Sabre's Challenge

Reservations group adds new apps to its mainframe core to win customers

By John Foley

abre Group Holdings Inc., best known for its huge travel reservation system, faces a big challenge. Spun off as a public company late last year by parent AMR Corp., Sabre needs to expand its software offerings to attract new customers and accelerate its sluggish growth-not an easy task when its chief asset is a monolithic, 25-year-old transaction-processing system. Sabre's answer: It's developing new client-server applications, many of which surround and work with its core reservations software.

The strategy seems to be winning new customers. AMR's American Airlines is still Sabre's biggest customer, but revenue from unaffiliated companies increased to 69% last year, from 58% two years earlier.

Aiming Higher
But improved revenue growth is proving more elusive. For the first six months of 1997, revenue grew just 6.6%, to $887 million, compared with the same period a year ago, while net earnings increased 10.5% (both figures are adjusted to reflect July 1996 contracts with American Airlines). Sabre is aiming far higher-revenue growth of 15% to 25% a year, says Thomas Cook, president of Sabre's Technology Solutions unit. That means Sabre needs to focus even more on attracting business outside AMR affiliates, which provide steady, but modest, revenue increases. "The challenge is to grow the external business," says Cook.

Sabre's spinoff last October as a public company-it's still majority- owned by AMR, in Dallas/Fort Worth Airport, Texas-was intended as a step toward that g oal. The idea was to push Sabre to become more competitive with other reservation networks such as Amadeus/System One, Galileo/ Apollo, and Worldspan-each owned by an airline consortium-and to build new software and services businesses. Sabre now has two major units. Sabre Travel Information Network handles its core reservations system and related products, such as the Planet Sabre client software for travel agents. Sabre Technology Solutions develops other software, manages Sabre's Tulsa, Okla., data center, and provides consulting and outsourcing. Sabre is also venturing onto the Web with efforts such as the Travelocity travel reservations site.

This year has seen several big wins that suggest Sabre is making headway. In June, Sabre and IBM announced a 10-year agreement to develop systems for Hong Kong's Cathay Pacific Airways. In April, Sabre won part of a $140 million contract to provide software for airlines in the former Soviet Union. American Airlines continues to be Sabre's biggest customer, thou gh. Last year, American awarded Sabre a 10-year, $3.8 billion outsourcing pact for software development, maintenance, and other services.

Forced To Diversify
Like competing reservation system providers, Sabre must diversify because the reservations market is flattening, says Patricia Coates, editor of Travel Distribution Report, an industry newsletter in Rockville, Md. "The market will top out because there's only going to be so many travel agents," she says. In the United States, Sabre Group supports more travel agency locations (15,600) and terminals (80,700) than its competitors. It ranks in the top three worldwide.

Fierce competition claimed one casualty last year when TransQuest Inc. in Atlanta decided it would not compete with Sabre Technology Solutions. TransQuest was formed by Delta and AT&T in January 1995 to sell software and services to airlines. But AT&T backed out last year, and TransQuest retreated to focus on providing IT support to Delta. "Sabre was in this space six to eight years ahead of anybody else," says TransQuest spokesman Chris Stellwag. "They're not the only ones out there, but they are the biggest game in town." As part owner of Worldspan, Delta continues to compete with Sabre in the reservation systems market.

Other competitors are emerging. In July, American Express and Microsoft announced a travel reservation package for businesses, American Express Interactive, that competes with a similar Sabre product called Business Travel Solutions. Microsoft's Web site for travelers, Expedia, aims at the same audience as Sabre's Travelocity site.

Sabre, meanwhile, is looking outside the airline industry for much of its growth. It moved into the hospitality industry last year, teaming with Computer Sciences Corp. to develop software for Hyatt Hotels. In partnership with the French national railroad, Sabre has developed decision-support and scheduling systems for railways in France and other European countries.

Sabre also signed a 10-year contract to provide sc heduling systems for London's subway system. "We didn't have a subway- or crew-scheduling system, so we're building one from scratch using some of the same technologies and techniques we use in airlines," says Cook. Sabre is also offering software, systems integration, and outsourcing to financial firms, manufacturers, and oil and gas companies.

Sabre is also working on some new technology deployments, including a yield-management system for Air France that uses Versant Object Technology Corp.'s object-oriented database and Sun Microsystems servers. The system, which works alongside a Unisys mainframe, helps Air France increase revenue for each flight by calculating fares in less than a second, based on seat availability and other factors. One analyst has called the project a "landmark event" in the use of object-oriented databases.

But Sabre Group's bread and butter is still the core reservation system that gave the company its name. Introduced in 1963 as the Semi-Automated Business Research Environm ent, the Sabre reservation system runs on IBM's Transaction Processing Facility (TPF), a specialized mainframe operating environment. The system holds 4 terabytes of information, including data on 400 airlines, 50 car rental companies, and 35,000 hotels. At peak demand, it handles more than 5,200 messages a second. Last year, Sabre processed 350 million reservations with an average transaction time of under two seconds.

The aging system may be immensely powerful-but it's also inflexible and expensive to operate. TPF is adept at handling reservations, but "adding new applications is problematic," says Peter Kastner, an analyst with the Aberdeen Group, a consulting firm in Boston. "For a long time, we've wanted to migrate out of the TPF environment in order to reduce the time to market and cost of building products," says Cook. "We haven't figured out a way to do that yet."