Sabre Updates IT Systems

Rare is the company whose business-technology strategy has the potential to determine the path of an entire industry. Rarer still is the company that can determine whether you stay miserably stuck in the middle seat on that next last-minute cross-country flight. Sabre Holdings Corp. is both of those.

If you're trying to get out of that middle seat today, your travel agent--most likely through Sabre's online reservation system or one of its competitors--needs to ping the system repeatedly looking for an open seat. But dramatic changes Sabre is making to its IT system will allow much more flexible services, so an agent might be able to automate that process and get an alert if a precious aisle seat becomes available. It's the kind of system travel agencies would not only like but would likely pay extra to get, says Loren Brown, CIO of Carlson Wagonlit Travel. "That would be a much more elegant solution than we have in place now," says Brown, whose company, with some 8,000 agents in 140 countries, is one of the biggest providers of business-travel management.

Since Sabre's birth in the 1960s as American Airlines' electronic flight-reservation system, it has set the standard for how travel reservations are processed. (Its roots go back to the 1930s reservation-tracking system of color-coded cards in revolving trays.) Spun off from American in 2000, its Sabre Travel Network, a system for electronically distributing air- line tickets, hotel rooms, and rental cars, provides pricing and availability information from 400 airlines, 60,000 hotel properties, and 41 car-rental companies. It processes 40% of travel reservations worldwide, the largest share for any electronic distribution channel.

But Sabre's business model is being threatened by the Internet. Airlines and hotels are pushing customers to buy direct online, avoiding Sabre's fees--$3 to $4 per flight segment and about $4 on hotel rooms--to process transactions. Travel agencies, facing their own pressures in competing with Internet booking, also are trying to help suppliers avoid Sabre's transaction fees. That's eroding Sabre's traditional role as a transaction platform that gives airlines and hotels a conduit directly to travel-agency desktops. So Sabre is relying on a technology-enabled transition to make its core business less an aggregator of travel-reservations information and more of an IT factory developing tools that travel agencies will use to design their own content applications.

Doing this requires nothing less than reinventing the travel industry's decades-old distribution ecosystem. In a transition years in the making, Sabre is moving from proven, reliable, yet inflexible IBM mainframes running the Transaction Processing Facility operating system to a service-oriented architecture. It expects to provide dramatically lower IT operating costs from Linux-on-Intel servers and more-productive developers, and more flexibility using Web services and the Internet to deliver new kinds of content to travel agents. Sabre is the market leader, but its competitors--including Amadeus Global Travel Distribution, Cendant's Galileo International, and Worldspan--are attempting similar changes. "These guys don't have an option," Forrester Research analyst Henry Harteveldt says. "If they don't reinvent themselves, they don't survive."

Sabre also expects the new open IT architecture to improve how the company runs. In many ways, the legacy infrastructure encouraged silos within the company's operations, CIO Carol Kelly says. Billing processes have been specific to each business unit: Sabre Travel Network, Travelocity, and Sabre Airline Solutions. The open architecture will make it easier to combine those processes into a single billing system, Kelly says. She sees this as an opportunity to reengineer the company's billing systems to run on the service-oriented architecture.Sabre already has standardized on certain systems--such as Siebel Systems for customer-relationship management, SAP for enterprise resource planning, and Business Objects for reporting--and is using the new architecture to address common business problems. For instance, employees were bothered by multiple sign-ons to the applications they use, there weren't logical connections between related information residing in different systems, and valuable ERP data was tough to access. The move to a service-oriented architecture has let Sabre use XML to break down such barriers. "We call it one version of the truth," Kelly says.Sabre knows it isn't unique in facing a threat from Internet competitors or cost-cutting airlines. And neither is its technology-driven response--Amadeus, Galileo, and Worldspan are likewise replacing their legacy mainframe systems with more-flexible open architectures, all of which embrace an XML standard for exchanging data that's being refined by the Open Travel Alliance, an industry consortium.

At the same time that more-open technology standards provide the opportunities for strategic change, the legal environment is shifting as well. Since the mid-1980s, global distribution systems such as Sabre have been subject to U.S. Department of Transportation rules that have kept them from negotiating with airlines to favor one over another in organizing their listings. The rules were intended primarily to level the competitive playing field and prevent distribution systems from favoring airlines that held stakes in them. But after much debate, the department agreed late last year to lift the rules, and as of July 31 the last remaining restrictions will be gone, creating a more wide-open competitive landscape for the distribution systems.

This opening of information systems and regulation has made the question of who is partner, customer, or competitor increasingly tangled.

Take Hilton Hotels Corp. The chain, which includes the Hilton and Hampton Inn brands, books one out of every five of its hotel rooms through a distribution platform such as Sabre, since corporate travel agencies use such platforms as their primary tool. Sabre is developing something called e-Hotels, a Web-based hotel-booking service that promises to deliver richer content to travel agencies. It's exactly the kind of tool that Sabre expects will be most effective when offered as an easily customizable component of a service-oriented architecture.

To Bala Subramanian, senior VP of electronic distribution for Hilton Hotels, e-Hotels also looks like a potential competitive threat. He expects Sabre eventually to turn that high-powered Web tool into a means of selling directly to consumers. That would position Sabre as trying to seize sales that Hilton would like to have--at a lower cost--directly through its Hilton.com site. "As distribution companies assume the position that it's their customer, then my view is that, over time, we'll have a situation of conflict that comes up," he says.Then there are online travel sites, such as Expedia, that chip into Sabre's business by taking sales away from travel agents and offering a way to buy tickets and hotels without using Sabre's transaction system. But Expedia became a Sabre customer last month, contracting with Sabre to deliver information and process transactions for an unspecified portion of the flights and hotels booked on the site. Perhaps most ominous is Orbitz, the online travel site created by five airlines, which has 2-year-old software called Supplier Link that bypasses the global distribution systems by linking directly with carriers' central reservations systems. "Supplier Link is out there like a sharp-edged guillotine hanging over the necks" of all four global distribution systems, says Forrester's Harteveldt. "If the GDSs don't get their costs down, the airlines will lower the Orbitz blade on the GDSs that are most expensive."

Airlines are by far Sabre's largest customers, but they're already using technology to limit their dependence. Southwest Airlines and JetBlue Airways both subscribe to Sabre--the only global distribution system they use--but they do so at the lowest cost and lowest service levels and instead rely heavily on their own direct-sales Web sites as their primary channels. Air Canada last year pulled its cheapest fares out of the global distribution systems and moved them to a new travel-agency booking site to save on commissions.

David Anderson, CIO of Spirit Airlines, a low-cost carrier that specializes in shuttling vacationers in northern cities to locales such as Florida, Puerto Rico, and Cancun, says he wants to have his product "on as many shelves as possible"--which means he lists flights on Sabre. But Anderson says he needs the distribution systems only to sell distressed product, such as midweek flights heading north to cities such as Detroit and Chicago, so he withholds fares for flights the airline can sell through its own site. Moreover, when Spirit decided to update its internally developed legacy reservations system, it kept it in-house, building a Linux-based system last year. Spirit is one of a handful of airlines that hosts its own reservation system, meaning it could manage all of its transactions itself if it chooses to. "The fundamental objective is to eliminate intermediaries that add no value," Anderson says.

Yet Sabre has some advantages of market size compared with competitors--not the least of which is its ability to host reservations systems, which it does for more than 90 airlines. Having custody of an airline's reservation system gives Sabre--as well as Amadeus, which performs a similar function for many airlines outside the United States--the upper hand in a deregulated environment where airlines will have more freedom to pick and choose which global distribution systems they do business with.

Sabre's strength in reservations hosting was a key consideration for Aeroflot Russian International Airlines when it decided to update its aging reservations and distribution systems, which relied on software from Sita, a Swiss vendor of software for airlines, airports, and aerospace firms. Aeroflot considered new software offered by Sita as well as Amadeus, but it signed a multimillion-dollar software, hosting, and distribution deal with Sabre Airline Solutions in May, in part because Sabre's more-mature technology would be more reliable while operating in Russia's tenuous E-business infrastructure, CIO Sergey Kiryushin says. "We need to start next April, so we need to get an advantage as soon as possible," he says.Sabre Airline Solutions offered Kiryushin the most-favorable terms, he says, plus Aeroflot already was using the company's revenue-management, pricing, and fleet-management tools. Sabre's architecture upgrade sent a message to Kiryushin that the company plans to make its distribution system as cutting edge as its software and hosting products. Aeroflot's access to the Sabre Travel Network will enable some Russian travel agencies to access worldwide travel content via a global distribution system for the first time.

But perhaps the most-important and fastest-changing relationship for Sabre is with travel agents. Historically, agencies used Sabre technology, but it was paid for primarily by the fees paid by airlines and other travel-service providers. Brown, the CIO at Carlson Wagonlit, says agencies like his and American Express Corporate Services have evolved into essentially outsourced corporate-travel-management departments. That means they're looking for better tools to operate within rules dictated by their clients. So, as Sabre and its competitors modernize and begin building more capabilities into their distribution systems, agencies expect that they'll be asked to pay for those features.

Sabre is working hard to lure travel agents into a new way of gathering fares and availability information. The company, which once provided agents with hardware and connectivity to the Sabre system, is preparing to roll out its next-generation agent tool: a portal designed to help travel agents in their continuing effort to be seen as valuable travel experts. The portal will let agents use the DOS-like "green screen" interface and legacy commands with which they've become familiar over the years or a Web-based interface that will tap the new architecture to deliver things that can help agents be travel experts: hotel photos, air-hotel-car packages, and easy point-and-click navigation. "We've heard loud and clear from our agents that they want to continue to use legacy commands," says Hugh Jones, North American senior VP for Sabre Travel Network. "At the same time, we want to put additional information at their fingertips." Eventually, Sabre will transition entirely to the Web-based view.

Winning over travel agents to new services will be vital to Sabre as its transaction revenue moves to other channels. Yet these agencies aren't going to be easy pickings. Already, Carlson Wagonlit has changed several ways that its 8,000 agents interact with the global distribution systems. Carlson developed its own interface to replace the green screen by delivering information from Amadeus, Galileo, Sabre, and Worldspan through a single display. And for the past three years, it's been using its own platform, called Symphonie, to connect directly to the central reservation systems of its highest-volume airlines: American, Continental, Delta, United, and US Airways. Those direct connections cut costs for the carriers by eliminating fees paid to global distribution systems, in exchange for which Carlson gets slightly better fares from the carriers, resulting in lower costs for its business clients. Similar direct-connect technology is available from Navitaire Inc., whose applications are designed specifically for airlines.

The new Sabre system also lets suppliers automate the loading of airfares from central reservation systems, along with the accompanying rules--requirements such as 14-day advance purchase or Saturday night stay. Automating that process, which formerly had a manual component, will mean fewer lags between an airline creating a requirement and it showing up on travel-agency terminals--avoiding costs that travel agencies end up eating when an agent sells a fare too low because of not knowing a new rule.

It's hard to come up with an industry that's changing more profoundly than the travel sector because of new business technology and the increased information flow it permits. Today, Sabre is a company that, like Wal-Mart Stores Inc. in retail or General Motors Corp. in the car business, by nature of its size and position in the market helps drive technology standards in its sector. It's a company others in the travel industry have to deal with in one way or another.Whether Sabre stays that way will be decided in the coming years as many companies make the technical transition to service-oriented architectures, embracing efforts such as the Open Travel Alliance's industry-specific version of XML and the new business models that it permits. "The problem Sabre is trying to solve by updating its system is the same thing we're trying to do with our legacy systems," says John Turato, VP of technology for Cendant Car Rental Group. "We're all working on the same root challenge."

Which companies will emerge as winners after all those changes is up in the air.