a

GAO

United States General Accounting Office

Report to Congressional Requesters

July 2003 AIRLINE TICKETING

Impact of Changes in 

the Airline Ticket 

Distribution Industry

GAO-03-749
Since the mid-1990s, two major changes occurred in the airline ticket 

distribution industry, and these have produced cost savings for some major 

U.S. airlines. First, airlines developed less expensive Internet ticketing sites 

that bypass global distribution systems and their fees and encouraged 

passengers to book via Internet sites. Between 1999 and 2002, on average, 

the percentage of tickets booked on-line, including airline-owned Websites 

and on-line travel agencies, grew from 7 percent to 30 percent. Second, in a 

related effort to trim costs, airlines cut the commissions they traditionally 

paid to travel agencies. However, these changes have not eliminated airline 

dependence on global distribution systems. 

Less expensive Internet-based airline bookings have increased over time 

These changes have had mixed effects on travel agents and consumers. Very 

large travel agencies (those with more than $50 million in annual air travel 

sales revenue) appear to have benefited from volume-based incentive 

payments from airlines and global distribution systems, while smaller travel 

agencies have closed or lost business, especially to on-line travel Websites. 

Consumers who use the Internet have benefited from lower internet-only 

fares. Travelers who do not buy airline tickets on line may be at a 

disadvantage in not having access to these fares. 

Because we lacked access to proprietary company information, we could not 

determine the precise relationship between global distribution system 

booking fees and related costs, and thus could reach no conclusions about 

potential exercise of market power by global distribution systems in the 

airline ticket distribution industry. Since 1996, booking fees and some costs 

related to the booking function—computing costs and travel agent incentive 

payments—both increased. However, we could not obtain data on all 

expenses related to the booking function, and thus could not accurately 

compare these costs to booking fees. DOT provided us with technical 

comments, which we incorporated as appropriate. 

In 2002, when major U.S. airlines 

posted net operating losses of 

almost $10 billion, they paid over 

$7 billion to distribute tickets to 

consumers. Of these total 

distribution expenses, airlines paid 

hundreds of millions of dollars in 

booking fees to global distribution 

systems—the companies who 

package airline flight schedule and 

fare information so that travel 

agents can query it to “book” (i.e., 

reserve and purchase) flights for 

consumers. Each time a consumer 

purchases an airline ticket through 

a travel agent, the global 

distribution system used by the 

travel agent charges the airline a 

set booking fee. Concerns have 

been raised that the global 

distribution systems may exercise 

market power over the airlines 

because most carriers are still 

largely dependent on each of the 

global distribution systems for 

distributing tickets to different 

travel agents and consumers and 

therefore must subscribe and pay 

fees to each. Market power would 

allow global distribution systems to 

charge high, noncompetitive fees to 

airlines, costs that may be passed 

on to consumers. 

GAO was asked to examine 

changes in the airline ticket 

distribution industry since the late 

1990s and the effects on airlines, 

the impact of these changes on 

travel agents and consumers, and 

what the relationship between 

global distribution systems’ 

booking fees and related costs 

suggest about the use of market 

power. 

www.gao.gov/cgi-bin/getrpt?GAO-03-749.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker, 202-512-2834, HeckerJ@gao.gov. 

Highlights of GAO-03-749, a report to 

congressional requesters 

July 2003 

AIRLINE TICKETING 

Impact of Changes in the Airline Ticket 

Distribution Industry 
Page i GAO-03-749 Airline Ticket Distribution

Contents

Letter 1

Results in Brief 3

Background 5

Major Changes Occurred in the Use of the Internet and Travel Agent 

Compensation in the Airline Ticket Distribution Industry 14

Changes in the Airline Ticket Distribution Industry Appear to Have 

Benefited Very Large Travel Agencies and Consumers Who Use 

the Internet 28

Sufficient Data Were Not Available to Determine the Relationship 

between Booking Fees and Costs and the Presence and Use of 

Market Power 32

Concluding Observations 34

Agency Comments 36

Appendixes

Appendix I: Objectives, Scope, and Methodology 37

Appendix II: Computing Cost Trends at Global Distribution Systems 40

Appendix III: GAO Contacts and Staff Acknowledgments 41

GAO Contacts 41

Acknowledgments 41

Figures Figure 1: Summary of Historic Airline Ticket Distribution 

Relationships Prior to the CRS Rules 8

Figure 2: CRS Relationships with Travel Agencies and Airlines 10

Figure 3: Summary of Historic Airline Ticket Distribution 

Relationships under the CRS Rules 12

Figure 4: U.S. Domestic Booking Share of Global Distribution 

Systems Bookings, 2002 13

Figure 5: Average Airline Booking Costs Per Distribution Method, 

1999-2002 20

Figure 6: Average Airline Bookings Per Distribution Method, 

1999-2002 21

Figure 7: Number of Airline Tickets Processed through and outside 

GDSs, 1999-2002 23

Figure 8: Average Annual Airline Total Distribution Costs, 

1999-2002 25

Figure 9: Average Payments to U.S. Travel Agents by Each GDS, 

1995-2002 26
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Contents

Page ii GAO-03-749 Airline Ticket Distribution

Figure 10: Summary of Payment and Fee Flows in the Current 

Distribution of Airline Tickets 27

Figure 11: The Number of Travel Agencies, by Amount of Annual 

Revenue and Volume of Air Travel Sales 29

Abbreviations

CRS Computer Reservation System

DOJ Department of Justice

DOT Department of Transportation

GAO General Accounting Office

GDS Global Distribution System

NCECIC National Commission to Ensure Consumer Information and 

Choice in the Airline Industry 
Page 1 GAO-03-749 Airline Ticket Distribution

United States General Accounting Office

Washington, D.C. 20548

A

July 31, 2003 Letr

The Honorable Mike DeWine

Chairman, Subcommittee on Antitrust, Competition

Policy and Consumer Rights

Committee on the Judiciary

United States Senate

The Honorable Herbert Kohl

Ranking Minority Member, Subcommittee on Antitrust, 

Competition Policy and Consumer Rights

Committee on the Judiciary

United States Senate 

In 2002, when major U.S. airlines posted net operating losses of almost $10 

billion, they paid approximately $7.3 billion to distribute tickets to 

consumers. Of these total distribution expenses, airlines paid hundreds of 

millions of dollars in booking fees to global distribution systems (GDS)—

the companies whose computer systems display airline flight schedule and 

fare information so that travel agents can query it to “book” (i.e., reserve 

and purchase) flights for consumers. Although distribution costs represent 

relatively small amounts of an airline’s total costs (labor and fuel represent 

nearly half an airline’s expenses), ensuring a competitive distribution 

system is important to the industry because it represents the link between 

airlines and the traveling public. In the United States, three domestic global 

distribution systems dominate the industry. Traditionally, each time a 

consumer purchases an airline ticket through a travel agent, the global 

distribution system used by the travel agent charges the airline a set 

booking fee. Concerns have been raised that the global distribution 

systems may exercise market power over the airlines because most major 

carriers are still largely dependent on each of the global distribution 

systems for distributing tickets to different travel agencies and consumers. 

Market power, which can arise where competition is lacking, may result in 

high, noncompetitive fees charged for services or goods. In this case, 

market power may be indicated by booking fees that bear little relation to 

booking costs. 

The precursors to global distribution systems, called computer reservation 

systems (CRS), were owned by the airlines. Since 1984, rules enforced by 

the Department of Transportation (DOT) have regulated the conduct of 

these systems to prevent airline owners of computer reservation systems 

from using their influence to benefit themselves by reducing competition 
Page 2 GAO-03-749 Airline Ticket Distribution

from other airlines, which could ultimately harm consumers. DOT 

regulations, commonly referred to as the “CRS rules,” were developed to 

prevent airlines that owned a computer reservation system from biasing 

the information on flights and fares that consumers received in order to 

impede competition. Effectively, the rules, which apply to computer 

reservation systems and global distribution systems, ended bias in the 

computer screen display of information that was used by travel agents to 

book tickets and now require major U.S. airlines to "participate" equally in 

each global distribution system. They also require computer reservation 

systems to charge airlines similar booking fees for similar levels of service, 

which limited airlines’ ability to negotiate over booking fees. As of July 

2003, when most airlines have sold off their shares in global distribution 

systems and the global distribution systems have become independent 

entities, DOT was reviewing the CRS Rules to determine if and how they 

should be revised. Many parties provided comments with differing opinions 

to DOT. Department of Justice officials stated that the global distribution 

systems have had and continue to have market power over the airlines. 

In light of the airlines’ dependence on the global distribution systems 

during this time of unprecedented financial losses, and in the context of the 

ongoing debate on the CRS rules, you asked us to examine issues related to 

the airline ticket distribution industry. As agreed with your office, this 

report focuses on the following questions:

• What have been major changes in the airline ticket distribution industry 

since the late 1990s, and how did these changes affect airlines?

• How have these changes in the airline ticket distribution industry 

affected travel agents and consumers?

• What does the relationship between global distribution systems’ 

booking fees and booking-related costs suggest about the presence and 

use of market power? 

To determine how the airline ticket distribution industry has changed and 

the effects on airlines since the late 1990s, we analyzed aggregated 

proprietary industry booking trend and cost data; examined DOT 

documents; and interviewed officials with the global distribution systems, 

several major airlines, and other industry experts. To describe how changes 

in the airline ticket distribution industry have affected travel agents and 

consumers, we analyzed travel agent and consumer ticketing fee data; 

reviewed major airline and various travel agency consumer fee policies; 
Page 3 GAO-03-749 Airline Ticket Distribution

and interviewed travel agents, industry group representatives, and DOT 

officials. To determine what the relationship between global distribution 

systems’ booking fees and related costs indicated about the presence and 

use of market power, we analyzed and compared data on global 

distribution system operating cost data, certain booking-related costs, and 

booking fees. To protect the confidential proprietary nature of individual 

global distribution system and airline information, we reported all costs 

and fees in terms of averages calculated from the companies that provided 

data. We limited the scope of this review to the three major U.S. global 

distribution systems--Galileo, Sabre, and Worldspan. These three systems 

handle 92 percent of the U.S. bookings. We were limited in our review 

because we did not have full access to proprietary airline, global 

distribution system, and travel agent data. However, we reviewed the 

comments submitted to DOT as part of its CRS rulemaking, including those 

of the Department of Justice’s (DOJ) Antitrust Division --government 

antitrust experts who conducted a market structure analysis of the ticket 

distribution system. We also discussed those comments with officials from 

the Antitrust Division. Because of a lack of historical data, we limited our 

review to the 4 years covering the period 1999 through 2002. Appendix I 

contains additional information on the objectives, scope, and methodology 

of this review.

Results in Brief Two major changes have occurred in the airline ticket distribution industry 

as airlines began to sell their shares in the global distribution systems in the 

mid-1990s, and these changes have helped airlines to cut distribution costs. 

• First, airlines have created and provided incentives to expand the use of 

various types of Internet-based applications that can bypass global 

distribution systems and their associated booking fees. These include 

airline Websites (e.g., www.continental.com), which bypass global 

distribution systems by using the airlines’ own internal reservation 

systems, and Orbitz, a travel technology company developed by a 

consortium of large U.S. airlines that has recently developed technology 

that allows it to book tickets without using a global distribution system. 

Other Internet-based travel agencies (e.g., Expedia, Priceline, or 

Travelocity—a subsidiary of one of the global distribution systems) use 

global distribution systems to book tickets but nevertheless cost airlines 

less than traditional travel agencies. Through various incentives, airlines 

have encouraged some passengers to book a growing portion of tickets 

on less costly Internet-based booking sites. 
Page 4 GAO-03-749 Airline Ticket Distribution

• Second, in another effort to cut distribution costs, airlines cut their sales 

commissions to travel agents. In response to overtures by the large 

travel agencies, on whom global distribution systems depend to reach 

large numbers of consumers, global distribution systems subsequently 

increased sales incentive payments to travel agencies. At the same time, 

both large and small travel agencies began charging consumers ticketing 

fees. Airlines, however, continue to provide commission payments, 

particularly to the largest travel agencies—both traditional and Internetbased. 

These changes have helped major airlines to reduce their total distribution 

costs by 25.8 percent, from 1999 to 2002, from an average of $732.9 million 

to $543.6 million, or 43.6 percent on a per booking basis. However, airlines 

continue to depend on global distribution systems to reach consumers, 

because over 60 percent of bookings (including the majority of all 

traditional travel agency bookings and some Internet-based bookings), and 

nearly all the relatively high yield business traffic, continue to be processed 

by global distribution systems. Furthermore, airlines continue to need to 

subscribe to each of the global distribution systems, and no new entry has 

occurred since the enactment of the rules in the 1980s to reduce the market 

power of each global distribution system.

These changes in the airline ticket distribution industry—the growing 

significance of the Internet and shifts in the payments to travel agents--

appear to have benefited very large travel agencies (those with more than 

$50 million in annual air travel sales revenue) and consumers who use the 

Internet. Very large travel agencies—whose total annual sales have almost 

doubled since 1995--appear to have benefited from a combination of 

increasing global distribution system incentive payments, some continued 

airline sales commission payments, and customer service fees. In contrast, 

total annual sales at small travel agencies (those with less than $2 million in 

annual air travel sales revenue) decreased by 32 percent since 1995, driven 

in large part by a shift toward on-line bookings by leisure consumers. 

Consumers who use the Internet may benefit from being able to 

independently access and compare airline ticket pricing and scheduling 

information, as well as from being able to access special low fares available 

only on the Internet. Consumers who do not use the Internet may be at a 

disadvantage in not having access to Internet-only fares and in having to 

pay relatively higher travel agent service fees. But they may have more 

flexibility regarding schedule changes, and they may benefit from travel 

agents’ industry expertise. 
Page 5 GAO-03-749 Airline Ticket Distribution

Because we lacked access to proprietary company information, we could 

not determine whether the relationship between global distribution system 

booking fees and related costs suggest that global distribution systems 

exert market power in the airline ticket distribution industry. In response 

to your request, we found that global distribution system booking fees rose 

by nearly 31 percent between 1996 and 2001. Of total global distribution 

system costs, two costs available to us that relate specifically to the 

booking function—computing costs (i.e., total data center operating costs) 

and travel agency incentive payments—have increased during the same 

time period. The precise rate of increase for computing costs is difficult to 

determine because global distribution systems do not report the data in the 

same way, but the incentive payments to travel agencies by global 

distribution systems is measurable and it has increased by an average of 

over 500 percent. However, we could not obtain data on all expenses 

related to the booking function (e.g., software development costs), and 

thus could not accurately compare total booking costs to booking fees. 

Consequently, we are not able to independently assess whether the booking 

fees are indicative of the existence and use of market power by global 

distribution systems over airlines. On June 9, 2003, the Department of 

Justice, based on its antitrust analysis of the industry, offered conclusions 

to DOT about the existence of market power in the industry as part of its 

ongoing review of the CRS rules. Justice concluded that despite recent 

growth of Internet ticket distribution, the GDSs continue to have market 

power over the airlines and the CRS rules do not prevent them from 

charging airlines fees above competitive levels. DOT and DOJ provided us 

with technical comments, which we incorporated as appropriate.

Background An airline “booking” occurs when a passenger reserves and purchases a 

seat for a trip. In 2002 in the United States, an estimated 255 million 

passengers flew more than 611 million flight segments (e.g., a traveler who 

flew between Baltimore, Maryland, and Portland, Oregon, who connected 

over Chicago both outbound and inbound represents a single passenger 

that flew four flight segments). Information included in the booking 

consists of the traveler’s name; an address; price and billing information; 

the full itinerary origins, destinations, and possible connecting airport with 

flight numbers and times; and perhaps other information as well, such as 

loyalty program (i.e., frequent flyer) information, including program status 

or seat and meal preferences. When a booking is entered in a computer 

system by a traditional travel agent, it is created in a GDS. The GDSgenerated booking is then sent to the airline’s internal reservation system.
Page 6 GAO-03-749 Airline Ticket Distribution

The GDS charges an airline a “booking fee” based on the total number of 

flight segments in the traveler’s itinerary.1

 For example, if a booking fee is 

$4 per segment and a passenger reserves and purchases an itinerary that 

consists of four flight segments (an outbound flight that connects over an 

airline’s hub to the ultimate destination and two similar return flights), the 

airline will be charged approximately $16 in booking fees. Changes made to 

the booking may cost extra for the airline. For example, if a passenger 

changes the day of his return flight, the airline may be refunded all but a 

fraction of its booking fees for those segments, and charged again for the 

booking of the new segments.2

Sometimes, a passenger may book an itinerary with an airline through a 

traditional travel agent, but may choose not to pay for the ticket pending a 

final decision on the trip. Such cases are called “speculative” or “passive 

bookings.” In an effort to maintain the booking as a service to the potential 

customer, a travel agent may continue to cancel and re-book the itinerary.3

Each cancellation and re-booking costs the airline (sometimes 

cancellations and re-bookings result in “churn”). The final cost to the 

airline is called a “net booking fee.”4

The precursors to GDSs, CRSs, first automated the selling of airline seats 

and the tracking of flight and schedule information for use by airline 

employees in the late 1960s. Beginning in the mid-1970s, these systems 

were offered to travel agencies. These CRSs were owned by (i.e., vertically 

integrated with) the airlines. American Airlines and IBM jointly developed a 

system called Sabre (Semi-Automatic Business Research Environment) to 

automate American’s bookings. United Airlines and TWA followed with 

1

Travel agents and consumers shop using a GDS without charge. Much data processing 

occurs to support this shopping process, which may or may not result in a booking. 

2

Airlines may be refunded for a cancelled segment by all but 40 cents of the booking fee. 

Using the above example (four flight segments for $16), a change to the passenger’s return 

date (i.e., a change to two segments) would finally cost the airline $16.80.

3

The inventory has already been deducted from the carrier host system, so the travel agent 

enters the flight segment data into the CRS using transaction codes that may not generate a 

message to the carrier advising of the sale. The travel agent must then notify the carrier 

either by phone or by sending a GDS message that they now have control of the booking. 

4

Airlines can avoid churn by requiring payment at the time of the original booking, but some 

airlines make a business decision to allow passive bookings with traditional travel agents in 

order to potentially secure the passenger’s business.
Page 7 GAO-03-749 Airline Ticket Distribution

Apollo and PARS, respectively.5 Delta and Eastern followed with DATAS II 

and System One, respectively. These CRSs replaced manual booking 

systems, and thus allowed the airlines to quickly and reliably process a 

large number of transactions. By extending use of the systems to travel 

agencies, airlines were able to reduce expensive telephone calls from travel 

agencies to airline reservation offices and were able to offer real time 

access to fares and inventory to its agency partners, improving the 

marketability of their services. 

Under airline ownership, certain CRS practices created competitive 

disadvantages for some carriers and often did not expose consumers to all 

available carrier options and prices. Before the industry was deregulated in 

1978, interline travel-–a practice in which passengers fly on more than one 

airline to reach a destination--was common.6

 To serve passenger needs, 

travel agencies also needed CRSs to provide information and booking 

capabilities on all airlines. However, CRSs did not treat every airline 

equally. 

• An airline with its own CRS (“owner airline”) did not pay fees for 

booking passengers through that CRS, and it displayed schedule 

information in a way that favored its own flights at the expense of these 

other airlines—even if other airlines offered more direct service 

between two cities at less cost to the traveler. Typically, an owner airline 

would market its CRS to travel agencies in cities where it flew a 

significant number of flights. 

• In the early 1980s, to expand CRS-travel agent market share in cities 

where they provided limited air service, owner-airlines developed “cohost” programs with other airlines that had a significant presence in 

targeted cities. In exchange for discounts on fees for bookings made on 

5

By 1988, five CRSs were in use by travel agents: Sabre, owned by American Airlines; Apollo, 

principally owned by United with a consortium of other airlines; PARS, owned by TWA and 

Northwest; System One, owned by Texas Air Corp., which acquired Eastern Airlines and its 

system; and DATAS II, owned by Delta Air Lines. Apollo since became Galileo. PARS and 

DATAS II since became Worldspan. System One was acquired by Amadeus, the largest 

foreign-based GDS. Since the mid-1990s, all major airlines have fully sold their interest in the 

GDSs.

6

Interline agreements between airlines provide for the mutual acceptance by the 

participating airlines of passenger tickets, baggage checks, and cargo waybills, as well as 

establish uniform procedures in these areas. These agreements are common, but not 

universal, among the major U.S. airlines. Interline agreements typically do not include 

reciprocal frequent flyer and airport lounge rights.
Page 8 GAO-03-749 Airline Ticket Distribution

that CRS and for more prominent display of its flight information on the 

CRS computer screen, the co-host airline would market the owner 

airline’s CRS to its local travel agencies. 

• Other airlines that were not co-hosts (“subscriber airlines”) would pay 

higher fees for any booking made on that CRS and continued to be 

disadvantaged by a bias in the display of their available flights. 

In essence, airline owners of CRSs used them to gain an unfair advantage in 

the marketplace, and struck deals with certain airlines giving them 

competitive advantages over other airlines. Figure 1 illustrates the typical 

financial transactions that took place among airlines, CRSs, travel 

agencies, and consumers prior to the enactment of the CRS rules.

Figure 1: Summary of Historic Airline Ticket Distribution Relationships Prior to the 

CRS Rules

Owner airlines had an incentive to service as many travel agencies as 

possible in order to gain greater booking share. This, in part, is because 

CRSs benefit from economies of scale: CRS profits increase as passenger 

traffic and bookings increase, and both of those depend on access to more 

travel agents. While CRS market positions tend to be strongest in specific 

geographic areas consistent with their airline owners’ markets (and any 

markets they were able to negotiate from nonowner, or co-host, airlines), 
Page 9 GAO-03-749 Airline Ticket Distribution

each U.S. GDS has developed a national, and subsequently, global footprint. 

In addition, owner airlines also recognized that travel agents’ familiarity 

and comfort with their CRSs produced something of a halo effect that gave 

owner airlines a greater share of bookings. While airlines paid commissions 

to travel agencies based on the value of the purchased tickets, carriers also 

encouraged travel agents to make additional passenger bookings by paying 

commission “overrides” to travel agencies for surpassing set sales goals.7

 

Though three domestic CRSs existed, an individual travel agent office 

typically relied on only one system. This was due in part to the multiyear, 

often exclusive, contracts under which they historically operated with 

CRSs. Using more than one system was also inefficient from the standpoint 

of most travel agents. 

These structural relationships produced two major effects:

• Because airlines—dependent on the systems—paid the booking fees, 

rather than the other users of the systems (travel agents and, ultimately, 

consumers), there was no competitive pressure constraining CRS 

booking costs.

• Airlines had little choice except to participate in each CRS, and CRSs 

did not have to compete for airline participants. As DOJ stated in 

comments submitted to DOT in 1989, each CRS constituted a separate 

market for air carriers because of the near-exclusive relationship with 

separate groups of travel agencies, and each is a monopolist with 

market power over carriers that want to sell tickets in areas where the 

CRS has a significant number of travel agencies. Thus, unless an airline 

was willing to forego access to those travel agencies and the consumers 

they served, it needed to participate in every CRS. 

To illustrate, consider Sabre’s relationship with American Airlines, and 

Galileo’s relationship with United Airlines. Because American has 

significant operations in the Dallas/Ft. Worth area, many travel agencies in 

Texas historically subscribed to Sabre, while United has similarly 

significant operations in Chicago and many travel agencies there likely 

were Galileo users. However, because American wanted to be available to 

travel agencies located in United’s traditional territory that subscribe to 

7

An override commission is a payment made based on the travel agency meeting a set goal 

of sales.
Page 10 GAO-03-749 Airline Ticket Distribution

Galileo, it had to use Galileo as a CRS, as with other GDSs. Similarly, United 

wanted to be available to travel agencies in what was historically 

dominated by American in Texas and therefore had to be available on 

Sabre. Figure 2 illustrates the exclusive relationships that CRSs had with 

travel agencies, and the airlines’ dependence on each CRS to reach the 

most number of travel agencies.

Figure 2: CRS Relationships with Travel Agencies and Airlines 

Prior to the enactment of the CRS rules, consumers only paid airfare, 

regardless of the complexity of the itinerary. Presumably, those airfares 

reflected the airlines’ total costs, including overhead expenses associated 

with ticket distribution. 

In 1984, the Civil Aeronautics Board (CAB), in one of its last official acts, 

adopted CRS rules to protect consumers and help ensure fair competition 

among airlines. The goal of these rules was to dissipate or constrain the 

power of the airlines and their CRSs to manipulate the competition for 

passenger traffic. DOT inherited the CAB’s duties, and in 1992 found that 

the rules were still necessary. DOT concluded that without them, CRS 

owners could use their control of the systems to prejudice airline 
Page 11 GAO-03-749 Airline Ticket Distribution

competition, and the systems could bias their displays of airline services.8

Three main requirements in the CRS rules attempt to ensure that each 

owner airline and its CRS would treat other airlines equitably: 

• Screens displaying flight information are not to favor one airline over 

another (“unbiased screens”);

• For the same level of service, prices for bookings must be the same for 

all airlines, including owner airlines, eliminating differences such as cohost or subscriber airlines (“price nondiscrimination”); and

• The “mandatory participation” rule requires airlines with a 5 percent 

ownership interest or more in a CRS (“owner airlines”) to participate in 

competing systems at the same level at which it participates in its own 

system.9

Figure 3 illustrates how the airline ticket distribution industry changed 

after the implementation of the CRS rules.

8

57 Fed. Reg. 43780, September 22, 1992.

9

The mandatory participation rule does not preclude nonowner airlines from participating in 

CRSs to varying extents. Fees paid per booking depend on an airline’s participation level. 

For instance, according to information from Sabre, its simplest participation level—“Basic 

Booking Request”—costs an airline $2.12 per segment. Sabre’s highest level of 

participation—“Direct Connect Availability”—costs an airline $4.39 per segment.
Page 12 GAO-03-749 Airline Ticket Distribution

Figure 3: Summary of Historic Airline Ticket Distribution Relationships under the 

CRS Rules

DOT’s 1992 revisions to the CRS rules included a sunset date of December 

31, 1997, which DOT subsequently extended to January 2004. DOT is 

currently reviewing additional possible revisions to the CRS rules.

As CRSs evolved as corporate entities, they added other lines of business to 

the original airline ticket booking function. They currently book not only 

airline reservations, but also hotel, rental car, train, tour, and cruise 

reservations. CRSs also sell other professional services to airlines, such as 

software and Information Technology services for personnel and aircraft 

scheduling, and for baggage handling. CRSs provide outsourced internal 

reservation systems for airlines, as well. In the expansion of their activities 

they became known as GDSs, reflective of the increasingly international 

and diverse nature of travel they encompassed. 

Since the mid-1990s, U.S. airline owners have sold their shares in their GDS 

businesses. Three domestic GDSs have evolved to dominate the U.S. travel 

agent market: Sabre, Galileo, and Worldspan. Sabre became a separate 

legal entity of AMR Corp. (American Airlines’ parent company) in July of 

1996, followed by an initial public offering of Sabre in October 1996; it has 

since been fully divested by AMR Corp. In 1997, Galileo International 

became a publicly traded company, and in 2001 became a subsidiary of 

Cendant Corp. Worldspan was sold in June 2003 to private investors. These 
Page 13 GAO-03-749 Airline Ticket Distribution

changes ended the vertical integration of these airlines and GDSs. Figure 4 

illustrates the GDS shares for all U.S. domestic bookings that relied on a 

GDS in 2002.10

Figure 4: U.S. Domestic Booking Share of Global Distribution Systems Bookings, 

2002

Note: All figures are approximations. 

a

“Other” refers to all internationally based GDSs, such as Amadeus, Abacus, Axess, Infini, and Topas. 

Amadeus’ booking share is about 8 percent, while the remaining international GDSs comprise less 

than 1 percent of total U.S. bookings. 

10The scope of this report is focused on domestic global distribution companies and we 

therefore do not include foreign companies, such as Europe-based Amadeus, in our review. 

For more information on the scope of our review, see app. I.
Page 14 GAO-03-749 Airline Ticket Distribution

Major Changes 

Occurred in the Use of 

the Internet and Travel 

Agent Compensation in 

the Airline Ticket 

Distribution Industry 

Since the airlines began selling their shares in the GDSs in the mid-1990s, 

the ticket distribution system has undergone two major changes. These 

changes have helped airlines, faced with generally high operating expenses, 

cut distribution costs. First, airlines and others have increasingly sold and 

processed tickets through Internet-based applications (e.g., airline 

Websites, on-line travel sites), some of which bypass GDSs. These 

distribution methods are less expensive to the airlines than traditional 

travel agencies. Second, airlines have reduced commission payments to 

travel agents. At the same time, in response to overtures by large travel 

agencies, GDSs partially offset that reduction in airline commission 

payments by significantly increasing incentive payments to travel agents, 

on whom they depend to reach a large number of consumers.11 In part, 

these changes have enabled major airlines to reduce their total distribution 

costs by 25.8 percent from an average $732.9 million in 1999 to $543.6 

million in 2002, or 43.6 percent on a per booking basis.12 However, these 

changes have not eliminated the airlines’ dependence on the GDSs for the 

selling of air tickets. Airlines continue to need to subscribe to each GDS to 

reach the universe of travel agents and potential consumers. 

Internet Sites That Cost 

Airlines Less Are 

Increasingly Used to Book 

Tickets, Some without the 

Use of Global Distribution 

Systems 

Airlines have developed new Internet-based ticket booking processes that 

bypass GDSs and their associated booking fees. Others have developed 

Internet-based travel agencies that use GDSs to book tickets but whose 

bookings still cost airlines less than tickets booked through traditional 

travel agents. An increasing percentage of tickets are booked through the 

Internet, and an increasing percentage of bookings are made without the 

use of GDSs.

Airlines are Using New 

Processes to Bypass the GDSs 

and their Fees

The airlines have used the Internet to change the way bookings are 

processed by creating ways to work around the GDSs and their booking 

fees. Airlines have developed two basic ways to use the Internet to avoid 

the cost burden associated with standard GDS booking fees. 

First, airlines have developed their own Websites (e.g.,

www.continental.com) that allow consumers to reserve and book seats 

11We do not have access to the individual contracts between various travel agents and 

airlines. Therefore, these descriptions are general and may not be the case for all airlines. 

12Examples of other airline cost-cutting efforts include a reduction of labor costs.
Page 15 GAO-03-749 Airline Ticket Distribution

directly with airlines. Bookings made through these sites do not use a GDS 

booking function, and therefore do not incur booking fees. Rather, airlines 

maintain pricing, flight, and seat availability in their own internal 

reservation systems. For example, a booking made through Continental’s 

Website is processed by a data vendor that is not a GDS. Bookings made 

when a consumer telephones an airline’s “call center” (e.g., via a toll-free 

number such as Continental’s 1-800-523-FARE) are also routed through that 

same vendor.13 But, unlike call centers that rely on personnel to process 

bookings, airline proprietary on-line site bookings are processed 

electronically and therefore incur lower labor costs. 

Second, five major U.S. airlines collectively underwrote the development of 

a travel technology company called Orbitz. Because consumers can go to 

the Orbitz Website (www.orbitz.com) to query fare and schedule 

information for most major airlines as well as to book and purchase tickets, 

it performs similar functions as a travel agent. Orbitz now has two methods 

by which it books tickets, one of which uses a GDS and one of which 

bypasses GDSs and their associated booking fees.

Originally, and in many cases still, Orbitz uses the Worldspan GDS to obtain 

airline availability data and to place the booking, and airlines pay booking 

fees to Worldspan for tickets booked in this manner. Orbitz receives 

volume-based rebates from Worldspan, flat transaction fees 

(approximately $5.34 charter associate fee or $10 per ticket from 

noncharter associates) from airlines, and it charges fees to consumers ($6 

per ticket).

13Some airlines’ internal reservation systems are “hosted” by various GDS’ data processing 

systems. Reservations and other transactions initiated by the hosted airline’s employees and 

the airline’s branded Websites (e.g., AA.com) are covered by a separate technology services 

agreement different from the agreement that covers the distribution of the airline’s 

inventory to the GDS agency subscribers (i.e., Participating Carrier Agreement). The 

compensation to the GDS for such technology services is separate from the booking fees 

described earlier and may take several forms, including a fee per transaction, a fee per 

computer message and a fee per information technology capacity unit utilized and also 

include separate charges for software development services. 
Page 16 GAO-03-749 Airline Ticket Distribution

Through Orbitz, however, some airlines can generate significant cost 

savings relative to traditional and on-line travel agent booking methods.14

“Charter airlines” have negotiated special arrangements with Orbitz, under 

which they receive rebates on a portion of the booking fee.15 According to 

Orbitz officials, these rebates generally save charter airlines about $3 of the 

approximate $16 paid in booking fees per ticket compared to bookings 

made through traditional travel agencies. Airlines that are not charter 

members of Orbitz pay the full Worldspan booking fee. These arrangements 

contrast with the CRS rules requirement of price nondiscrimination and 

mandatory participation, which have limited carriers’ ability to negotiate 

reduced booking fees with GDSs. Airlines are allowed to negotiate special 

arrangements with Orbitz because DOT has not defined Orbitz as a CRS, 

and thus did not extend the application of the CRS rules to cover Orbitz.

Recently, Orbitz, with airline cooperation, has also developed technology 

that enables it to book tickets by directly accessing each participating 

airlines’ internal reservation system, bypassing the GDS and its booking 

fees. This technology, which (unlike the technology used to access an 

airline’s internal reservation system) can query and get information from 

multiple airlines, functions similarly to the technology used by GDSs. 

According to Orbitz officials, its new technology, which is called “Supplier 

Link,” could result in participating airlines saving about $12 of the typical 

14When airline flights are booked through Orbitz, airlines pay booking fees to GDSs, 

commissions or transaction fees to Orbitz, and other distribution costs. Airlines’ costs can 

vary. For airlines that enter into agreements with Orbitz (i.e., charter airlines), Orbitz 

rebates the net booking fee by 60 percent of the total Orbitz rebate received from 

Worldspan, or up to $3, and the transaction fee paid to Orbitz by the charter airlines for each 

ticket is $5.34. (The transaction fee for tickets that are more than $150.00 is $5.34, and $2.67 

for tickets that are less than $150.) In comparison, airlines that do not enter into agreements 

with Orbitz do not receive the $3 rebate and pay a higher commission of about $10 per ticket 

to Orbitz.

15A charter airline, or Airline Charter Associate, is an airline that enters into an agreement 

with Orbitz. Under the Charter Associate Agreement, Orbitz provides discounted 

distribution costs in return for an assurance that it would have access to airlines’ publicly 

available fares, including web fares. Charter airlines account for 93 percent of all airlines 

that book through Orbitz. These airlines include all of the largest U.S. airlines (excluding 

low fare carriers Southwest and JetBlue) and most of the regional carriers. Other airlines 

that participate in Orbitz but are not charter associates include AirTran and ATA. 
Page 17 GAO-03-749 Airline Ticket Distribution

$16 paid in booking fees per ticket.16 Since its implementation in 2002, 11 

major airlines have signed up to participate in Supplier Link. As of July 

2003, four airlines—America West, American, Continental, and Northwest--

have begun to use the technology. Currently, these airlines process over 70 

percent of their Orbitz bookings through Supplier Link. These airlines’ 

remaining Orbitz bookings need to go through the Worldspan GDS because 

of their complexity. Complex bookings that cannot at this time be handled 

by Supplier Link might include bookings with itineraries that involve trips 

flown by interlining airlines (i.e., two or more airlines that collectively 

transport a passenger from origin to destination) or international 

destinations.

In light of its new Supplier Link technology, Orbitz may be the first entity in 

the U.S. to perform functions similar to GDSs since finalization of the CRS 

rules in 1984. Furthermore, some believe that Orbitz represents a new 

entrant into the GDS market.17 However, Orbitz is a creation of the major 

airlines—as were the CRSs—and questions have been raised about 

whether Orbitz charter member airlines could use Orbitz to gain a 

competitive advantage over other airlines. DOT and DOJ have been 

involved in examining this issue. In its June 27, 2002, report to Congress, 

DOT found that Orbitz is not anticompetitive and more specifically, has 

shown no evidence of biased presentation of airline services. However, 

DOJ has not yet commented on the topic. As of July 2003, DOJ was 

continuing its review of Orbitz. 

16All airlines that participate with Supplier Link, which must be a charter associate, pay 

Orbitz the same transaction fee as before ($5.34 or $2.67 depending on price of ticket) and a 

Supplier Link fee ($4 per ticket), but do not pay booking fees. However, there are start-up 

costs for airlines that choose to participate with Supplier Link. Orbitz charged $200,000 for a 

“first in type” Supplier Link connection. This fee covers the development costs for the 

interface between Orbitz’ system and an airline internal reservation system. Subsequent 

implementations connecting other airlines that use the same data processing company to 

“host” their internal reservation system costs those airlines $75,000. According to Orbitz, its 

messaging costs are inconsequential. But, the airline may be charged by its internal 

reservation system owner for internal messaging costs both for bookings and for the 

“polling” queries necessary to maintain Orbitz’ availability cache.

17As noted earlier, other GDSs operate predominantly in foreign countries and have not 

penetrated the U.S. domestic market to any significant extent. These include Abacus, 

Amadeus, Axess, Infini, and Topas.
Page 18 GAO-03-749 Airline Ticket Distribution

Internet-Based Travel Agencies 

That Use GDSs Also Book 

Tickets at a Lesser Cost to 

Airlines than Traditional Travel 

Agents

Other participants in the airline ticket distribution industry have also 

developed Internet sites that, like traditional travel agencies, book tickets 

through a GDS. Sabre entered the Internet market by creating Travelocity, 

which is a web-based booking engine that uses the Sabre GDS to query and 

book tickets. In general, Travelocity functions as an on-line travel agent: 

airlines make payments to Travelocity as well as pay booking fees to Sabre. 

As with other travel agencies, consumers pay it ticketing fees. For 

accounting purposes, Sabre pays Travelocity incentive payments, but the 

payments stay within the parent company. 

Independent on-line travel sites have also emerged to sell airline tickets to 

consumers. One notable example is Expedia.com. In general, the 

relationships and flow of payments among Expedia.com, its GDS 

(Worldspan), airlines, and consumers resemble those of traditional travel 

agencies. Major independent on-line travel agencies continue to subscribe 

to a GDS and pay a subscription fee if they do not meet the high volume 

requirements for fee waivers. In turn, the GDS pays the on-line agency 

incentive payments for bookings, while charging airlines booking fees. In 

addition, some airlines make payments to these independent on-line travel 

agencies. Consumers also typically pay a $5-$10 fee to the new on-line sites 

for each ticket. In Expedia’s case, since it is Worldspan’s largest subscriber, 

it does not pay GDS subscription fees. Furthermore, since it books in such 

high volumes, it receives negotiated payments from its GDS and certain 

airlines.

Other independent on-line travel agencies, sometimes referred to as 

“opaque” travel distributors, have also entered the airline ticket 

distribution industry, typically offering low-cost tickets to consumers in 

exchange for less flexibility or choice. Opaque travel distributors book 

through GDSs to sell what the industry refers to as “distressed inventory.” 

Analogous to a deep discount store or an outlet store, opaque distributors, 

such as Priceline.com, take bids from consumers for airline tickets. 

However, the consumer will know neither the carrier nor the exact 

departure times for his itinerary until after an airline accepts the 

consumer’s bid, and the ticket is bought and paid for.

Despite the fact that airlines pay commissions and overrides as well as GDS 

fees for these on-line travel agency bookings, these bookings cost airlines 

less than bookings made through traditional travel agencies. This is in part 

because on-line consumers generally must purchase the ticket at the time 

of reservation, reducing “churn” that airlines claim is costly, by not 

allowing repeated bookings, cancellations, and rebookings prior to 
Page 19 GAO-03-749 Airline Ticket Distribution

purchase. A traditional travel agent has the capacity to make changes to a 

consumer’s itinerary; however, for any changes to a reservation, additional 

GDS processing is required. GDSs charge the airlines a small amount for 

each cancellation and rebooking, so each such change adds to total airline 

distribution costs. 

In 1999, on average, each ticket booked via a traditional travel agent cost an 

airline a total of $45.93, compared to $23.40 and $25.12 for airline Website 

and on-line travel agency sites, respectively. 18 Although costs associated 

with each of these distribution methods have decreased, bookings made 

through traditional travel agencies continue to cost much more than those 

made on line. From 1999 through 2002, the average cost to an airline for a 

booking made through a traditional travel agency decreased by 33 percent 

to $30.66, while the average cost to an airline for a booking on its own 

Website decreased by 50 percent to $11.75. Over the same period, the 

average cost to airlines for bookings made through on-line travel agencies 

decreased 23 percent to $19.43. Figure 5 illustrates the change in average 

airline distribution costs by the different distribution methods.

18Throughout this report, we report the data in averages. We calculated the averages by 

aggregating data provided by a number of entities, and dividing that total by the number of 

entities providing data. See app. I for additional information on the scope and methodology.
Page 20 GAO-03-749 Airline Ticket Distribution

Figure 5: Average Airline Booking Costs Per Distribution Method, 1999-2002

With Airline Encouragement, the 

Percentage of Airline Tickets 

Booked through the Internet Has 

Increased, as Has the Percentage 

of Bookings Processed without 

GDSs

Airlines have taken steps to encourage travelers to book tickets through 

less expensive, on-line distribution methods. Some airlines have instituted 

a fee for travelers who receive a paper ticket through a traditional travel 

agent. For example, Northwest charges a $50 fee for a paper ticket as 

opposed to electronic tickets. Airlines may also reward on-line bookers 

with loyalty incentives (i.e., frequent flyer program bonuses). For instance, 

travelers booking on line with American may earn up to 1,000 

AAdvantage® Bonus miles. Airlines—both directly and through on-line 

travel agencies—have also offered special “Webfares” and last minute 

Internet-only deals to encourage consumers to book tickets on the Internet. 

While airlines continue to sell a significant proportion of their tickets 

through traditional travel agencies, the number of tickets sold through

on-line distribution methods, including airline Websites and on-line travel 
Page 21 GAO-03-749 Airline Ticket Distribution

agencies, has increased rapidly since the late 1990s. Between 1999 and 

2002, on average, the percentage of tickets that consumers booked through 

traditional travel agents fell from 67 percent to 46 percent. By comparison, 

the percentage of tickets booked on line (using both on-line travel agencies 

and airlines’ own Websites) increased from 7 percent to 30 percent from 

1999 to 2002. Throughout that same time period, airlines sold the remainder 

(roughly 25 percent) directly to consumers via their call centers (1-800 

numbers). Figure 6 illustrates the change in distribution methods between 

1999 and 2002.

Figure 6: Average Airline Bookings Per Distribution Method, 1999-2002

While business travelers generally continue to rely on traditional travel 

agents, trends suggest that leisure travelers are adopting the Internet as an 

alternative to traditional travel agents. The National Commission to Ensure 
Page 22 GAO-03-749 Airline Ticket Distribution

Consumer Information and Choice in the Airline Industry (NCECIC)19

reported in 2002 that business travel—usually the highest yield traffic for 

airlines—is often contracted out to travel agencies to manage. As a result, 

airlines report that traditional travel agencies (and therefore GDSs) will 

continue to play a vital role in the distribution of airline tickets. On the 

other hand, an increasing percentage of leisure travel is now booked via the 

Internet. 

Bookings continue to be predominantly processed by GDSs, but since the 

late 1990s the percentage of on-line booking processed through airline 

internal reservation systems and Orbitz Supplier Link technology has 

increased. However, the sales through traditional travel agents continue to 

account for the majority of airline revenue, in large part because higherpriced business travel continues to be managed through traditional travel 

agencies. Figure 7 illustrates how the number of major U.S. airlines 

bookings processed through GDSs and GDS bypasses has changed from 

1999 to 2002. 

19NCECIC was authorized by Section 228 of the Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century (P.L. 106-18) on April 5, 2000.
Page 23 GAO-03-749 Airline Ticket Distribution

Figure 7: Number of Airline Tickets Processed through and outside GDSs, 1999-2002

Note: GDS bypasses include bookings made through Orbitz Supplier Link, airline proprietary 

Websites, and airline call centers. GDS bookings include those performed by traditional travel agents 

and on-line travel sites that go through a GDS. 

Airlines Reduced Travel 

Agent Payments, While 

GDSs’ Payments to Travel 

Agents Increased

Travel agent reimbursement patterns have shifted significantly since the 

late 1990s. Much of the shift was caused by the airlines, which by 1998 

reduced or ultimately ended the traditional practice of offering a flat 

published “base” commission (traditionally a percentage of each ticket 

price, which later was a flat fee for each ticket) to all travel agents as a 

means of reducing distribution costs.20 Partly the CRS rules do not govern 

airlines’ relationships with travel agencies, airlines were free to change 

their payments to travel agents in a way they were not free to do with 

20Airlines continue to pay service fees, in essence ticket commissions, for each booking 

made by certain on-line travel sites, and override commissions to travel agents that reach an 

established sales goal. Override commission policies vary from airline to airline. For 

instance, Delta no longer offers a flat base commission to all travel agents in the U.S. for its 

ticket sales, but instead negotiates private relationships to provide financial incentives that 

reward key travel agencies for their sales. 
Page 24 GAO-03-749 Airline Ticket Distribution

GDSs, and now use a system of privately negotiated commission 

arrangements with individual travel agencies. Not all travel agencies are 

able to negotiate such individual commission arrangements, and the terms 

of such agreements vary among travel agencies and among airlines. From 

1999 to 2002, average annual payments by airlines to travel agencies 

decreased by 57 percent, from $370 million to $159 million, as airlines 

provided override commissions predominantly to those travel agencies 

with high ticket sales. 

Figure 8 illustrates the decline in average commission payments by airlines 

to travel agencies in relation to total distribution costs. From 1999 to 2002, 

on average, major airlines reduced their total distribution costs by 25.8 

percent, from $732.9 million to $543.6 million, or 43.6 percent on a per 

booking basis. Most of that reduction occurred in the payments by airlines 

to travel agencies, which decreased by 57 percent, from $370 million to 

$159 million. Despite a decrease of 8.5 percent in passenger traffic between 

2000 and 2002, remaining distribution costs--which include rising GDS fees, 

as well as overhead, personnel, advertising, and credit card fees--were 

essentially unchanged over the period. 
Page 25 GAO-03-749 Airline Ticket Distribution

Figure 8: Average Annual Airline Total Distribution Costs, 1999-2002

Note: Amounts shown are in nominal dollars.

The largest travel agencies—those with total annual revenues in excess of 

$50 million—represent less than 1 percent of travel agencies, but book 

almost 60 percent of total travel agent sales. By definition, because of their 

large volumes of sales, these large travel agencies are most likely to receive 

the majority of the airlines’ override commissions. 

As airlines cut traditional travel agent ticket commissions, GDSs began 

increasing incentive payments to travel agencies.21 According to an official 

of a domestic GDS, since airlines (and, subsequently, other travel suppliers) 

reduced travel agent commissions, travel agencies sought out replacement 

21We do not have access to specific agreements between GDSs and travel agents, and are 

therefore limited in our ability to detail overall financial flows between GDSs and travel 

agents. 
Page 26 GAO-03-749 Airline Ticket Distribution

sources of revenue, and GDSs responded with incentive payment 

increases. Large travel agencies were able to use their position in the 

industry between the GDSs and large segments of the traveling public to 

convince the GDSs to provide some form of incentive payment. At the same 

time, GDSs use incentive payments to compete for travel agent market 

share and to incentivize travel agents to book on their particular GDS. 

Generally, as with airlines’ override commissions, a GDS pays incentives to 

those travel agencies with high booking volumes, as each booking results 

in the GDS receiving a fee from the airline. Between 1995 and 2002, on 

average, each GDS paid travel agencies an increasing amount of incentive 

payments, from $22.3 million to $233.4 million (over 900 percent). Figure 9 

illustrates the average change in each GDS’s payments to U.S. travel agents 

since 1995.

Figure 9: Average Payments to U.S. Travel Agents by Each GDS, 1995-2002

Note: Amounts shown are in nominal dollars.

Shifts in travel agent payments have also occurred between travel agents 

and consumers. After airlines ended automatic base commissions, many 

travel agencies began to charge consumers service fees for booking

tickets—previously included in the ticket price in the form of a commission 

that was invisible to the consumer. Figure 10 illustrates the current flow of 

payments among the four participants in the airline ticket distribution 
Page 27 GAO-03-749 Airline Ticket Distribution

industry. Compared to figure 3, it illustrates some changes that have taken 

place in the airline ticket distribution industry since the late 1990s—

particularly the advent of various Internet booking methods, airlineinitiated sites that bypass GDSs, the new flow of payments to travel 

agencies, and new service fees imposed on consumers.

Figure 10: Summary of Payment and Fee Flows in the Current Distribution of Airline Tickets 

a

Consumers pay services fees.

b

Airlines that subscribe to Orbitz Supplier Link pay less fees (including the commission per transaction) 

than GDS booking fee.

c

Airline commission and override payments vary and are based on travel agencies meeting certain 

sales goals.

Airlines Continue to Be 

Dependent Upon the GDSs

While each change—increased use of the Internet to process and sell 

tickets and reductions in airline payments to travel agencies—has 

contributed to the lowering of overall airline distribution costs, neither has 

reduced the effective requirement that nearly every major airline 

participate in and pay booking fees to each GDS. As previously stated, 

airlines continue to process over 60 percent of their tickets—mostly high 

yield business traffic—through the GDSs. Furthermore, airlines continue to 

need to subscribe to each GDS in order to reach all consumers. As DOJ 

described it in comments submitted to DOT during a 1997 review of the 
Page 28 GAO-03-749 Airline Ticket Distribution

CRS rules, from an airline’s perspective, because each CRS provides access 

to a large, discrete group of travel agencies, each CRS constitutes a 

separate market. And unless the airline is willing to forego access to those 

travel agencies and the consumers they serve, it must participate in every 

CRS. 

Changes in the Airline 

Ticket Distribution 

Industry Appear to 

Have Benefited Very 

Large Travel Agencies 

and Consumers Who 

Use the Internet 

Large travel agencies and consumers who use the Internet appear to have 

benefited most from recent changes in the airline ticket distribution 

industry.22 Small travel agencies and the consumers who patronize them 

appear to have benefited least, if not been disadvantaged. Since the late 

1990s, the number of very large travel agencies (i.e., those with total annual 

sales in excess of $50 million) has stayed approximately the same, but their 

total annual air travel sales have almost doubled.23 Because the largest 

travel agencies sell more air travel than any other category of travel agency, 

by definition they would likely qualify for both GDS incentive payments 

and airline override commissions. During this same period, the number of 

small travel agencies has steadily declined, as have their total annual air 

sales. Figure 11 illustrates changes in the number of different sized travel 

agencies and their sales of air travel over time.

22For additional information, see U.S. General Accounting Office, Domestic Aviation: 

Effects of Changes in How Airline Tickets Are Sold, GAO/RCED-99-221 (Washington, D.C.; 

July 28, 1999).

23For the purposes of categorization, very large travel agencies generate more than $50 

million annual revenue. Midsize travel agents generate between $2 million and $50 million 

annual revenue. Very small travel agencies generate less than $2 million annual revenue. 
Page 29 GAO-03-749 Airline Ticket Distribution

Figure 11: The Number of Travel Agencies, by Amount of Annual Revenue and 

Volume of Air Travel Sales

Note: Amounts shown are in nominal dollars.

The increase in on-line bookings appears to have had a more negative 

effect on smaller travel agencies than on large travel agencies because of 

general differences in the nature of their clientele. Leisure travelers 

increasingly book on line—usually well in advance with simple itineraries. 

According to the DOJ, leisure travelers with relatively simple itineraries are 

best suited to using the Internet. On-line travel agencies sell most tickets to 

price-sensitive leisure passengers.24 In contrast, business consumers, who 

often use large travel agencies, are not likely to book on line because of 

restrictive corporate policies and complex business itineraries that are 

often subject to short notice changes. Those travel agencies also may 

24Reply Comments of the Department of Justice to DOT on the Notice of Proposed 

Rulemaking Computer Reservation System Regulations, June 9, 2003, p. 16.
Page 30 GAO-03-749 Airline Ticket Distribution

provide reporting and record keeping services for large business 

customers. 

According to officials from the NCECIC and the American Society of Travel 

Agents, small travel agencies are confronting financial pressure from both 

airlines and GDSs. First, small travel agencies may have difficulty securing 

airline override commissions or GDS incentive payments because of sales 

volume requirements. In addition, small travel agencies often must pay for 

GDS service and equipment, while these fees are frequently waived for 

agencies with high sales volumes. To survive, many smaller travel agencies 

have become focused on niche travel markets–for example, regional travel, 

hiking/biking travel, and cruise line travel–and charge service fees to 

clients.

The availability of Internet distribution methods appears to have positively 

affected Internet users. These methods provide fare and schedule 

information to consumers, and provide consumers with a number of 

Websites on which they can compare fare and schedule options. Moreover, 

consumers who use the Internet have access to less expensive webfares 

offered by the airlines. Airlines use such fares to encourage consumers to 

use Internet travel sites, as they are less expensive to the airlines. For 

instance, the results of a 2001 Forrester Research25 survey of Internet users, 

which the NCECIC included in their 2002 report to Congress and the 

President, found that people who booked on line preferred doing so 

because they can readily compare various on-line travel sites, as well as 

access more diverse fares (i.e., webfares) than they can through a 

traditional travel agent. Furthermore, on-line customers may also avoid the 

higher ticketing fee that some travel agencies now charge (up to $50), 

although many on-line travel agencies may charge their own smaller 

ticketing fees ($5-$10). Finally, the public perceives that booking on line is 

less expensive than booking through a traditional travel agent. Conversely, 

consumers purchasing tickets on airline Websites may not have complete 

and unbiased information when booking flights, which is important in a 

competitive industry. For example, Orbitz.com does not include schedule 

and fare information for certain low fare airlines, such as Southwest and 

JetBlue because these airlines have chosen not to participate. 

25Forrester Research is a firm that identifies and analyzes trends in technology and their 

impact on business.
Page 31 GAO-03-749 Airline Ticket Distribution

Travelers who choose not to buy airline tickets on line, or who do not have 

Internet access, may be at a relative price disadvantage. Travelers using a 

traditional travel agent may pay a service charge of up to $50. In addition, 

travelers who do not choose to use the now standard “electronic ticket” 

may be charged an extra fee by the airline for a paper ticket.26 And as noted 

before, a travel agent may not have access to special webfares.27 But 

travelers who do use traditional travel agents may benefit from the added 

flexibility of being able to change their reservation. An on-line travel 

agency booking is often difficult to change, especially if it is a low fare that 

is nonrefundable or subject to other restrictions. On the other hand, with 

the power to change a booking through the GDS, travel agents say they act 

as the consumer’s advocate with an airline, with consumers benefiting from 

the detailed knowledge and personal interaction that a travel agent can 

provide.

Business travelers are continuing to use traditional travel agencies to 

manage their travel because of corporate travel policies, including 

negotiated “private fares.”28 According to the National Business Travel 

Association, less than 10 percent of corporate travel is booked through the 

Internet and many corporations forbid their employees from booking travel 

on the Internet, even if employees find a lower fare through that 

distribution method. Corporate travel policies can limit the employees’ 

ability to use the Internet in booking travel because they often require 

employees to use a contracted travel agency, through which they are 

booked on corporate contract carriers.29

26Travel agency customers who accept electronic tickets would not pay a fee for paper 

tickets, but would still pay a service fee to the travel agent.

27Some airlines are offering traditional travel agents access to their “webfares.” Through 

American Airlines’ EveryFare® program, a travel agent can access full fares in exchange for 

the travel agent picking up some of the GDS booking fee. In addition, GDSs have created 

similar programs in an effort to provide travel agents with greater access to airlines’ special 

fares. For instance, Sabre has created its “Direct Connect Availability 3 year Option,” which 

rolls back approximately 12.5 percent off 2003 booking fee rates and freezes those rates for 

3 years in exchange for full content of the participating airlines’ fares.

28See app. II for more discussion of the effect of private fares on GDS costs.

29On-line business travel management services, such as Sabre’s GetThere.com, are emerging. 

These services manage company travel, including compliance with travel policies.
Page 32 GAO-03-749 Airline Ticket Distribution

Sufficient Data Were 

Not Available to 

Determine the 

Relationship between 

Booking Fees and 

Costs and the Presence 

and Use of Market 

Power

Because we lacked access to proprietary company data on costs and 

revenues, we could not develop the sort of evidence that would allow us to 

determine whether GDSs exert market power in the airline ticket 

distribution industry.30 Booking fees charged by GDSs to airlines have risen 

over the past several years. From 1996 to 2001, the typical booking fee paid 

by a major airline has increased by 30.9 percent, from $3.27 in 1996 to $4.28 

in 2001, a change greater than the overall inflation rate (as measured by the 

Gross Domestic Product chain-type price index) of 9.4 percent during this 

same time period. According to GDS officials, during this time period, the 

services and products offered by GDSs were enhanced and deliver 

substantial benefits to airlines (e.g., e-ticketing). Furthermore, one GDS 

official estimates that about 40 percent of its self-reported software 

development costs are meeting supplier (e.g., airlines) needs. 

Because much financial information is proprietary,31 we were therefore 

unable to obtain a full breakdown of GDSs’ costs in order to isolate the 

specific costs directly associated with the booking function (“transaction 

costs”). However, two GDS-reported costs associated with the booking 

function for which we were able to get data both rose between 1996 and 

2002: GDS computing costs (i.e., total data center operating costs) and 

travel agent incentive payments. 

• Computing costs have increased but because of inconsistent data 

reported by the GDSs, we were unable to determine the precise 

increase. However, the GDS computing cost increase is in contrast to 

general industry computing cost trends, which decreased by over 60 

percent since the mid-1990s. According to officials with the GDSs, their 

computing costs per booking rose relative to commercial sector 

30The link between the price of a product and the cost of producing it is an important 

element in determining the level of competition or exercise of market power. Generally 

speaking, in competitive industries, revenues are closely related to costs (including a 

reasonable profit margin). Conversely, in industries that are less competitive, prices tend to 

be higher than costs (including a reasonable profit) and output tends to be less than in 

competitive industries. As demonstrated by their Horizontal Merger Guidelines (United 

States Department of Justice and Federal Trade Commission Revision to the Horizontal 

Merger Guidelines, Apr. 8, 1997), the Department of Justice and others who analyze 

competition and market power would also examine the structure of the market, including 

the number of competitors, the ease with which new competitors could enter the market, 

and other contributing or mitigating factors in forming a conclusion about competition or 

market power. 

31See app. I for more information on limitations associated with obtaining proprietary data. 
Page 33 GAO-03-749 Airline Ticket Distribution

computing costs because (1) bookings have become more complex, 

requiring more processing to complete and (2) the volume of 

transactions shopping for low fares that do not result in a booking has 

risen, especially for on-line travel agencies used by consumers. They 

stated that the additional processing required offset any general 

decrease in computing costs.32 For example, airlines have offered more 

types of fares to consumers (e.g., “private fares” available to large 

corporate clients, government fares, and conference specials). Many of 

these fares are stated as a percentage of the full coach fare, which 

airlines can change several times daily. GDSs must quickly match the 

correct fare with each customer for each specific flight. Moreover, GDS 

officials also stated that airlines are keeping more detailed Passenger 

Name Records with all reservations. The amounts of data that the GDSs 

track with these records have also increased over time, as airlines have 

made efforts to better serve passengers (e.g., frequent flyer accounts 

and seating preferences). It is unclear how much of this increasing GDS 

functionality, the costs of which are presumably passed on to the 

airlines through increases in booking fees, adds value for the airlines. 

Some airlines have complained that they do not need certain elements 

of the increased functionality (e.g., seat maps) and are paying for 

something they do not want at a time when they are struggling 

financially. 

• As discussed above, GDSs’ incentive payments to travel agencies have 

increased. GDSs provide incentive payments to travel agencies to 

reward them for using their system. The largest travel agencies were 

able to use their position in the industry between the GDSs and large 

segments of the traveling public to convince the GDSs to provide 

increased incentive payments. On average, incentive payments from 

GDSs to travel agencies increased by over 500 percent from 1996 to 

2002, rising from $34.9 million to $233.4 million. 

Computing costs and travel agent incentive payments do not encompass all 

airline ticket booking-related costs, and we were unable to get financial 

data on other costs (e.g., booking-related hardware costs) related to GDSs’ 

airline ticket booking function, which might have allowed us to determine a 

relationship between booking fees and related costs and to consider what 

32See app. II for further discussion of how GDS computing costs compare to commercial 

sector computing costs. 
Page 34 GAO-03-749 Airline Ticket Distribution

the relationship indicated about the presence and possible exercise of 

market power by the GDSs. 

To identify other information about the possible existence and use of 

market power, we reviewed the comments submitted to DOT since its 

November 2002 Notice of Proposed Rulemaking of the CRS rules. GDSs 

stated that they do not have market power. However, some airlines contend 

that they do operate under GDS market power. For example, America West 

contends that each CRS exercises monopoly power over it. In its June 9, 

2003, comments to DOT, DOJ concluded based on its market structure 

analysis that despite the recent growth of Internet distribution, GDSs 

continue to have market power over airlines.33 DOJ found no evidence that 

existing regulations designed to erode that power had succeeded in the 

past or are likely to improve the situation in the future. Rather, they 

concluded that many of the existing regulations have been ineffective in 

reducing GDS market power, which derives from the inability of most 

airlines to withdraw from any GDS. DOJ noted that while the CRS rules 

have been effective in eliminating discriminatory pricing (charging 

different fees to target specific airline competitors), it has not prevented 

GDSs from charging fees above competitive levels. Nevertheless, DOJ 

concluded that recent changes in the industry have eliminated the need or 

utility for most of the CRS rules and that anticompetitive practices be 

enforced through case-by-case antitrust investigations.

Concluding 

Observations

A competitive airline ticket distribution industry, which includes the 

airline, GDSs, and travel agent industries, continues to be important 

because noncompetitive practices may adversely affect airlines and 

consumers. Originally, the CRS rules were focused on reducing the market 

power of airline-owned CRSs to prevent owner airlines from using the 

CRSs to gain a competitive advantage over nonowner airlines. With the 

GDSs now independent from the airlines, questions have been raised 

regarding the GDSs’ exercise of market power over all airlines. Among 

other things, because GDSs do not compete with each other for airline 

business, airlines and consumers may be subject to prices that are higher 

than in more competitive markets. While our limited ability to get complete 

booking cost and fee data from the GDSs did not allow us to independently 

evaluate whether GDSs currently exercise market power, the market 

33Reply Comments of the Department of Justice to DOT on the Notice of Proposed 

Rulemaking Computer Reservation System Regulations, June 9, 2003, p. 2.
Page 35 GAO-03-749 Airline Ticket Distribution

position of large travel agencies or the overall performance of the industry, 

evidence that we developed in this review provides suggestions of both a 

functioning market and competitive flaws.

On the one hand, our review provides some indications of a market that is 

functioning and adaptive. For example, the use of the Internet has grown 

significantly, and overall prices for airlines for each form of distribution 

have fallen. In addition, the development and evolution of Orbitz and 

expansion of direct airline Internet booking reflects that at least some 

lower-cost substitutes for GDSs have emerged. Airlines and other 

participants in the ticket distribution system have developed an ability to 

use Internet innovations to limit distribution expenses. Similarly, the 

Internet’s ability to provide consumers with access to a wide variety of, 

often low cost fares (i.e., transparency) has arguably benefited them.

On the other hand, our review also highlights issues that suggest the 

continued possibility of GDS market power as well as the growing power of 

large travel agencies. The structure of the industry, in which airlines are 

dependent upon the GDSs to obtain ultimate access to large portions of 

travel agents and potential passengers (especially high yield business 

traffic), perpetuates the potential for the existence and exercise of market 

power by GDSs. Although Orbitz may offer a technological substitute that 

mitigates the market power of GDSs for some airlines, Orbitz’ relationship 

with major airlines has raised different concerns about the potential for 

owner airlines once again using their ownership position to distort airline 

competition. Our review also indicates that the largest travel agencies, 

upon whom both airlines and GDSs depend to reach a large percentage of 

the higher-paying business travelers, currently have considerable leverage 

in the industry. This leverage is reflected by their ability to obtain rising 

incentive payments from GDSs as well as commission and override 

payments from airlines. 

The innovation that has occurred in the airline ticket distribution industry--

particularly the growth of the Internet—is noteworthy. These innovations 

occurred under the framework of federal regulations, which DOT is 

currently reviewing. DOJ stated that some of these rules have failed to 

accomplish their goals and therefore need to be removed. At the same time, 

DOJ’s antitrust review of Orbitz continues. Thus, the federal interaction 

with the industry continues on both an industry-wide and case-by-case 

basis. At the same time, it will be important to continue monitoring how 

developments in the industry affect competition and consumers. 
Page 36 GAO-03-749 Airline Ticket Distribution

Agency Comments We provided a draft of this report to DOT for review and comment. DOT 

provided us with technical comments, which we incorporated where 

applicable. We also provided relevant sections of this report to DOJ, the 

three major U.S. GDSs, Orbitz, and most major U.S. airlines for review. 

These organizations provided technical corrections, which we 

incorporated as appropriate.

We will send copies of this report to the Honorable Norman Mineta, 

Secretary, Department of Transportation. We will make copies available to 

others on request. In addition, the report will be available at no charge on 

our Website at www.gao.gov.

If you or your staff have any questions about this report, please call me at 

(202) 512-2834. I can also be reached at HeckerJ@gao.gov, or Steve Martin 

at MartinS@gao.gov. Appendix III lists key contacts and key contributors to 

this report.

JayEtta Z. Hecker

Director, Physical Infrastructure Issues
Page 37 GAO-03-749 Airline Ticket Distribution

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

This report examines three questions:

• What have been major changes in the airline ticket distribution industry 

since the late 1990s, and how did these changes affect airlines?

• How have these changes in the airline ticket distribution industry 

affected travel agents and consumers?

• What does the relationship between global distribution system’s 

booking fees and booking-related costs suggest about the presence and 

use of market power?

We limited the scope of this review to the three global distribution systems 

(GDS) that handle over 90 percent of U.S. airline bookings. These three 

GDSs are Galileo, Sabre, and Worldspan. We excluded other GDSs that 

operate predominantly in other countries. Those excluded from this review 

include Abacus, Amadeus, Axess, Infini, and Topas. In addition, we did not 

have access to the individual contracts between the various industry 

entities; and therefore, the descriptions of the relationships are 

generalizations. 

To determine how the airline ticket distribution industry has changed and 

the effects on airlines since the late 1990s, we analyzed industry booking 

trend and cost data (e.g., airline and GDS payments, annual airline 

expenditures per distribution method). These data are proprietary, so we 

agreed to aggregate them so that no private company materials or 

information would be publicly disclosed in an identifiable form. 

Consequently, all data are reported in averages. Furthermore, since these 

data are proprietary, we were unable to independently verify them because 

we have no authority to require access to the underlying data. However, we 

applied logical tests to the data and found no obvious errors of completion 

or accuracy. Along with our use of corroborating evidence, we believe that 

the data were sufficiently reliable for our use. In addition, we examined 

documents from the Department of Transportation (DOT). We interviewed 

DOT officials, Department of Justice (DOJ) officials, industry experts, the 

three domestically based GDSs, seven major airlines, and four travel 

agencies (e.g., a small traditional travel agency, and the three leading

on-line travel sites—Travelocity, Expedia, and Orbitz). We attempted to 

interview all of the major travel agencies, but the top three would not agree 

to meet with us. In addition, we were unable to obtain any airline or GDS 

cost data related specifically to those travel agencies. 
Appendix I

Objectives, Scope, and Methodology

Page 38 GAO-03-749 Airline Ticket Distribution

To describe how changes in the airline ticket distribution industry have 

affected travel agents and consumers, we analyzed travel agent data (e.g., 

sales and revenues). We obtained these data from the National Commission 

to Ensure Consumer Information and Choice (NCECIC), a commission 

authorized under Section 228 of the Wendell H. Ford Aviation Investment 

and Reform Act for the 21st Century (P.L. 106-181, AIR-21) to study two 

distinct issues—first, the current state of the travel industry, and the impact 

of changes in the industry on consumers; and second, the potential for 

impediments to distribution of information to cause injury to agencies and 

consumers. We contacted the Airline Reporting Corporation (ARC), the 

source of the NCECIC travel agent data, to clarify the nature of the data 

and thus we decided the data were reliable for our purposes. Lastly, we 

interviewed travel agents, industry group representatives, and officials 

from the NCECIC. 

To determine the relationship between GDSs booking fees and bookingrelated costs and what it may suggest about the presence and use of market 

power, we analyzed GDS booking fee and cost data (e.g., computing costs 

and travel agent incentives). We obtained these data from the three U.S. 

GDSs. Since these data are proprietary, we agreed to aggregate them so 

that no private company materials or information would be publicly 

disclosed by us in an identifiable form. Consequently, all data are reported 

in averages. Furthermore, since these data are proprietary, we were unable 

to independently verify them because we have no authority to require 

access to the data. However, we applied logical tests to the data and found 

no obvious errors of completion or accuracy. We believe that the data are 

sufficiently reliable for our use. We analyzed specific booking fee-related 

costs that were available to us—computing costs and travel agent incentive 

payments. Computing costs are based on data center operations costs, 

including hardware, software, leases, and personnel costs. We compared 

trends in these computing costs with industry computing cost trends using 

mainframe data center costs from the Gartner Group, a well-known 

research and advisory firm that helps its clients understand technology and 

drive business growth. 

We were limited in our review because we did not have full access to 

proprietary data. One of the GDSs (Worldspan) is privately held and does 

not file financial data with the U.S. Securities and Exchange Commission 

(SEC). Although Sabre and Galileo are publicly held and file financial data 

with the SEC, they are not required to disaggregate cost data. Moreover, it 

is difficult to compare even the data that Sabre and Galileo did provide, 

since they may report their costs differently, as the Generally Accepted 
Appendix I

Objectives, Scope, and Methodology

Page 39 GAO-03-749 Airline Ticket Distribution

Accounting Principles allow companies to allocate costs in various ways. 

Therefore, we were not able to obtain complete and detailed data from the 

GDSs on all costs directly related to booking transactions. However, we did 

review the comments that were submitted to DOT regarding its review of 

the CRS rules. Prominent among those were the June 9, 2003, DOJ 

comments, which were based on DOJ’s expert, market structure analysis. 

We also discussed with DOJ the comments they submitted. In addition, we 

sought cost and booking data that dated from 1978 to the present. However, 

no airline was able to provide data for a time earlier than 1996. 

Consequently, we limited our review to the 4 years covering the period 1999 

to 2002.

We conducted our review between September 2002 and July 2003 in 

accordance with generally accepted government auditing standards.
Page 40 GAO-03-749 Airline Ticket Distribution

Appendix II

Computing Cost Trends at Global Distribution 

Systems ApendxiI

According to the Gartner Group,1 overall mainframe data center costs 

continued to decrease every year from 1994 through 1998.2 The Gartner 

Group found that on a per-millions-of-instructions-per-second (MIPS) basis 

(a common measure of usage), data center costs have decreased during the 

same time period. Our analysis of the global distribution systems (GDS) per 

MIPS computing cost (cost per MIPS) suggests that GDS per MIPS costs 

also decreased from 1995 through 2002. Thus, on a per MIPS basis, the 

general trend of computing costs incurred by the GDSs seem to be 

consistent with the industry trend reported by Gartner Group for the years 

1994 through 1998.

For technology-based companies like GDSs, an important cost measure is 

the computing cost per booking. This measure is significant because GDSs 

generate revenue largely based on the volume of booking transactions 

processed. On an annual basis, we found that the computing cost per 

booking increased slightly over the years 1996 and 2001, the years for 

which we had relevant data from most of the GDSs. According to the GDSs, 

the per-booking computing cost has risen because each booking has 

become more complex over time, requiring more processing—more 

MIPS—to complete a booking, thereby more than offsetting any decrease 

in per MIPS computing costs. One way to explain the increasing complexity 

of bookings is through the number of messages that are required to 

complete a booking. A message is typically a single command typed by a 

travel agent in a GDS reservation system. A message is sent every time a 

travel agent types a command and hits the Enter key on the keyboard. For 

example, for one GDS, the number of instructions needed to process each 

message increased by 58 percent from 1999 to 2002. For that GDS, the 

average number of messages required for each booking increased by 118.6 

percent from 1993 to 2002. In addition, a message can be very simple (e.g., 

what gate is flight 442 scheduled to arrive at in Dallas today) or very 

complex (e.g., what is the cheapest itinerary available to fly roundtrip 

between Los Angeles International Airport and any of New York City’s 

three major airports, departing next Tuesday morning). 

1

The Gartner Group is a well-known research and advisory firm that helps its clients 

understand technology and drive business growth.

2

For the years 1994 through 1998, the Gartner Group analyzed the costs of operating a 

typical mainframe data center using a budget model that included seven key areas: 

hardware, software, business resumption, occupancy, operations, technical services, and 

finance and administration.
Page 41 GAO-03-749 Airline Ticket Distribution

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts JayEtta Z. Hecker (202) 512-2834

Steven C. Martin (202) 512-2834

Acknowledgments In addition to those individuals named above, Naba Barkakati, Triana Bash, 

Carmen Donohue, Brandon Haller, David Hooper, Joseph Kile, Sara 

Moessbauer, and Alwynne Wilbur made key contributions to this report.

(544055)
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