Sabre Holdings Corporation

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Sabre Holdings Corporation

3150 Sabre Drive
Southlake, Texas 7609
U.S.A.
Telephone: (682) 605-1000
Fax: (682) 605-8267
Web site: http://www.Sabre-holdings.com

Public Company
Incorporated: 1996
Employees: 9,000
Sales: $2.13 billion (2004)
Stock Exchanges: New York
Ticker Symbol: TSG
SIC: 561510 Travel Agencies; 518210 Data Processing, Hosting and Related Services

Sabre Holdings Corporation is a leading distributor of electronic travel-related products and services in the world. The company provides information technology (IT) solutions to the travel and transportation industry which allow travel agents worldwide to electronically access booking information for airlines, railways, cruises, tours, hotels, and rental cars. In doing so, Sabre operates one of the largest privately owned real-time computer systems. The company also offers individual customers the option to set up travel reservations on the Internet through its easySabre and Travelocity services.

The Early Years

Although Sabre has been a freestanding entity for only a few years, its beginnings date back to 1946, when American Airlines brought computer technology to the travel industry with the Magnetronic Reservisor. One of the first computerized reservations systems, Magnetronic Reservisor was advanced to include basic computer file technology, so that a reservation agent could automatically check availability and sell or cancel seats. Later in the decade, American Airlines and IBM joined together to announce the Semi-Automated Business Research Environment—Sabre. The system cost an unprecedented $40 million, including expenses for initial research and development as well as the actual installation of the system.

After being introduced, Sabre evolved into an electronic gateway to provide access to reservation information about all types of travel-related items, including airlines, cars, and hotel reservations. The technology used to make reservations was also adapted to act as a means for customers to secure items such as flowers, theater tickets, and bon voyage gifts. Additionally, other services were provided to varied markets such as insurance providers, retailers, broadcasters, financial institutions, and manufacturers.

Growth in the 1980s and 1990s

In 1985, consumers with their own personal computers were introduced to the easySabre system, which offered individuals the access and ability to make travel-related arrangements in the comfort of their own homes. For the most part, however, the company provided its services to corporate clientele. In fact, until 1988, Sabre provided services only to AMR Corporation (AMR), its parent company, and one of AMR's other subsidiaries, American Airlines. Sabre's software and systems management services helped distinguish American as one of the most technologically advanced airlines.

At the end of the 1980s, Sabre's services began to be offered to other companies, including more than 130,000 travel agency terminals worldwide. The business gained by the addition of these travel agent customers came to represent over 50 percent of Sabre's IT revenue. By the mid-1990s, in fact, the company estimated that more than 40 percent of all travel agency airline bookings were made through Sabre, representing 65.8 percent of the company's revenues.

In the 1990s, Sabre provided its IT services to over 450 clients in 73 countries. Through this non-reservation-based area, Sabre worked with its parent, AMR, and with other transportation and financial services companies which had data problems. The company maintained three regional offices across the globe: one in Dallas/Ft. Worth, Texas; one in Sydney, Australia; and one in London, England. Each of these units was responsible for all aspects of Sabre's business and also provided support to local offices in their respective regions.

Independence from AMR in 1996

April 1996 brought the beginnings of Sabre's repositioning as a separate legal entity from AMR. The decision to do so was made based on Sabre's position as one of the nation's largest computerized reservation services, as well as on its strong growth in the IT field. A prospectus was filed with the U.S. Securities and Exchange Commission which covered an initial public offering of as much as $550 million of Class A common stock. Approximately 20 percent of this stock was offered by late summer in 1996, causing parent company AMR's stock to jump 5.5 percent.

Sabre's executives noted that the company's performance during its first year as a public company was the best in its history. Booking volumes outside the United States grew at a compound annual rate of 28 percent, and during 1996 the company introduced new products for both of their primary areas of business: information technology solutions and electronic travel distribution.

In the midst of continued positive change and growth for Sabre, one of its travel agent reservation software products was identified in an investigation of its fellow AMR subsidiary, American Airlines. Allegations were made that the company had programmed bias into the computer reservation system used by travel agencies, meaning that add-on software used when booking with Sabre's product was biased toward American's flights. The allegations were made against American by Northwest Airlines and The Department of Transportation in October 1996. Developed by Sabre, "Preference MAAnager" was said to have violated rules against building bias into computer reservation system displays. This particular software could reorder flights on the agents' screens either to highlight or show only American flights, even though the Department of Transportation had made it illegal to bias a reservation system in 1984. In 1992, however, the department had decided that travel agents could install add-on software, such as "Preference MAAnager," from third-party vendors. A Department of Transportation administrative law judge later ruled that American was not technically violating federal rules by offering "Preference MAAnager" free to travel agents.

Innovations in Technology: 1996–98

In March 1996, the company joined together with World-view Systems Corporation to create and introduce "Travelo-city" for use by those individuals looking to make their own travel arrangements online. This Web site communicated directly with the Sabre reservation system and was soon the largest travel site on the World Wide Web that was not an airline-run site. The Web site's system was developed for those individuals who wished to peruse and purchase travel industry offerings via their personal computers. Attempting to lure customers onto the Web by offering extras that were not available from a traditional agent, Travelocity had a traveler-paging option to provide the customer with booking information up to a maximum of five flights. Other features available online through Travelocity included an instant travel reservation system, a lowest-fare finding device, electronic ticketing, consolidator fares for pre-purchased bulk sales to travel agencies, international booking capability, and a travel agency directory.

After its introduction, Travelocity soon registered in excess of 1.6 million members and began logging about 15 million hits monthly. This helped the site earn a ranking among the Top 25 Web sites used at work, according to two separate research firms, RelevantKnowledge and Media Metrix. For every online booking transaction, Sabre received approximately 5 percent from the airline, car rental company, or hotel (arrangements made through a travel agent earned $3 per purchase). Travelo-city made more than $100 million in travel-related bookings on the Web in 1997, its first full year of operation. Industry analysts noted the sudden increase in travel industry revenues that originated online from sites like Travelocity and predicted that the percentage of industry revenues garnered online would only continue to increase in coming years. According to the Travel Industry Association of America, the $827 million worth of bookings which were made in 1997 represented a mere 1 percent of earnings in the travel industry. The Travel Industry Association predicted this figure could reach 5 percent by the year 2000, however.

Also launched in 1996 was Sabre Business Travel Solutions (Sabre BTS), the company's online corporate travel management service. This gave both business travelers and their travel counselors, either separately or together, an easy and convenient way to make or change their own travel plans according to corporate policies through their computers, with 24-hour access and travel agency support. In addition to automating travel planning and reporting, Sabre BTS was also designed to cut up to 30 percent of the costs associated with business travel management. The products offered consisted of integrated modules for travel booking, policy compliance, and expense reporting. Able to track all travel-related spending ranging from pre-planning to reimbursement, businesses could save as much as 30 percent in total travel management costs by using Sabre BTS. An additional feature of Sabre BTS was an overhead map of the airplane with all available seats mapped out, noting such details as exit rows, first-class accommodations, and the location of the galley. Any specific seat could be reserved, changed, or canceled by the user at any time before travel. By March 1998, Sabre BTS was used by 120 customers, more than any other system for corporate travel management.

Company Perspectives:

There are no straight lines in nature. We live in a world of curves. A world of revenue curves, profit curves, growth curves, learning curves, expense curves and yield curves. One can follow a curve or get ahead of it, and in rare instances, one can actually shape the curve of things to come. The Sabre Group is changing the curve by acting as a catalyst in the travel and transportation industry. We are among the few companies able to effect fundamental change in the way that travel is distributed, in the way consumers acquire and use travel information, and in the way travel and transportation companies use information technology to obtain strategic advantage.

Sabre was awarded six patents in July 1997 by the U.S. Patent and Trademark Office for new information management systems technology. Covered by the patents were the Availability Processor for reservation inventory control applications, CRSSim technology for business-generating computer reservations systems, the Shell Communication Interface Program, the SQL Mapper, and Interactive Analysis System—or Datawise—technologies.

In 1998, Sabre BTS was redesigned to offer new features such as the ability to access departure and arrival gates and times, restrictions, cancellation terms, and ticketing guidelines. The user could receive an automated pre-travel authorization of booked reservation via e-mail. Also included was an updated car rental and hotel booking process, which allowed travelers at separate company sites the ability to add personal preferences such as frequent flyer numbers.

Announcement of an alliance with MobileStar Network Corp. was made in August 1998. This arrangement would supply travelers greater mobile access to their travel plans through wireless high-speed access to the Sabre BTS online booking tool. Connecting through their laptop via a PC card device with a small radio and ethernet local area network adapter, the new Sabre system allowed users to connect with its network without the bother of having to find an analog phone line. That same month, Sabre BTS was upgraded once again to include information such as online hotel maps, weather information, and group travel-related information. Sabre also announced plans to team up with IBM to develop a "next generation" corporate travel management solution. The combination of Sabre BTS's policy compliance tools and online booking and IBM's Web-based Electronic Expense Reporting Solution would provide the consumer with easy installation, ongoing customer support, and the convenience of Web access to all of their booking and expense reporting tools.

Planet Sabre, the industry's first Internet-enabled application for travel agencies, was introduced in early February 1997. Using the same technology that had been developed for Travel-ocity, Planet Sabre integrated every tool a travel agent could need into one customizable desktop display. This easy-to-use Microsoft Windows 95-based software suite greatly simplified the booking of travel arrangements. Through Planet Sabre or Turbo Sabre, the company offered a private Web site for travel agents called Sabre AgentExplorer. The site featured a customized city pair chart showing the lowest published airfare available for those pairs of cities most frequented by their customers. The bulletin board also showed details regarding the fares, which included the previous lowest fare and the airline offering the fare, among others.

Development Strategies in the Late 1990s

A $4.3 billion, 25-year contract between US Airways Group Inc. and Sabre Group Holdings, Inc. was signed December 12, 1997, selling off US Airways' information technology assets. The deal was arranged so that Sabre could run US Airways' data center operations, communications and help desks, and software applications, while also providing hardware and personnel. Additionally, the contract called for significant support by Sabre for the airline's ground and flight operations, maintenance and engineering activities, internal reservations system, sales, and cargo operations. All US Airways' software was scheduled to be converted to a Sabre application by 1999.

February 1998 brought another multimillion-dollar agreement for the company. ABACUS International Holdings Ltd. and Sabre signed a joint venture agreement called ABACUS International, a new Singapore-based travel services company. In this agreement, Sabre was to invest $139 million in cash, plus about $100 million in assets, while becoming the provider of computer reservations for the company. In a second agreement, over 7,000 ABACUS travel agencies across the world adopted a customized version of the Sabre reservations service, which was called "ABACUS powered by Sabre." This venture added almost 150,000 terminals in more than 40,000 travel agencies in 108 countries and positioned Sabre to become a key player in Asian travel technology.

In a 1998 effort to bolster customer confidence in the safety of Sabre's online reservation and purchase systems, the company introduced its Shop Safe Guarantee. By using the site's secure server, this service would be provided in the event of credit fraud and reimburse the individual's liability fee up to $50. Travelocity joined the Better Business Bureau (BBB) online initiative, which was dedicated to ethical online marketing practices. The site's BBB online profile could be viewed through the Travelocity Web site.

Key Dates:

1946:: American Airlines purchases the Magnetronic Reservoir, an early computer reservations system; a later partnership with IBM produces the Semi-Automated Business Research Environment (Sabre).
1985:: The easySabre system for personal computers is launched.
1988:: Sabre begins expanding its clientele beyond American Airlines and other subsidiaries of holding company AMR Corporation.
1990s:: Sabre provides its information technology services to over 450 clients in 73 countries.
1996:: Sabre separates from AMR Corporation and goes public; Travelocity and Business Travel Solutions are introduced.
1997:: Internet-based Planet Sabre is introduced; the company purchases US Airways Group's information technology assets.
1998:: Sabre enters a joint venture with travel services company ABACUS International Holdings.
1999:: Sabre renames itself Sabre Holdings Corporation.
2000s:: Waning airline revenues spark crisis over the cost of using such global distribution systems (GDSs) as Sabre.

Throughout many different industries, Sabre has been recognized as a leader in information technology solutions and operations. Among the awards the company has earned are the ORSA Award for "The Best Operations Research Group in the Country (U.S.A.)" (first recipient) by the Operations Research Society of America, the Franz Edelman Award for "Best Operations Research Project in the World" by the Institute of Management Sciences, the Network World User Excellence Award, the UNIX-Expo Award—International Excellence in Open Systems, the Datamation Client Server Award, the Partners in Leadership Award, the Strategic Mission Award, the ESPRIT Award, the Object Management Group Object Application Award, the Business Traveler International Magazine Award, and the People's Voice Award.

Just a few short years after Sabre incorporated as a publicly held company, its personnel and expertise had led it to become one of the largest travel service providers in the world. Through its combination of strengths, Sabre was able to provide its customers with cutting-edge technology and over 150 products and services that could be used by groups ranging from airlines to foodservice providers. Its unequaled customer service offered support 365 days per year to those clients with Sabre intelligent workstations, communications networks, and printers. As the 20th century came to a close, Sabre seemed to be poised for further growth and innovation in the future.

Record Years Round Out the 20th Century

Sabre ended 1998 with a record net profit of $231.9 million, an increase of 16 percent over 1997, on revenues of $2.3 billion, 29 percent higher than 1997. Much of the year was spent preparing for two large rollouts of modifications to computer systems: Y2K system compliance repairs and the conversion of US Airways' computer system to a Sabre application. Technicians spent over one million hours on the latter project, which involved over 30,000 computers and printers at 400 locations around the globe. The rollout itself was completed literally overnight, in less than six hours during the night of December 5, 1998.

In March 1999, the company rolled out another change, renaming itself from Sabre Group Holdings to Sabre Holdings Corporation and streamlining its business units into two major branches. The company's legacy travel distribution business comprised one branch. The other branch, which reflected Sabre's ongoing drive toward diversifying its client base, provided information technology outsourcing. Clients of this, the fastest-growing of Sabre's business segments, included American Airlines, US Airways, and Canadian Airlines, as well as hotels, car rental companies, cruise lines, and electronic ticket distributors worldwide. The London Underground and the French railway system contracted for software to handle complex scheduling and routing information. Other technology clients included oil and gas companies, manufacturers, and financial companies.

By July 1999, Sabre's operating income rose 11 percent over 1998, reaching $77 million, or 59 cents per share, beating Wall Street estimates of 56 cents per share. Analysts noted that the company achieved its gains despite a general decline in profits among air carriers because of its stable $4 per ticket booking fee, which ensured steady income in the face of market fluctuations that cut into airlines' bottom lines. In order to strengthen the business's position, AMR, the parent company of American Airlines, Sabre, and the regional carrier American Eagle, spun off its 83 percent stake in the travel technology company. The move was expected to increase Sabre's business opportunities with non-AMR companies, which grew from 58 percent of Sabre's clientele in 1994 to nearly 70 percent in 1997. This fell below the 15 to 25 percent per year increases the company desired to offset leveling-off of revenues in the increasingly crowded travel industry.

Changing the Way the Travel Business Is Done

By 2001, Sabre was not alone in the online travel marketplace. Competitors including European-based Amadeus, Microsoft spinoff Expedia, Worldspan, Galileo, and Orbitz, many with origins in airline-owned computer reservation systems similar to Sabre, offered online travel booking. It was a market that could only grow so much, however, and saturation coupled with a decline in leisure travel after the terrorist attacks on the United States of September 11, 2001 slowed airline business. Rising fuel costs struck another blow to the air travel industry and sent carriers scrambling for ways to cut costs and remain solvent. One of the carriers' targets was the fees charged by Sabre and other booking services.

In 2002, fees charged to airlines by global distribution systems (GDSs) were expected to top $2.2 billion. Such fees averaged around $4.36 per ticket, according to a study commissioned by Orbitz and conducted by Global Aviation Associates. Sabre responded to increasing complaints from airlines by devising a corporate travel booking application, Get-There. The application was used to book fares through Corporate Connect, a program that offered airlines 50 percent off fees on tickets. Sabre passed the cost of the fee cuts on to travel agents by ceasing to pay them incentives in the form of per-ticket commissions. Once a travel agency signed on with Sabre, thus getting access to somewhat cheaper fares, it would no longer receive commissions on corporate travel bookings. The solution proved unpopular with agents, who pointed out that the less-expensive fares could already be accessed through airlines' Web sites, thus negating any value the program might have for agencies. Sabre's competing GDSs, however, concurred that eliminating commissions to agents and changing the way ticket bookings were made and paid for were essential to the continued health of the industry. Northwest Airlines made an attempt in August 2004 to steer travelers away from GDSs, agents, and ticket counters by slapping a set of fees on such purchases. The $7.50 fee attached to GDS bookings by the airline inspired Sabre to move Northwest fare information to a less prominent spot on its GDS displays on the grounds that Northwest violated fare contracts negotiated with Sabre. Northwest responded by filing a breach of contract suit in a federal court in the airline's home state of Minnesota. Sabre replied in kind with a breach of contract suit in a federal court in its home state of Texas. Although Northwest backed down and repealed the new fees, the message to the travel booking industry was clear: agency commissions must be cut. In 2005, Sabre reported it had paid GDS users $36 million more in fees in 2004 than it paid in 2003, down from an increase of $63 million between 2003 and 2002.