he major CRS companies -- Sabre,
Worldspan, Amadeus and Galileo -- have significant problems to
address, and one of them begins with three Ws.
Some $13 billion in travel was booked on the World Wide Web in
2000, and that's a 64% increase over 1999, according to the Travel
Industry Association. Supplier sites that bypass agents and go
direct to consumers accounted for 67% of those bookings last
The TIA also found that 71% of online travel planners said they
were less likely than before to use agents.
On the corporate side, businesses booked $4.9 billion on line in
2000, and Forrester forecasted that will increase to $20.3 billion
Some of this business still goes through the CRS companies --
but much of it doesn't.
Some suppliers have long wished for a way to effectively reach
the consumer without going through a CRS, but only recently have
technology and economics cooperated to make it possible. And
"possible" begins to look "attractive" as CRS booking fees continue
Those fees, which drive the CRS companies' profit margins, have
been rising 7% annually for a decade, according to Global Aviation
Associates. Air carriers alone paid $1.7 billion in booking fees in
2000, and the CRS companies all implemented increases this
Airlines radically reduce their distribution costs when they
sell through their own sites and avoid those fees.
GAA, an aviation consulting firm, estimated that airlines'
distribution costs for their own Web sites are 3% to 5% of the
ticket value and escalate to 15% to 20% (including booking fees,
commissions, clearinghouse fees, and sales and processing costs)
when bookings come through agents.
The CRS companies see few alternatives to booking fee increases,
although all four have strategies to diversify revenue streams.
Worldspan has experimented with a new corporate booking fee
structure, but it has not taken off.
Tony McKinnon, who heads Amadeus' North American operations,
said CRS companies should not introduce "lockstep" increases in
segment fees, but he said booking fees will continue to rise.
"If suppliers look at the alternative in trying to replicate
what the GDS does for them, that would be a very expensive
proposition," he said. "There will be a balance. There will be
continuing pressure from suppliers to hold those fees down, and
there will be efforts by the GDSs to recover their costs and
maintain margin."FIGURING IT OUTGlobal bookings in 2000
The companies' total revenue for 2000 is before special items.
* Worldspan, a privately held company, would not release revenue
In addition to economic challenges, the CRS operators are facing
daunting technical issues in the Internet age.
The core technology at Sabre, Galileo, Worldspan and Amadeus is
tied to legacy mainframe systems that handle massive data volumes.
Galileo's system, for instance, processed 105 billion transactions
last year and averaged more than 294 million information requests
While retaining mainframes, the CRS companies are adapting to
All four companies have rolled out Web-based agent platforms and
other new technologies to interface with those big-box computers.
Worldspan and Amadeus, for instance, have introduced
client/server-based search engines; Galileo offers XML Select for
third-party developers, and Sabre's Virtually There gives agency
clients access to their itineraries on line.
With giant computers come sizeable problems. Mainframes use
older programming languages and record-based file systems that
can't accommodate lickety-split search-and-retrieval operations.
Even the simplest mainframe programming alterations can be costly
But no one says that mainframes are going away soon, and CRS
officials, while conceding that Web bookings and new technologies
will make gains, are confident that their legacy technologies are
here to stay.
"I don't think there really are alternatives to the GDS," said
Tammy Bobbitt, Galileo's vice president of Internet business
planning. "What we provide is massive transaction-processing at
incredible speeds. We have huge databases. This is not something
that is easily replicated.
"Many of the Web initiatives or things that are put out there
with these new technologies still have a GDS behind them," Bobbitt
added. "Their scalability is very questionable. Not that there
aren't new technologies. We're looking at them, too."
So, given these economic and technical pressures, which way is
the industry heading?
In the near term, Sabre believes that the agency channel will
suffer a double-digit decline in its share of global air
Against that background, Sabre's Ellen Keszler, senior vice
president of North American travel agency solutions, said the key
to success is to extend "the travel value chain" beyond shopping,
selling and fulfillment toward stimulating demand during all phases
of the travel process with offerings like net fares, wireless
solutions and customer relationship management tools.
Worldspan, a force in providing the back end to high-profile Web
sites, projected that the agent channel will continue to be its
core business, but the percentage of its revenue from e-commerce
will rise significantly.
Worldspan is "looking at any technologies that will enable
travel agents to continue to be the aggregator of travel
information for their clients," said Cheryl Weldon, Worldspan's
vice president of agency marketing.
Some experts, meanwhile, say it's likely that new business
models will eclipse the CRS companies' power.
Henry Harteveldt, senior analyst for technology research firm
Forrester, said airline-owned Orbitz, if it installs
direct-connects to suppliers, could be a "potential new-generation
GDS" and the first serious threat to CRS dominance.
Although Orbitz is not focusing on a travel agency option now,
Harteveldt said, it could shift its business model to include an
Rod Cuthbert, chief executive of destination-activities
distributor Viator, said the Web will bring agents more options --
from selling through a CRS or booking through an agency channel on
a site like Orbitz. Many suppliers have already established agent
sites with commissionable bookings, he noted, and this trend could
Viator built an agent area on its site when it found that at
least one of its CRS partners couldn't -- or didn't want to -- give
agents optimum functionality in booking Viator's theater tickets
and scenic cruises through the CRS.
If direct connects increase, one technical challenge would be
the creation of "super PNRs" to integrate air, car and hotel
bookings from disparate sites, said Harteveldt.
"In the future, there will be an array of different suppliers
pushing agreements and new buying arrangements," Cuthbert said.
"The market will be much more fractured. Agents will be able to
make their own decisions. If there's easier navigation [outside or
in addition to the CRS], then marketing through the GDSs will face
attrition and their numbers will go away."
The CRS companies, Cuthbert said, are betting that agents will
opt for an orderly environment that these companies can create as
aggregators. "But as they say back home [in Australia]," Cuthbert
said, "that's 'a big ask.' "
Strategizing for the future
The CRS companies are jockeying for position and developing new
strategies. The following are some key highlights and
Sabre, the largest CRS in bookings and revenue, has a reputation
for being forward-thinking and making cagey business decisions.
It has strong positions in other channels through its
controlling stake in Travelocity.com, the leading consumer travel site by
some measures, and Sabre Business Travel Solutions, which was
fortified by last year's acquisition of industry-leading
Some competitive hits in recent months have certainly drawn
Sabre's attention and will probably elicit a response. USA
Networks, the cable giant that already has a majority interest in
the Hotel Reservations Network, will purchase a controlling stake
in Travelocity's chief rival, Expedia. And, Cendant is pursuing its
purchase of Galileo.
As for growing the CRS by acquisition, Sabre believes it
couldn't get regulatory approval to purchase another CRS company in
North America. So part of its growth strategy is to diversify its
revenue stream through European investments. Sabre took a 51% stake
in Dillon Communication Systems of Germany and acquired Gradient
Solutions in Ireland last year. In the second quarter of 2001,
Sabre became a minority investor in a new European travel site, Karavel.com.
In July, Sabre completed its exit of the airline infrastructure
outsourcing business by selling it to EDS in a $660 million deal.
Sabre's shedding of this low-growth business, along with another
facet of the deal, having EDS operate Sabre's data centers and
network, means that Sabre can accelerate growth and free up money
to focus more heavily on travel marketing and distribution.
A big guy at #2 in global bookings, with particular strengths in
Europe and Central and South America, Amadeus was a relative
late-comer to the U.S. market in 1998 when it assumed total control
of System One.
But, Amadeus, based in Madrid, is aggressively increasing its
relatively small agency share in North America through acquisition.
On the leisure side, it scooped up Vacation.com's 8,400 agencies in
November 2000 and the consortium, in turn, acquired the
2,000-member Action 6 in May.
On the corporate front, Amadeus' strategy is to partner with
corporate agencies to get new clients. The Government of Norway
recently contracted to use Corporate Traveller. And, earlier this
month, Amadeus added to its corporate self-booking tool product
line with the acquisition of e-Travel from Oracle.
Travel agency distribution will remain its primary focus five
years from now and beyond, Amadeus believes, but its e-commerce and
new IT Services businesses will be important revenue sources.
In e-commerce, Amadeus signed a deal to power the proposed
European travel portal, Opodo, which is owned, Orbitz-like, by nine European
carriers. The CRS company's strategy is to gain Web share through
regional alliances with major players. In that regard, Amadeus has
several joint ventures with Terra Lycos in Europe and the U.S.,
including their combined 55% stake in OneTravel.com.
Galileo's prospects are debatable because of Cendant's pending
$2.9 billion acquisition, which still must clear regulatory
overseers in the U.S. and Europe.
On the one hand, Cendant, with its multiple hotel and car rental
brands, has considerable marketing clout and deep pockets. But,
observers wonder whether the deal will further diminish Galileo's
market share and morph it into the mere distribution wing of the
first nonairline travel supplier to own a CRS.
In the second quarter, Galileo's global bookings fell 2.6% year
over year and that included a 7.1% decline in the U.S. The company
pinned the decreases on the slow economy and Galileo's relatively
small Internet presence.
That small Web share might be attributed to the company's fiscal
conservatism. Officials emphasize that it is not in business to
lose money by spending millions of dollars on Internet consumer
acquisition. Galileo also vowed never to compete with agencies
through an Internet consumer site, although its purchase of Trip.com rendered
that position less tenable.
Galileo hopes to leverage its Trip.com booking engine, which
will power Cendant's new travel portal, into greater e-commerce
One potential bright spot for Galileo is its foray into
telecommunications and enterprise networking. It projects that its
Quantitude subsidiary, which is building a virtual private network
in 107 countries and targets Fortune 1000 companies as clients,
will be a $1 billion business in five years.
Worldspan, privately held by Delta, Northwest and American's TWA
subsidiary, is the only CRS company not to own a consumer site.
And, that strategy as a technology solutions provider rather than
an e-commerce competitor, plus its early Internet focus, has
probably helped it reach its status as the largest CRS processor of
The smallest CRS company in terms of overall global bookings,
Worldspan is believed to be "in play" as an acquisition target and
is said to be in talks with Cendant and others.
American, which spun off Sabre in 1996, has said it wants to
sell TWA's 26% stake in Worldspan.
In March, Worldspan moved marginally ahead of Galileo and became
the second largest CRS behind Sabre in terms of net airline
bookings in the U.S. A Cendant-Galileo-Worldspan combination, if it
ever cleared regulatory hurdles, would challenge Sabre's U.S.
Despite its Web astuteness and its experimentation with new
technologies like interactive television, Worldspan's bread and
butter is still agencies. The company believes it can help agencies
overcome any revenue loss from air, car and hotel inventory with
new sales in nontraditional inventory like golf tee times and
destination activities. Worldspan concedes, however, that
nontraditional suppliers have yet to post enormous sales through
its Worldspan on the Web platform and that nontraditional products
may never replace the mainstays.