁵ As a consequence, airlines, hotels and other suppliers are on the one hand invading the travel agent market, and on the other hand, consumers increasingly turn to independent travel. To meet the increasing competitive pressure of tourism suppliers and changing consumer behaviour, the travel agencies have responded by a radical move into online distribution and by widening their tourism services to include virtually all aspects of a travel.³⁶ New online agencies are rapidly replacing the traditional agencies, or traditional agencies are upgrading