05/12/97 CLIPPED WINGS ON THE WEB

CLIPPED WINGS ON THE WEB
Are airlines out to crush the online travel industry?
It's the hottest business on the Web: From tiny startups such as Travelogix to Microsoft Corp.'s Expedia, online travel is booming. Revenues should hit $827 million this year, say researchers Jupiter Communications, rising to as much as $9 billion by 2002. So why are these companies and the airlines they serve at loggerheads?
The tempest erupted in early April, when American Airlines Inc. abandoned the standard 10% agent's commission for tickets sold online in favor of a flat $15. A week later, United Airlines Inc. lowered that to $10 per transaction--regardless of the number of tickets sold.
The moves set online agencies howling about ''discrimination'' and anticompetitive behavior by airlines, which own two of the three biggest ticketing sites. If the lower fees stick, what had been a vibrant Web market could shake out fast. Even with 10% commissions, no online agency was profitable. Giants like Microsoft and America Online Inc. have other income, but the squeeze is life-threatening to the small fry. ''We're reevaluating our business model,'' says Raymond Karlowicz, vice-president of marketing for Houston-based Travelogix Inc. Travel agent George F. Newsome of Raleigh, N.C., has quit selling tickets at his PCTravel.com.
The airlines have complaints, too. ''We believe there could be huge efficiencies,'' says Mark Koehler, electronic distribution director at United Airlines. But online agencies, he says, while automating flight selection and reservations, don't push paperless, or electronic, ticketing. The vast majority of customers who buy from United's online service, in contrast, choose E-tickets, which United says eliminates 14 accounting and processing procedures. Airlines also say online agents' frequent offloading of services, and the fee-sharing that involves, adds to costs. ''Here's a medium that's designed to allow the customer and supplier to deal directly, and now you've got two in the middle,'' says Al Lenza, managing director for distribution planning at Northwest Airlines Inc.
Will E-trade survive the fracas? Online agencies say lowering fees will raise the barrier to online entries, reducing innovation and stifling competition. For now, it's one more dogfight in cyberspace.
By Gary McWill-iams in Houston