American Airlines executives said yesterday that their computerized airline reservation system--one of two used by most of the travel industry--gives American a significant but not illegal competitive advantage over other airlines.
Their comments came as the Justice Department was one month into a preliminary antitrust investigation to determine if "computerized scheduling and reservation services might have been manipulated" as to give a crucial advantage to the system operators, a Justice spokesman said.
Braniff International has charged that American manipulated its Sabre reservations system, used by travel agents to handle ticket sales for Braniff as well as American and other airlines, to create cash-flow problems for Braniff in an attempt to drive it out of business. Justice officials said the investigation was not triggered by charges lodged by the bankrupt Braniff.
Elliott Seiden, chief of the transportation section of the Justice Department's Antitrust Division, said the department has received complaints from "a number of airlines. . . . We don't believe it's isolated." He declined to identify the genesis of the investigation.
Robert L. Crandall, American's president and chief operating officer, said, "Everything we do with the computer we announce in advance. We are not doing anything dishonest or illegal." He also said that the way the computer displays airline schedules to travel-agent clients "tends to give us a disproportionate share of the business in places where we have placed the system." Travel agents, he said, account for about 65 percent of ticket sales.
Crandall and Albert V. Casey, American chairman and chief executive officer, defended their computerized reservation system and the way it is used in a luncheon meeting yesterday they sought with Washington Post editors and reporters.
Justice has declined to identify which reservation systems it is investigating, but the business is dominated by American's Sabre and by United Airlines' Apollo systems, which together have more than 7,000 travel-agent clients. The two airlines sell or lease computer terminals and ticket printers for the systems are leased or sold to travel agents who then can book flights on every airline.
The potential antitrust question appears to be whether, for example, American's Sabre must give equal billing to a Republic flight on a route American also flies.
Braniff officials have charged that American's manipulation of the computer was just one of several "dirty tricks" American employed to help create cash flow problems and push Braniff into bankruptcy. The Civil Aeronautics Board is investigating five specific Braniff charges, including allegations that American attempted to influence Braniff's creditors to "pull the plug" on Braniff and that American pilots blocked taxiways to slow Braniff flights.
Casey said yesterday that the CAB investigation had "found American blameless," but a spokesman said CAB had made no such finding. "I'm certain we wouldn't do anything until something comes out of the grand jury," he said, pointing to yet another potential problem for American.
A federal grand jury in Fort Worth is investigating competitive airline practices in the Dallas-Fort Worth area and involves several airlines there. American and Braniff were locked in a highly competitive struggle for primacy in that air travel hub before Braniff closed its ticket counters on May 12. "The Dallas-Fort Worth grand jury is not looking into an industrywide problem," just a Dallas-area issue, Seiden said.
The preliminary investigation into the reservations computer system is industrywide and "much broader," Seiden said. It could result in a formal antitrust action.
Crandall said that the best guarantee that the Sabre system does not unfairly favor American Airlines is the fact that travel agents buy the system, "so it must accurately represent what is available" on all airlines.
A typical travel agency with four display terminals would lease the system for about $1,200 monthly, American officials said.
However, American builds what Crandall calls a "bias" into the computer program. For example, he said, if a potential customer wants to go to Chicago at 9 a.m., the travel agent asks Sabre for the flights. The first list on the terminal will include the best service, regardless of airline, but if American has a flight within 30 minutes of the desired time, and another airline is closer, American's flight is listed first.
Other airlines can reduce American's edge in competitive markets to 15 minutes if they buy so-called "cohost" status, which means in the case of Sabre that they must designate a minimum of 31 travel agents with which to place computer terminals and pay $605 per location per month. Those agencies, according to Thomas G. Plaskett, American's senior vice president for marketing, would typically be in areas where American was not competitive with the "cohost."
Cohost status is obviously important. USAir's Jack King said yesterday that USAir has cohost rights with four systems: Sabre, United's Apollo, and smaller systems run by TWA and Eastern Airlines. "You gotta be on everybody's computer to play," King said.
"If there is no contract, if you're not a cohost," said the Justice Department's Seiden, "the owner of the computer is constrained only by the demands of the travel agents . . . So there is a substantial amount of leeway that the computer programmer has" to display favorably one airline's schedule over another's.
Crandall was asked why, when a potential customer calls an American ticket office (not a travel agent) and asks for flight times, only the American flights are given unless a specific request is made. "I am not paying my people to sell seats on United," Crandall said.
American, he said, had invested $110 million in Sabre and spends $25 million annually to run it. It was built, he said, "with our dollars, at great risk."