Sabre Holdings - The Quest for New Business Models

            
 
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Case Details:

Case Code : BSTR175
Case Length : 15 Pages
Period : 1995-2005
Organization : Sabre Holdings
Pub Date : 2005
Teaching Note :Not Available
Countries : India
Themes: Business Models | Growth factors and Challenges
Industry : Travel and Tourism

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"Sabre has taken steps to make itself more competitive and more efficient. And it's important that Sabre recognized that new business models are needed and that they will not be transacting the same amount of airline business that they once did." 1

- Henry Harteveldt, Airline Analyst, Forrester Research.

Introduction

In August 2004, a row broke out in the US airline industry when Northwest Airlines (Northwest) announced that it would charge travel agents $10 for each ticket booked through global distribution systems (GDS) such as Sabre. This charge was not applicable on tickets booked through the company's website.

Northwest's decision was an attempt to encourage customers to buy tickets directly from its website rather than going through the traditional distribution channel comprising of travel agents who were connected to the Sabre GDS. The travel agents and Sabre were the intermediaries between the airline and its customers. Northwest had paid $180 million in GDS fees for the year 2003. The airline wanted to do business directly with its customers through its website, avoiding intermediaries such as Sabre, in order to cut distribution costs. Commenting on Northwest's move, Henry Harteveldt, an airline analyst at Forrester Research said, "In six to 12 months, there's no question that other airlines will match this strategy unless distribution systems like Sabre's move to overhaul their business models."2

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Sabre was a GDS that provided travel agents with travel-related content such as fares, schedules and availability from travel and hospitality suppliers such as airlines, hotels, car rentals and railways. The system allowed travel agents to search for such content and make reservations. Sabre charged a commission from travel and hospitality suppliers for each ticket booked through the system.

Sabre became the most popular GDS as a result of the deregulation of the US airline industry in 1978. The deregulation led to a significant increase in the number of airlines in the country. The increased competition reduced fares and made air travel affordable. However, the growing number of flights and increased complexity of the airline network made travel planning difficult for passengers. In order to overcome this problem, passengers began to depend on travel agents for planning their trips. Travel agents now needed up-to-date travel information in order to cater to their customers. Sabre extended its services to provide reservation capability to travel agents and soon became a major channel for travel providers such as airlines to distribute their offerings to customers.

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1] Andrea Ahles, "Sabre Heading in a New Direction", www.sabre-holdings.com, June 09, 2003.

2] "Lawsuits Fly over Northwest's New GDS Fees," www.m-travel.com, August 26, 2004.

 

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