The Justice Department has intensified its civil investigation into whether the computerized airline reservation and ticketing systems used by travel agents give an unfair advantage to the airlines that own the systems.
American Airlines and United Airlines, the nation's two largest carriers, also own the two largest computer systems and claim together to have more than 12,000 clients among the nation's 20,000 or so travel agents.
The probe, started last summer as a "preliminary inquiry," has been upgraded to the status of "formal investigation," according to Elliott Seiden, chief of the transportation section of Justice's Antitrust Division.
At stake are millions of dollars in revenues for the highly competitive deregulated airline industry, which is struggling to recover from the recession after three consecutive losing years. During that time, one major carrier has gone bankrupt and there have been recurring rumors about the future of others.
Seiden said that civil investigative demands (CH's), the civil equivalent of a subpoena, have been served industrywide to produce records about the computer reservation system and how it works. Both United and American said they have received CIDs, as have several other airlines.
We're interested in simply learning how these systems work," said Seiden. "There are some indications [that their use] may have led to anticompetitive conditions."
Both United and American officials freely admit that their systems favor United and American Flights in displaying airline schedules to travel agents. "The real question," said Dan McKinnon, chairman of the Civil Aeronautics Board, "is how much bias can you have before it becomes anticompetitive?" The CAB is conducting its own inquiry in cooperation with the Justice Department.
John R. Zeeman, United's senior vice president for marketing, said, "Every system out there, including those that are theoretically unbiased, are biased. If you want to go from Washington to Seattle, you could go through 10 [connecting cities] right now. If the system is sponsored by United, it would show United's flight first.
"The real issue in my mind is whether the systems are biased in a way that they intentionally try to eliminate competition. The answer is no."
At least two related questions are also being examined by federal officials: whether computer owners use sensitive data about other airlines to their advantage and whether computer-owning airlines take advantage of the ticket-writing systems to improve their cash position at the expense of their competitors.
The Justice Department's Seiden said, "In the abstract, the ability of the owner to the computer to utilize it to have advantage is constriained by little more than technical problems and possible adverse customer reactions. He is basically loading into his computer the most competitive-sensitive information of his competitors -- a rival's schedules and a rival's fares. That present the obvious temptation to program the material in such a way as to make less attractive the utilization of a rival's service.
"The computer gives the owner the ability to do a lot of things; whether these things happen or not are issues to be resolved."
Airlines that do not own or market their own systems are dependent on the systems of other airlines to get their schedules before travel agents. They thus purchase "cohost" status from United and American, or smaller systems sold by Eastern and TWA. But cohosting is not as good as owning.
Zeeman was asked if United's Apollo system gives United a competitive advantage.
"Yes, he said. "But I think that's a reward for the investment we made. Having the competitive data in and of itself doesn't do anything for you, using it effectively does."
Robert L. Crandall, American's president and chief operating officer, said in an interview tih Washington Post editors and reporters last June that the way American's Sabre computer system displays airline schedules to travel agents "tends to give us a disporportionate share of the business in places where we have placed the system." At the same time, Crandall said, "We are not doing anything dishonest or illegal."
The question of schedule display has raged in the industry since last summer. A more recent event is the concern of other airlines that American and United are requiring travel agents to use American or United coding symbols on most or all tickets sold through the Sabre and Apollo systems, regardless of what airline provides the transportation.
That would have the effect of giving American and United someone else's cash for a few days, because the big computer that sorts out airline tickets and divvies up the money sends it first to the airline whose symbol appears on the ticket; it is then redistributed to the carrier that actually provided the flight.
Braniff International, as it was going bankrupt last May, alleged that American Airlines held back sustantial Braniff revenues through this process. That is understood to be one of the allegations the Justice Department investigated with a recently disbanded Fort Worth grand jury.
That investigation did result in the civil complaint Justice filed recently against Crandall, American's president and chief operating officer, for allegedly attempting to jointly set ticket prices in a telephone conversation with Howard Putman, chairman and president of Braniff, a conversation that Putman taped.
It is possible that some information developed by that grand jury has been transferred to the Justice Department probe of computer systems. Seiden, asked about that, said, "There are rules governing the use of information developed by grand juries; the rules do not preclude it [from being transferred] in all circumstances." The grand jury investigation was a criminal probe; the investigation into the computer systems is strickly civil, Seiden said.
Airlines that do not own their own computer systems have been filing complaints about potential abuses with the Civil Aeronautics Bopard, which is conducting a parallel inquiry at the direction of Congress in coopeation with the Justice Department. For example:
* Frontier Airlines, which competes fiercely with United on routes between Denver and other western cities, alleged that United refused for two years to allow Frontier to become a cohost in United's Apollo computer system, and thus effectively kept Frontier schedules off the computer screens of Denver area travel agents.
United's Zeeman said, "We have never denied [Frontier] the ability to be a cohost; we feel they ought to pay us proper compensation to be a cohost."
* Continental Airlines says that as much as $55 million per day in airline ticket payments that should be going directly to other airlines is being diverted instead to American and United for as long as 53 days, thus depriving the other carriers of important cash. Under current CAB rules, that shift in cash flow is technically possible if the tickets for other airlines are written with American dn United codes through their computer systems.
USAir, is one of several documents supporting Continental's appeal for changes in CAB rules, said those rules give carriers such as American and United "the unconditional right" to name themselves as the "ticketing carriers even if they do not provide the transportation."
Zeeman said in an interview that, "All we have said is that if you have Apollo in your office, we expect you to print 95 percent of your United Airlines tickets on Apollo."
American, in an extended filing with the CAB that called Continental's claims "wild," said, "There is simply no likelihood that servicing carriers [such as American and United], which have already invested millions in their own computerized reservation systems, would incur the additional expense of handling other carriers' tickets and absorbing their credit card discounts."
* Republic Airlines President Daniel May wrote that bias in the way flights are displayed on the computer terminal screens in a travel agent's office "continues to be a problem, particularly with connecting flights . . . Given the increasing leverage enjoyed by the host carriers [primarily American and United], few changes will be for the better."
Zeeman puts it clearly. "My job," he said, "is to get [travel agents] to book a disporportionate share of their business on UAL."
The Apollo and Sabre systems work somewhat differently. As Cradall explained American's Sabre last June, if a potential customer wants to go to Chicago at 9 a.m., the travel agent asks Sabre for available flights.
The first list on the Sabre computer screen will include the best service, regardless of airline, but if American has a flight within 30 minutes of the desired time, and another airlines is closer, American's flight is listed first. Additional information about other flights or connecting flights is available as the travel agent continues to call for information.
United's Apollo system has a "look-back" feature, according to Barry Kotar, director of Apollo Systems. When the travel agent enters the information about time and destination, "Apollo goes back two hours; if there are any United Airlines flights in that" period, "it would be display." Flights up to two hours earlier for other airlines are not picked up in the look back, he said.
"Everything is equal," Kotar said, "IF United, American and TWA have a flight going at 2 p.m., we just make sure ours would appear first."
The important thing, many airlines believe, is to be listed on the first screen the travel agent calls up because, according to some estimates, as many as 90 percent of the tickets are sold off the first screen. There is substnatial debate as to how important it is to be on the first line.
Part of the issue has to do with how the question is asked. In a recent demonstration for reporters, a travel agent using the Apollo system was asked to list flights between Washington and Chicago at 4 p.m.
From habit, she asked the computer to tell her about flights between Washington National and Chicago O'Hare; that automatically eliminated from consideration flights from Dulles and Baltimore Washington International airports as well as flights to Midway Airport in Chicago. When the question was restated with cities instead of airports, the computer's answer included flights involving all those airports.
Edwin I. Kolodny, chairman and president of Washington-based USAir, was asked about all this the other day. "From my standpoint," he said, "the industry made a terrible mistake years ago when they didn't agree on a single system, unbiased, jointly operated . . . We blew it." CAPTION: Picture 1 and 2, THE BIAS IN AIRLINE RESERVATIONS SYSTEMS A United Airlines Apollo reservation system, asked to display 4 p.m. flights from Washington to Chicago, "looks back" to pick up a 2 p.m. United flight, and lists on 8 p.m. United flight before a 7:44 p.m. departure for American Airlines, Photos by Dudley M. Brooks and Larry Morris -- The Washington Post; Picture 3, ROBERT L. CRANDALL, President, American Airlines; Picture 4, Dan McKinnon, Chairman, Civil Aeronautics Board