Like other GDSs, Sabre Holdings must balance the competing interests of its constituents -- online travel agencies, airlines, home agents, consumers, traditional travel agencies and travel management companies -- with its own interests, which in Sabre's case include a wholly owned online travel agency (Travelocity) and home agent consortium (Nexion). It provides distribution support to air carriers who publicly rail against the costs of distribution support. Sabre and its direct competitors are interdependent and must cooperate with each other at some levels. I discussed this complex corporate environment, and what it means to Travel Weekly readers, with Sabre CEO Sam Gilliland last month at the GDS' headquarters in Southlake, Texas. Here are excerpts:
Arnie Weissmann: In 2006, contract negotiations between Sabre and some airlines, notably American, were contentious and public. Yet you have one division, Sabre Airline Solutions, that's dedicated to assisting airlines. Have relationships with the airlines normalized since those talks? If so, how long did it take?
Sam Gilliland: There were some aspects of those negotiation three years ago that were a little more public and contentious than we would have liked. But probably about 18 months ago, two years ago, we started looking at the next set of possibilities in the relationship and started down the path of merchandising unbundled airlines services. I'd say that's a fairly quick bounce-back to productivity in our relationships.
AW: Will the next season of negotiations be as contentious?
SG: I'd be surprised if we have a bubble, or, to use your term, a "season" of negotiations anymore. The contract terms and durations are different. Our agreement with Delta is through 2013, but we'll probably refresh it after the merger [with Northwest Airlines]. More importantly, we now have a good equilibrium with what the airlines want and what we need to deliver to travel agencies and travel management companies. We need to maintain positive relationships with the airlines in our advocacy role for the indirect channel.
AW: The services that airlines choose to unbundle varies by carrier. Doesn't that complicate how you might approach displaying and processing ancillary fees?
SG: A fairly significant part of the up-front challenge is figuring out what a specific airline wants to do. We need to understand both a collective and individual view. We do think that keeping merchandising simple is good for consumers and for the airlines. Consumers tend to run away from complexity.
AW: But perhaps some airlines feel that complexity and opacity work in their favor. Consumers might buy more tickets from an airline that keeps its base fare display low but piles on fees.
SG: There may be some of that. But examples from other industries suggest that consumers get really frustrated with that. Look at the rental car industry. You thought you knew what you were paying, and then the total handed to you by the guy with the handheld printer was much more. We introduced total price technology: Know before you go. Consumers like to know. There may be a period with experimentation with opacity, but I think over time most airlines will feel it's a tough way to compete, particularly if other airlines are up front about it.
AW: All of the GDSs have said they see the need for standards for displaying and processing ancillary fees. Have you begun meeting with the other GDSs on standards?
SG: Standards meetings have been going on for some time now.
AW: Assuming you steer clear of antitrust issues, do you meet on other topics with your competitors?
SG: As a normal course of business, we meet. In fact, we have other GDSs in-house today. I suppose it's viewed as odd, but our systems have been interconnected for decades, on the back end. We serve up information on the world's airlines to each other. It's the nature of our business.
And there are a lot of different advocacy opportunities where we work together. We work with [the U.S. Travel Association], coming together on key issues for travel and tourism. There are opportunities to press for aviation infrastructure and carbon emissions or energy policy.
AW: Airlines continually talk about lowering distribution costs. They moved aggressively to lower travel agency costs when they eliminated agency base commissions. Isn't disintermediation a threat to you, as well?
SG: No, because the value of the indirect channel has been borne out time and time again. Will there continue to be a focus on price? Yes. If airlines -- a few have shared this with me, but not many -- compare costs, they'll see significant cost behind direct distribution that doesn't exist with indirect distribution. There's cost in maintaining a relationship with a corporation or travel management company. If they look at the end-to-end cost, they will feel good about indirect. But few airlines look at it that way.
I understand the attraction of having the direct relationship. But there's a lot more to servicing a customer than the booking, and at the end of the day, most corporations want to decide how they will buy travel.
And one thing that has become very important to companies is the security of their employees. You have an incident like the attack in Mumbai, and you want to go to your corporate travel team and locate your employees: what hotels they're in, what their flight plans are, what alternatives might exist. That has become very important in this global economy, and having all this information in one place and available quickly -- corporations have told us they want this, and you can't get it if you've made direct bookings.
AW: You've unveiled several new corporate products recently with your Collaboration Suite. When you make these available to all your corporate customers, aren't you undermining the value proposition of the large travel management companies you serve? They're trying to differentiate themselves through their offerings, but don't your tools level the playing field?
SG: Every business is about: How do we get to lower costs and lower complexity? We don't have discussions where travel managers say, "Please don't develop this." They sometimes develop on their own and find it's pretty expensive.
We have a long list of asks from travel management companies, and it grows, not shrinks. We're spending more time developing postbooking features. We're making investments there and, for the mobile traveler, information they can access while they're traveling.
AW: Do you have a plan to make Travelocity No. 1 again?
SG: Well, I think our goal with Travelocity is for it to be a great brand and for it to meet our profitability goals. I spend a little less time thinking, is it No. 1, No. 2, No. 3? If we build a great brand, the rest takes care of itself. [Online travel] is an increasingly commoditized business, which makes it more challenging.
AW: Priceline, which has been the perennial No. 4, has just had a terrific year, taking a lot of people by surprise. Does that inspire you or discourage you?
SG: We are inspired by success all around the industry. We're pleased for Priceline; they're a significant customer, and we hope they do well, just as we hope Expedia does well, because they're a large customer too.
AW: You've had a lot of turnover at the top of Travelocity in the last year or so, with both former CEO Michelle Peluso and former chief marketing officer Jeff Glueck departing. Are you changing strategic direction to try to boost Travelocity's fortunes?
SG: No. Michelle was getting ready to have her first child, and in Jeff's case, I'm really pleased for him, taking a CEO role in a startup [Skyfire]. They wanted to go on to the next thing.
AW: You bought IgoUgo [a consumer blog site similar to Tripfinder] a few years ago. There isn't much focus on it.
SG: You'll hear more going forward. It's an area where we'll invest more in the future. They've done a great job of refreshing the site. It's largely the same team that's leading our media business.
AW: Travelport bought one of the so-called alternative GDSs, G2. Would you be interested in acquiring ITA, Farelogix or any or the other third-party companies out there that ostensibly play in parts of your space?
SG: No. You would have to ask Travelport why they bought G2, but I think it had a front-end tool that could be helpful to them as they manage across the three core systems they have. But you have to ask them.
AW: Do you believe that anything ITA or Farelogix can do, you can do better?
SG: Well, I haven't really spent much time focusing on either firm. Across all of our businesses, we scan the market to see what's out there. From time to time, we will make an acquisition if we think it could help us become best-of-class faster or if it bridges a gap for us.
AW: You've released a lot of corporate tools lately but have also eliminated TripTailor, a leisure tool. Does that reflect a belief that the leisure side is going to continue to be under pressure and of diminished importance?
SG: There's not a huge disparity between the size of our corporate and leisure business. Yes, we have a strong emphasis on corporate travel, but think about TRAMS, Nexion -- we still invest in the leisure side. Think about the investments we put into Travelocity, particularly low-fare search. These processes are immediately transferable, across the whole leisure base.
It will be interesting to see how it all plays out. The leisure agents that run their businesses well will be around for as long as they want to be. Through all these twists and turns, they continue to make money. We will see some demographic shifts, a growing number of people who like to go online. But we'll also see a demographic shift of people with discretionary spend who are retiring but don't want to go online. There has been talk for many years about the demise of the brick-and-mortar agency, but those that are well-run will continue for a long, long time.
Contact Arnie Weissmann at [email protected], and follow him on Twitter.