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Aviation History
1988
1988 - 0486.PDF
today. That was the reason to go and put Sabre in there, because we aren't getting the opportunity to market our product," says Mike Buckman, president of the Sabre travel information network. American's success in selling Sabre to European travel agents has been inhibited in turn by the refusal of the big European carriers, again led by BA, to grant the system ticketing authority for their flights, even though Sabre obtained Bank Settlement Plan (BSP) clearance for the UK in 1986. BA's reaction to the arrival of Sabre on its doorstep is now the subject of a UK High Court Action, brought by American, which alleges that BA immedi ately offered financial incentives to travel agents who continued to use Travicom. American claims that BA also decided to tie override commissions (typically 1-3 per cent on top of the standard nine per cent booking commission) to the use of "approved systems" (i.e. Travicom). Such tactics are forbidden in the USA under 14CFR. BA says it is "vigorously con testing" the case, but declines to comment further. American has also filed a com plaint with the European Commission, where it seeks a ruling that BA's actions are in breach of Article 86 of the Treaty of Rome (the co-called "competition rules"). A ruling in its favour would be binding on the other European flag-carriers, such as Lufthansa, who have so far proved obstructive to the marketing of Sabre on their territory. Buckman says "Our issue isn't specifi cally with British Airways. We would just like to compete in the European market and in the British marketplace. Sabre's training centre and European base is in London, so Britain has to be resolved first." Sabre is now installed in about 300 agencies in Europe, although its inability to issue tickets for the major carriers is an obvious disadvantage. Buckman adds, "Without ticketing authority, Sabre is just an information provider. But we don't have any intention of walking away from Europe." American doubtless gleans some comfort from a 1984 Association of British Travel Agents (ABTA) study, which asked member agencies which CRS they would most like to install. Sabre came top, followed by United's Apollo and TWA/Northwest's PARS in joint second place, then Delta's Datas II. Significantly, BA's Travicom came bottom. The reason for this is evident. Travicom is basically a switching device which gives travel agents access to the internal reser vation systems of any one of 49 subscribing airlines, including American. Its disadvantage, when faced with the sophisticated American systems, is that it will not display, neutrally, a full list of all available flights on a given route, together with all the available fare types. Dave Schwarte, Sabre's vice-president joint ventures, says, "There is no way an agent can find the lowest fare on a route using Travicom without making 49 separate entries". This may be a slight exagger ation, but the meaning is clear. Using Travicom, an agent has to access and search each of the airlines' systems indi vidually to find the cheapest and most Above Sabre's central core, inside the $34 million Secure Computer Centre at Tulsa, Okla homa. Right Galileo's multi-window display convenient flight for his customer. The effect of BA's "delaying tactics", according to American, has been to deny it access to an 18-month "window of opportunity" which exists in Europe for the US CRS vendors before Amadeus and Galileo (in the latter of which BA is a major partner) come "on line". The Europeans argue that they are merely, and quite legitimately, protecting their market. American's response is, in effect, that Buffalo Bill has cut the Western Union cable and is now holding its engineers hostage until the Pony Express can come up with something better. American estimates the total value of the European market, after deregulation in 1992, as approaching $1 billion/year, and Sabre hopes to capture 15-25 per cent of it, although "that assumes a level play ing field", Buckman says drily. It is now the vast revenues generated by CRSs through booking commissions which sustains the fierce competition between the rival systems in the USA, rather than their application as airline marketing tools. American also acknowledges the influence of the so-called "halo effect", whereby a carrier sells more of its product simply because the agent is using its CRS. Sabre, which has a 33 per cent share of the American market in terms of agency locations, earned total revenues of $405 million during 1987, with profits of $107 million, a margin of 26 per cent. This compares with current margins of around seven per cent on the airline side, a consequence of the intense low-fare competition generated by deregulation. Sabre's importance to American's parent company, AMR Corporation, is demon strated by the fact that although Sabre earned just over five per cent of AMR's net revenue of $7-2 billion last year, it contributed nearly 54 per cent of its net profit. No wonder that American's chair man and CEO Robert Crandall has been quoted as saying that if he had a choice between running an airline or a computer business, he would take computers. Indeed, so important is Sabre to Ameri can Airlines that Crandall personally authorised the construction of a $34 million underground bunker (the Secure Computer Centre) next to Sabre's administrative headquarters at Tulsa, Oklahoma, to safeguard the computer hardware from the possibility of natural or manmade (i.e. terrorist) catastrophe. Sabre also handles American's Flight Operations System (FOS), together with ancillary management functions, and Crandall decided that the airline simply could not afford the possibility of any prolonged "downtime" in Sabre's opera tions. The central core (which consists of five IBM 3090 computers linked in series, with a sixth as standby) can now handle up to 1,900 messages/second from its 70,000 connected terminals in more than 14,000 agency locations worldwide (the day before Flight's visit, a record of 1,604 messages/second was set). Profit margins on the CRS side are fall ing (Sabre's margin on revenues of $383 million in 1986 was 31-8 per cent), and Mike Buckman says this is primarily because of the continuing development costs needed to keep abreast of the competition in terms of "functionality". "The price of poker is going up", he says. Indeed, "functionality" will be the key to the success of the rival systems now squaring up to each other in Europe. In the United States a traveller in Boise, Idaho, can walk into his local travel agent and find the quickest and cheapest way of getting to Los Angeles, California. Using just one system, he can hire a car and book hotel rooms, theatre tickets, and day-trip excursions. He can be told what major tourist attractions to visit, and even what weather to expect when he gets there. In contrast, a European traveller requesting a similar service will need to wade through glossy brochures and wait 34 FLIGHT INTERNATIONAL, 27 February 1988
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