Department of Transportation (1990, p. 41) concluded that frequent flier programs influence choice and give an advantage to large carriers. Levine (1987, p. 454) summarizes the importance frequent flier programs by concluding that for a new entrant operating on a small scale frequent flier programs are “a major obstacle rather than a mere marketing detail.”

It seems clear that frequent flier programs represent an artificial economy of scale that can, but need not, advantage large carriers and disadvantage small ones.

#### 4.2. Computer Reservation Systems

The first commercially successful airline computer reservation system (CRS) was American Airlines' Sabre system introduced in 1976. United's Apollo system was introduced later that year. The rapid development of computer technology combined with the proliferation of fares under deregulation has led to the increased importance of CRSs and travel agents. The U.S. Department of Transportation (1990, pp. 1, 12) reports that the percentage of tickets sold by travel agents increased to about 80 percent in 1988 from 38 percent in 1977. Today there are four CRS systems in the United States, the two largest being Sabre and Apollo, which in 1988 had a combined 66 percent (revenue) market share (U.S. Department of Transportation, 1990, p. 51).

Because of the importance of CRSs in airline bookings, virtually all airlines (the notable exception being Southwest Airlines) list their flights on all four CRSs. Although CRSs allow small carriers to have their flight offerings displayed throughout the world, they also appear to give an advantage to the carriers that “host” $ ^{18} $ them (U.S. National Research Council, 1991). Three issues relating to airline competition emerge from the current (and past) functioning of the CRS market: display bias, incremental revenue, and booking fees.

CRS systems initially were programmed to display the flights of their host carrier more prominently than for other carriers by, for example, placing them on the first screen of flights. Since a large fraction of flights are booked from the first screen, this gave an apparent advantage to the host airlines. In the U.S. screen bias was outlawed by the Civil Aeronautics Board in 1984. However, airlines hosting CRSs still appear to have an advantage over non-host carriers in that they receive “incremental revenue,” i.e., revenue greater than one would predict if the carrier did not host a CRS. Incremental revenue is attributed to the “halo effect,” which may be due to several factors. One is so-called “architectural” bias in the computer reservation systems. According to the U.S. Department of Transportation (1990, p. 46) architectural bias (may) arise because travel agents have greater confidence in the accuracy of the host airline's information and because it (may) take less time for the agent to book a traveler on the host carrier's flights. Also, CRS vendors offer (software) enhancements that favor the host airline. Another explanation for incremental revenue is the ongoing business relationship between the CRS host and travel agents may make the agents more likely to book on the host airline (U.S. National Research Council, 1991, p. 148). Whatever the cause of the halo effect, the U.S. Department of Transportation (1988)