E Conference Redefining airline distribution

1. E ConferenceRedefining airline distribution David Peller, ITA Software, Inc.Senior Director of Worldwide Business Development dpeller@itasoftware.com Frankfurt – September 29th/30th 2005

2. Introduction to ITA Software • Founded in 1996, now 160+ employees • Launched QPX Airfare Pricing & Shopping System with Orbitz in 2001 • QPX now established as a leading international pricing and shopping system, with: • Airlines incl. Alitalia, American, Continental • Distributors incl. Orbitz, Disney, LibertyGoGo • GDSs: Galileo’s online/offline agencies • QRS introduced as a low-cost GDS-alternative system; ARS under development E Conference • Frankfurt, September 29th / 30th 2005

3. From this… E Conference • Frankfurt, September 29th / 30th 2005

4. And this … E Conference • Frankfurt, September 29th / 30th 2005

5. To this … E Conference • Frankfurt, September 29th / 30th 2005

6. The end of an era? • Content is becoming increasingly more fractured • Most LCCs do not participate in the GDSs • Many non-air products not available through GDSs • Agents becoming used to finding and booking content through other sources / channels • Airlines are under significant economic and competitive pressure • Yields / fares are falling • Costs not falling proportionately (esp. fuel) • GDSs continue to increase charges • Increased competition from LCCs and reinvigorated airlines (Chapter 11) • Airlines are beginning to regain controls of their channels and lower their dependence on GDSs • GDS deregulation in North America (Europe?) • Ending of DCA3 agreements E Conference • Frankfurt, September 29th / 30th 2005

7. Why the focus on distribution costs? Source: US DOT, 08/2004 E Conference • Frankfurt, September 29th / 30th 2005

8. Airline distribution costs E Conference • Frankfurt, September 29th / 30th 2005

9. Focusing on distribution costs • Airlines have already • Attacked staff costs, benefits and pensions • Outsourced certain operations • Reduced in-flight amenities – meals, pillows • Introduced charges for ‘high touch’ bookings • And they’re still losing money • It was only a matter of time before airlines addressed their very high costs of distribution and a technology alternative emerged • GDS alternatives – with fundamentally different economic models – have been created E Conference • Frankfurt, September 29th / 30th 2005

10. Emergence of the GNEs • So called ‘GDS New Entrants’ (GNEs) have emerged with technological and economic advantage • Modern technology enables enhanced functionality – for travel suppliers and distributors – at a fundamentally lower cost • Unburdened by legacy processes and business practices, GNEs provide genuine and credible alternatives to the existing distribution model • Airlines can use effective channel management – ensuring their most competitive fares/products are available through the lowest cost channels E Conference • Frankfurt, September 29th / 30th 2005

11. GNEs’ capabilities • Pricing and shopping, booking and ticketing, without the involvement of a traditional GDS • Creating and maintaining the control PNR • Maintaining own e-ticket stock • Using industry standard communication protocols to support transactions with airlines’ inventory systems • Such as sell/cancel, ticket/void, refund/exchange, upgrade requests, frequent flier, seat selection/seat maps, SSRs/OSIs, FLIFO E Conference • Frankfurt, September 29th / 30th 2005

12. ITA Software’s capabilities • ITA Software has built, from the ground-up, a modern GDS alternative / bypass • To price and shop, book and ticket airline inventory, without any traditional GDS involvement • Incorporating ITA Software’s proprietary, industry leading, pricing and shopping system (QPX) • Built using current technology standards and running on PCs; connected to airlines using EDIFACT and AIRIMP • Supporting credit / debit card processing; ARC and BSP settlement; BIDT and TCN data; and MIR data for agency hand-off • Supplied with multiple interfaces to support agency connectivity, integration and adoption E Conference • Frankfurt, September 29th / 30th 2005

13. Changing channels • 38%+ of total US airline bookings now online • In the US, carrier.com now competes effectively with the OTAs (59% : 41%) • Shoppers ‘look’ on OTA sites but book on airline sites, particularly as airlines improve their shopping engines • European online travel market growing fast: • European online travel market estimated at €19.5bn (2004), ~50% growth over 2003 • Projected to grow to €27.3bn (2005), ~40% growth Source: PhoCusWright E Conference • Frankfurt, September 29th / 30th 2005

14. Continental Airlines' Web Site Generates Record Sales; Hitting $2 Billion Annual Rate HOUSTON, Aug. 11 -- Continental Airlines today announced that its continental.com web site is generating record sales volume for the airline, recently setting a single-day sales record and achieving record sales volume of $2 billion for the most recent 12-month period, ending July 31. “We’ve made a significant investment in our web site’s features and functionality to make it a full-service travel site,” said Jim Compton, executive vice president-marketing. “Seeing this dramatic growth in the site’s usage is rewarding because this is such an efficient method for ticket sales.” On one day in July, continental.com racked up $8.5 million in sales, setting an all-time single-day record. This record volume is equal to 34% of the worldwide passenger sales volume that Continental achieves from all sources in an average day. Continental Airlines Press Release, Aug 11 2005 Driving direct distribution E Conference • Frankfurt, September 29th / 30th 2005

15. Driving online adoption Source: Continental Presentation ATW Annual Conference Washington DC, February 2005 E Conference • Frankfurt, September 29th / 30th 2005

16. Driving online adoption Source: Continental Presentation ATW Annual Conference Washington DC, February 2005 E Conference • Frankfurt, September 29th / 30th 2005

17. US majors – internet sales E Conference • Frankfurt, September 29th / 30th 2005

18. The key to successful online sales • Airlines have grown direct online sales by: • Enhancing the user experience • Making their web sites more straightforward / easier to use • Providing improved functionality / features and a variety of self-service tools • Backing-up their sites with ‘best fare’ guarantees • Encouraging direct sales with bonus miles and other ‘soft dollar’ benefits, while levying charges for call center bookings {some OTAs charge ‘booking fees’ making them less competitive against airlines’ own web sites} E Conference • Frankfurt, September 29th / 30th 2005

19. The key to successful online sales (cont.) • Successful direct online sales are being driven by modern, flexible pricing systems, enabling customers to find products (fares / schedules) that meet their need • ITA Software’s QPX is the leading such system: • Prices and compares all relevant itineraries, across your entire network – online and interline, alliances and code shares partners • Any number of segments / itineraries can be fully priced • Handles all passenger types / classes of service (incl. mixed class of service) • One-ways, round-trips, multi-stops • Processes multiple faring strategies • Full integration of any number / type of private fares • Processes any applicable POS restrictions • Supports all IATA checks with carrier exceptions E Conference • Frankfurt, September 29th / 30th 2005

20. Calendar shopping E Conference • Frankfurt, September 29th / 30th 2005

21. Calendar shopping E Conference • Frankfurt, September 29th / 30th 2005

22. Simple upsell E Conference • Frankfurt, September 29th / 30th 2005

23. Frequent flyer shopping E Conference • Frankfurt, September 29th / 30th 2005

24. Cross-shopping / Flexible searches E Conference • Frankfurt, September 29th / 30th 2005

25. Success online – using QPX Source: Alitalia Presentation IATA Information Management Conference Athens May 2004 E Conference • Frankfurt, September 29th / 30th 2005

26. What’s next? • At the heart of airline distribution is the host inventory system and the features/functionality supported • IT costs associated with legacy hosting / reservation architecture are high • Current systems do not provide modern interfaces that customers demand and employees expect • Inflexible systems – hard to maintain / improve • Transaction oriented systems do not easily support product-based or customer-centric views • Systems were not built to meet current user demands – web sites, screen scrapers and more • Legacy systems do not exploit low-cost, scaleable technology or modern web-based economics E Conference • Frankfurt, September 29th / 30th 2005

27. A modern ARS • ITA Software is designing and building a modern airline reservation system: • Leveraging low-cost, high performance, scaleable technology (commodity PCs, XML, TCP/IP) • Providing a modern, flexible inventory control system supporting current products, while enabling new / innovative products to be created, managed and sold • Web-based departure control system to provide unparalleled customer service – focused on self-service and advanced capabilities for re-seating and re-booking • Integrated with ITA Software’s distribution system and pricing & shopping system  providing a low-cost, modern, integrated technology platform for airlines E Conference • Frankfurt, September 29th / 30th 2005

28. Thank You! E Conference • Frankfurt, September 29th / 30th 2005