Cost pressures, changing customer demands, and new technology could herald a dramatic change in the way airline tickets are distributed in the next three to five years. Travel agents, which currently account for 80 to 85 percent of all ticket sales, have most to lose given their market dominance and reliance on ticket sales for much of their revenue. Airlines, on the other hand, have much to gain if they can leverage these changes to control distribution costs.

Four industries have traditionally played a role in airline ticket distribution—travel agents, computer reservation systems (CRS) companies, airlines (through their reservation offices), and credit card providers. Together, they account for approximately 20 percent of the price of a typical airline ticket (Exhibit 1 and Exhibit 2). But today, the industry is being reshaped by three factors that will not only alter the roles of these players, but significantly reduce the cost of ticket distribution.

These three factors are:

Airline cost pressures. Losses in the early 1990s forced airlines to take a tough look at their costs. Not surprisingly, distribution costs—which represent approximately 15 percent of the total costs of major US airlines and have been growing faster than passenger revenue (Exhibit...