By: David J. Wardell

© 1998 By: David J. Wardell.  Reproduction or redistribution in any form without written permission is strictly prohibited.

As the U.S.-based CRS continue their evolution away from the captive distribution tools of a single airline several have emerged as public technology-based companies attracting considerable investor interest. It is interesting to note that, despite the fact that airline CRS are among the oldest computer technology tools still in use, most investment analysts view them as emerging businesses.

Perhaps this is because of the impression that new public companies are now unfettered and able to compete aggressively for new products and services. Perhaps this is because businesses that, according to some estimates, collectively generate over $1 billion in annual free cash flow simply must have the resources to invest in leading-edge products and services. Or perhaps it is simply because the CRS "industry" is new to the observer and hence must be emerging.

Whatever the source, the optimism surrounding CRS companies cannot be denied. Analysts confidently state that the pattern of financial contraction airlines imposed upon travel agents over the last few years cannot be repeated in their industry because of their primary role as inventory distributors.

Admittedly this is a highly simplified overview of the situation in a brief space but from the inside I would personally question most of these assumptions and describe the CRS industry as at a mature crossroads rather than emerging into a bright new dawn.

The concept of disintermediation is that customers eventually find ways to get at what they want to buy, if left unconstrained by artificial limits. Very few customers really want to "buy" what they perceive a CRS as offering.

There decidedly are enormously valuable elements a CRS does add to travel distribution. For instance, the collection and maintenance of a usable fare database and pricing system.

Perceptions cannot, however, be wholly discounted, and the CRS challenge remains how to reengineer itself so as to demonstrably continue delivering value consistent with its cost. There are some efforts within the industry to address this issue, but they are far from sufficient and there is a great deal of unwarranted complacency.

The issue of CRS free cash flow is another very interesting problem. Given alternatives that will strengthen over time it is unclear how long CRS participants and users will countenance financial returns at present levels.

What will all that cash be used for? A substantial part must go for preserving and expanding the subscriber base—a task that will grow more difficult as the agency community continues to be in turmoil. Faced with so much uncertainly it is inevitable that the CRS look for new subscriber sources—most of them will need to be direct to the customer.

Resources must also be expended to preserve the antique infrastructure that underlies every CRS and that has undergone far less real reform over the years than most people realize.

Even so, substantial cash is available for new products and services—but it probably won't be spent. Looked at objectively, its very difficult to justify new CRS technology product development as it is wholly unclear how the investments would be recovered.

More seriously, in the long history of CRS (with very few exceptions) there has been no demonstrated ability to successfully develop and deploy new products and services that deviate appreciably from enhancements to the CRS host (most of what has been launched was acquired from third parties). There have, in fact, been numerous spectacular failures and no recent event suggests that this pattern will not be repeated.

The market power and intrinsic value of a CRS are undeniable, but these are businesses in transition that hopefully will succeed in forging long-term positions that enhance their core strengths.