Rare is the company whose bsiness-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."

The technology change chief technology officer Craig Murphy is leading will cost Sabre more than $100 million. He calls it a new way of doing business. Photo by Nancy Newberry

The success of Sabre's technology-driven change will be measured by two factors: whether it preserves the company's market-leading position by helping it compete with and complement online travel sites, and whether suppliers such as airlines and hotels, intermediaries such as travel agents and business-travel departments, and even travelers view Sabre as a tool to make transactions easier and cheaper. "I want to deliver more choices faster, and I think we've got the architecture, the plans, the people, and the willpower to do that," Craig Murphy, Sabre's chief technology officer, told an audience at the recent TravDex trade show.

And the money. The technology change Murphy is leading ultimately will cost more than $100 million, though Murphy describes it more as a new way of doing business than a single project. A two-tier system will replace the mainframe--one for pricing and booking tickets and rooms, and one for searching and shopping functions. The pricing system runs on Hewlett-Packard NonStop servers running Unix, and Murphy says it costs 80% less to operate than the legacy system, based on the 20% of transaction volume Sabre has migrated to the new servers. Shopping and search functions use the same business rules as the Sabre transaction system but will run on an even cheaper platform of Intel servers, Red Hat Linux, and the open-source MySQL database. In both cases, Sabre is using a service-oriented architecture in which programmers break down the various functions into self-contained Web services so that an airline or a travel agent can more easily pick the services needed rather than having to subscribe to one monolithic offering. Of course, Murphy's team needs to deliver that newfound adaptability without hurting reliability.

The savings come from more than cheaper hardware and software. Murphy hopes to double software developers' productivity. They'll be programming in Java, allowing them to make changes and fixes more easily and with far less coding, since the code will be broken up into modular, reusable software components. He expects the bottom-line impact of the changes to become apparent by 2006.

Sabre could use an earnings lift, since the market pressures converging on the company have taken their toll. While its two smaller units--its travel Web site Travelocity and Sabre Airlines Solutions, which provides software and hosting services to airlines--have experienced respectable growth, Sabre Travel Network still makes up three-fourths of revenue, and its shrinking sales offset those gains. Overall revenue for Sabre dipped to $2.05 billion last year from $2.06 billion in 2002 as Sabre Travel Network sales dropped 4.3% to $1.56 billion. Worse, its net income sank to $83.3 million last year compared with $214.1 million in 2002.

	The new open architecture will help break down silos within the company's operations, Sabre CIO Carol Kelly says. Photo by Brent Humphreys.

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.