Technology Apollo's loss: One giant step for Amadeus By Dennis Schaal / September 19, 2005 Share 1 -- NEW YORK -- In a move that is certain to trigger changes in the GDS marketplace, United plans to move its internal reservations and inventory management system from the Galileo/Apollo platform to Amadeus in late 2008. The move -- the largest hosting migration in aviation history -- is part of a plan by the Star Alliance carriers to adopt a common IT platform for airline solutions. But it takes on special significance because it was United that created Apollo in the 1970s.Galileo Internationals Apollo GDS, which is used by agency subscribers in North America and Japan, has been the technology platform for Uniteds reservations and inventory management systems for some 35 years.Cendant, the parent of Galileo, said Uniteds move to Amadeus had been expected and would have no impact on users of the Apollo GDS. However, industry experts said Cendant may have little reason to maintain the Apollo platform without Uniteds hosting business.When United Airlines moves to the common IT platform of the Star Alliance, I expect that Apollo will pass into history, said Richard Eastman, an aviation and technology expert who owns the Eastman Group.As part of Amadeus new 15-year contract to host United in an Erding, Germany, data center, the two have also agreed to enter into a strategic relationship with a marketing component, although the two companies have yet to work out the details of how the marketing component will evolve.Owen Wild, the marketing director of Amadeus North America, said the new alliance may have extensive benefits for Amadeus, which is fourth behind Galileo in GDS market share in North America.It clearly gives us the opportunity to work with agencies who are large producers for United to consider Amadeus in a different light, Wild said. A United spokeswoman said urging agencies to switch to Amadeus might be one of several marketing options the airline would consider.Cendants Galileo subsidiary is unique among its rivals in that it supports two GDS platforms, Apollo and Galileo. The Apollo platform is used only in North America and Japan, while Galileo is used elsewhere around the globe. A Cendant official described Apollo and Galileo as two different cores that share development resources and several systems, including faring, hotels and cars.United is Galileos largest customer, accounting for $140 million, or 8%, of Cendant Travel Distribution Services (TDS) segment revenue in 2004.But that 8% figure for all of TDS, which includes more than 20 businesses, downplays the importance of United to Apollo. One executive in a position to know said United and Cendants Cheap Tickets, which also is powered by Apollo, account for about 25% of Apollos segments.That, coupled with the fact that the lions share of Galileo Internationals revenue is generated outside of North America, may compel Cendant to consider shuttering Apollo, an option that Galileo has considered several times over the years. And outfitting Cheap Tickets with sister company Orbitzs direct-connect technology might make transitioning away from Apollo even more attractive, said the executive, who declined to be identified.The Galileo and Apollo platforms have similar functionalities, although there are differences. The command codes that agents enter into the systems are different, for instance. So migrating from Apollo -which has the second-highest number of travel agency locations in North America -- to Galileo would entail a massive retraining effort and cultural shift.Misinformation?Despite such speculation, a Cendant spokeswoman insisted that talk of phasing out Apollo is complete misinformation.There will be absolutely no impact to Apollo users as a result of Uniteds decision, the spokeswoman said, noting that Apollo will host United for at least several years during the transition. We already run the two systems operationally as if they were one, and there is no benefit to combine the platforms or migrate users.She added, Today, we balance and transfer workload on a real-time basis between the two platforms so that they behave and act as one. In fact, because of this unique relationship we are actually better able to support our customers and achieve greater operational and support efficiencies and workload management than if we were residing on only one platform.Whatever changes lie ahead stem to a large degree from the Star Alliances selection of Amadeus as its IT vendor as part of an initiative to wean the reservations systems of all 16 member airlines off of disparate, legacy technologies and incompatible infrastructures and onto a common platform.That agreement sets up Amadeus as the Star Alliances IT vendor but does not necessarily carry over into a distribution relationship.The first two Star Alliance airlines scheduled to migrate to Amadeus Altea solution are United and Lufthansa, which is expected to complete the move by the end of 2007.Peter von Moltke, senior vice president of Amadeus North Americas Airline Business Group, said Uniteds inventory and reservations systems would move to Altea early in 2008, and its departure control systems would move by the end of that year.Cendant saw it comingCendant said it initially participated in Uniteds request-for-proposal process with Amadeus and another technology company in 2002. But it eventually decided to drop out because Cendant would have had to fund Uniteds migration to a new technology platform and because the company determined that hosting legacy carriers no longer made business sense. (See "In the Hot Seat, Flo Lugli.")Instead, Cendant renewed its hosting agreement with United in October 2003 for 10 years, with the understanding that eventually the airline would be transitioning to a new vendor.The way the deal was structured and the economics of the deal basically accounted for the fact that they at some point would move off the system, said Flo Lugli, Cendants senior vice president of airline solutions. Thats one component of the neutrality of the economics.The second component is that we are pretty far down the path of resizing the business and where those revenue streams come from, she added.Hosting low-cost carriersIn that regard, Cendant revealed last week that it will revamp its airline hosting business, in partnership with IBS Software Services, to go after the low-cost carrier market.Canadian low-cost carrier WestJet is Cendant TDS launch partner for its new passenger services system, AirRes.And, Lugli said, Cendant is in hosting talks with about a half-dozen other airlines.As for United, Lugli pointed out that Cendant will still provide the technology for United Escapes, is building a new booking engine for United.com and is about ready to help United launch a corporate portal for the unmanaged travel segment.Cendant disparaged the terms of the Amadeus-United deal, saying Amadeus will have to devote millions to fund the development of the new United host system and that the fees United will pay Amadeus will be much lower than had been the norm.Cendants Galileo, of course, is not immune to the airlines efforts to rein in costs.Industry sources said the deal is worth more than $1 billion to Amadeus over the 15-year term.The is the largest airline migration globally from one system to another in the last 30 to 40 years, von Moltke said.Holistic relationshipFrom a long-term strategic position, it remains unclear whether the United relationship will help Amadeus, which owns Vacation.com, make a drive for agency share in North America. The answer will depend to some degree on how fervently the Madrid-based technology company intends to focus its business on airline solutions going forward.Clearly, when you have a broad-range relationship like the one we are entering into with United, its a holistic relationship, von Moltke said. Well be looking with great interest into all of the components that are possible in that relationship, including e-commerce and the IT side as well as the distribution side.If it yields the opportunity for us to expand our market share in North America, well certainly want to seize that, he said.To contact reporter Dennis Schaal, send e-mail to email@example.com.United renews Web fare pact with AmadeusMIAMI -- Amadeus new strategic relationship with United also includes a content component, with United extending its Web fare pact with Amadeus North America through the end of 2006. That agreement, which had been slated to expire last month, may be just one of several short-term renewals in the offing, since a flurry of participation agreements between airlines and GDSs are set to expire in mid-2006.Similarly, US Airways recently extended its inventory pact with Sabre through the end of 2006.The airlines at this point are not willing in general to commit to anything much longer than that because they really have no idea what the distribution landscape will look like in 2007 and beyond, said Peter von Moltke, the senior vice president of Amadeus North Americas Airline Business Group.All of the GDSs are trying to sort out how we can extend value to the airlines in the coming years, von Moltke said. Maybe content agreements arent the way to go after 2006. Maybe there is a better structure we can put in place.Von Moltke pointed out that the airlines want the GDSs to eliminate incentives to agencies, which would enable the GDSs to reduce airlines booking fees.But he declined to speculate on what form future airline-GDS relationships might take outside of a content-agreement structure. There are lots of different models that we are looking at and talking to the airlines actively about, von Moltke added. -- D.S.