BA joins rival airlines to create internet booking giant

The 11-carrier online reservations venture could endanger travel agents and Net firms like lastminute.com

British Airways yesterday unveiled a partnership with 10 other airlines to create an online travel agency offering customers the chance to compare up-to-date fare information and book flights directly.

British Airways yesterday unveiled a partnership with 10 other airlines to create an online travel agency offering customers the chance to compare up-to-date fare information and book flights directly.

The site, yet to be named, will be launched at the end of the year and will be managed independently of the airlines, which include some of BA's fiercest rivals, such as Lufthansa, British Midland, KLM and Air France. As well as listing details of all the groups' flights in the UK and Europe and some outside, the service will include travel offerings such as car hire, insurance and hotel bookings.

The move is a potentially devastating blow to traditional travel agents, which rely on the major airlines for commissions. Tony Shepherd, an analyst at Charles Stanley, said: "This is clearly intended to cut the travel agent out, and to encourage customers to cut them out."

Paul Norris, aviation editor at Travel Weekly, said: "Travel agents are very worried about this. It could cut them out completely from the travel booking process. It could spell the end of walking into a high-street shop to book your holiday."

The move also threatens the myriad of internet travel firms, such as lastminute.com, which sell cut-price flights over the web. Shares in lastminute have fallen by up to a third this week after a series of announcements from major travel firms, which will see them invest vast sums in new-e-commerce operations.

Tour operators such as Thomson and Airtours have said they do not intend to allow internet start-ups to build businesses on the back of their investments. BA's online travel agency will increase the pressure as the mainstream players seek to become as dominant online as they are off it.

BA's internet venture is expected to drastically reduce the airline's distribution costs, about 20 per cent of total operating expenses. BA spent £8bn last year on ticketing, marketing and travel agency fees. BA has set itself the target of selling half its tickets online by 2003, from a current 2 per cent.

The effect of the venture is likely to be felt most strongly by the smaller travel industry players, who do not own their own airlines or have the resources to develop e-commerce sites.

Julian Wiltshire, a manager at Far Horizons Travel in Gillingham, Dorset, said: "Things are changing all the time and the rate of change has become more rapid recently. People have been able to book their flights directly since the 1930s, but now it is much easier since these online services have been launched.

"But not everybody wants to sit at home booking his holiday over the internet. Most ordinary people going to Majorca or visiting their daughter in Australia would still prefer to discuss their plans with a travel agent."

Dermot Blastland, managing director of flights and holidays at First Choice, the UK's fourth-ranked tour operator, said: "The difference between us and what BA is offering is that booking a flight is a pretty straightforward, uncomplicated transaction. Organising a holiday is much more complicated, and we still have role to play in that."

Richard Hannah, an analyst at Deutsche Bank, said the biggest losers could be dedicated online travel agents such as Travelocity.com, Microsoft's Expedia, and lastminute.com. "These companies rely on content feed [from the airlines]. I would have thought the next step [for the BA venture] would be offering promotions on the site. That would take away the role of these online discount agents."

Lastminute shares yesterday fell 7.5p to end at 197.5p on continued concerns that established players are beginning to imitate the group's business model. In a heroic attempt to put a positive gloss on the BA announcement, Martha Lane Fox, lastminute's co-founder, insisted the airline initiative would benefit the dot.com operators.

She said: "This will help to get these companies focused on the Web and encourage people to buy online." The relationship between her company and the airlines would not alter: "They still say that we provide a valuable distribution channel."

Ms Lane Fox questioned how successful the joint venture would be. "It will be very difficult to execute," she said. "And it's not being launched until the end of the year, which is not very speedy in internet time."

Another possible block for the project is the threat of regulatory intervention and the potential allegation of price fixing. Damien Horth, an analyst at ABN Amro, said: "They've got to be very careful that this is run as a separate entity." Sarah Newman, BA general manager for strategic delivery, said: "We expect the regulators will look at it. But we don't believe we are doing anything uncompetitive."

BA said the member airlines "will remain competitors and will not share pricing or proprietary information with each other". The companies will be able to compare each others' fares once they are on the site, but this is no different to the current position where they can check their rivals' tariffs as soon as they are in the public domain.

Mr Horth said customers are likely to benefit from lower prices. "The cost of distribution will come down. Historically, when the airline industry has driven down costs, the benefits have been passed on to customers."

The online agency is part of a £100m investment by BA in e-business, which the company hopes will save it about £442m a year by March 2002. The carrier plans to turn its Air Miles loyalty arm into a fully-owned internet group, which could be spun off. It plans to join forces with a media company and a technology firm later this year to set up a lifestyle portal offering customers a range of leisure information over the web.

Will these ambitious and expensive plans take off? Charles Stanley's Mr Shepherd said: "It depends entirely on the public. These airlines could spend all their money on developing their internet sites and then people could use it once and get fed up."