Smaller Airlines Wing It on the Web

Some airlines are cashing in on Internet arrangements, while others are being frozen out.
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Last week, we

wrote about how the Internet is radically changing the revenue side of the airline industry. All of this is just fine and dandy -- especially if your airline is on the positive side of the new high-tech ledger. But what about the smaller airlines? What if a carrier's flights are not listed on

Preview Travel

(PTVL)

?

How long will it be before smaller airlines begin to bring issues of unfair competitive charges to the

Department of Transportation

over what they perceive as the unfair advantages being reaped by the tech-savvy major players?

Let's take

Delta Air Lines

(DAL) - Get Report

and what the airline has succeeded in doing in terms of "competitive advantage homesteading."

Earlier, we discussed the positives that Delta has garnered from its association with

priceline.com

(PCLN)

. However, another side deal that went along with Delta's premier status as the first major participant in priceline.com was apparently an agreement that precludes the site from selling flights on other airlines out of Atlanta -- Delta's backyard.

Northwest Airlines

(NWAC)

, for one, is not taking this sitting down.

In retaliation, Northwest last week dropped fares out of Atlanta, then ran big ads in the Atlanta newspaper, directing passengers to its own Web site. Delta responded by dropping fares out of Minneapolis (Northwest's home base) and running its own ad in the Minneapolis newspaper.

This week, Northwest attacked Delta's hub in Cincinnati, doing basically the same thing, spending money on advertising directing passengers to go straight to Northwest's Web site to book cheap fares. In a not-so-subtle swipe at priceline.com, the advertising copy reads: "Effective immediately, passengers in Cincinnati can fly Northwest Airlines and take advantage of some of the lowest fares available *with no bidding required*!"

While this may seem like normal schizoid airline behavior, we need to remember a couple of things that make this Internet homesteading important to the participants.

For years,

AMR's

(AMR)

American Airlines

held the technological advantage over its competitors, due to its involvement with

Sabre

(TSG) - Get Report

. However, guess what, folks? All that information that Sabre once kept locked away in those mainframes in Tulsa is now available to all. Furthermore, there is now more than one Global Distribution System. Sabre is no longer the only game in town. But most important, more passengers are now going to the Net to book their own fares.

You follow our drift here?

As Kevin Mitchell, chairman of the

Business Travel Coalition

, said last week, "It took years for the airlines to build their hubs. We are talking about lots of bricks and mortar here. But with the Internet, the airlines are now engaged in a turf war that is speeding by in the blink of an eye, in comparison."

Mitchell sees problems with the new way that information on fares is being presented on the Net. For one thing, he thinks that smaller airlines are being discriminated against.

If the agreement with Delta does indeed bar priceline.com from offering any other carrier's flights from Atlanta, then where does that leave

AirTran

(AAIR)

? Pretty much out in the cold.

We have also been told that since the announcement of the deal between Preview Travel and

Travelocity.com

(which is owned by Sabre, which in turn is owned by AMR), more than one smaller airline has been told that it would have to pay higher commissions to continue to be listed on the Preview Travel site.

What do we have here? It's

deja vu

all over again!

Remember at the end of the 1980s, when American Airlines was accused by competitors of unfairly listing its own flights first in the Sabre system? Well,

of course

it did! You think this was an accident? Heck no! It was very deliberate.

How many readers remember when

Southwest Airlines

(LUV) - Get Report

quit Sabre, rather than agree to pay the higher fees for its flights to be listed there? (Oddly enough, this is what spurred Southwest to train its passengers to go to its own Web site to book tickets, which now, it turns out, was a brilliant strategy, born of necessity, just like the 20-minute turnarounds at the gate.)

So, while fights in the late '80s and early '90s were centered on the reservations systems -- and who would charge what, and who would be listed first -- now we have exactly the same thing developing on the Web.

Which airlines are going to be listed on which Web site, and how much is each Web site going to charge participants?

In the case of Preview Travel, we understand that agreements are being made with airlines to leave commissions unchanged (pre-Sabre merger deal), but only if the airlines agree to increase the amount of advertising spent on the site.

Of course, two weeks ago, we had the announcement that four major airlines are teaming up to create their own Web site.

We think all this is fascinating to watch. And make no mistake about it -- it's the equivalent of a Wild West shootout. Everyone is fair game now. American has lost, to an extent, the advantage that it had. Now, the fight is out in the open, involving more players, and there is much more at stake. The rules have changed, and the fight for cyberturf -- and passengers' pockets -- is now in full swing.

Holly Hegeman, based in Barrington, R.I., pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.