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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Introduction Contd...

In mid 2005, Sabre connected 400 airlines, 60,000 hotels, 37 car rentals, 9 cruise lines, 36 railroads and 220 tour operators to thousands of travel agents around the world. Sabre earned its revenues through commissions charged on tickets booked through the GDS system. In the 1990s, the commissions paid to GDS formed a major portion of the distribution costs of most airlines. In order to reduce costs, airlines such as Northwest began relying on the Internet as a low-cost alternative to GDS.

 During the late 1990s, Sabre Holdings which owned the Sabre GDS system saw the threat to its distribution model and began pursuing an online strategy which had three components viz. Travelocity.com, an online travel agency; Virtually There, a personalized website for confirmed travelers; and finally, GetThere, a corporate travel reservation system. Explaining what made Sabre Holdings rethink its business model, Andrea Ahles wrote, "The growth of the Internet and online travel sites has lessened consumers' dependence on a travel agent as the primary way to purchase an airline ticket. Thus, fewer reservations have been booked through Sabre's Travel Network, which represents about 74 percent of the company's revenues, each of the past two years. And that trend is expected to continue."3

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Background Note

The idea of establishing an airline reservation system was born in 1953 when CR Smith, President of American Airlines (AA), a subsidiary of AMR Corporation,4 met R. Blair Smith, a senior sales representative for IBM, on a flight from Los Angeles to New York. The conversation between the two centered on developing a data processing system that would make seat reservation data available instantly to any agent anywhere, electronically.

The idea took shape in 1959, when AA and IBM jointly announced plans to develop the industry's first computer reservation system (CRS). The CRS which was called Semi-Automatic Business Research Environment (SABRE) enabled AA to automate its entire passenger reservation process. Initially, the system was meant to be used by AA reservation staff only. In 1960, the first Sabre reservation system (Sabre) was installed on two IBM 7090 mainframe computers in a computer center at Briarcliff Manor, New York. The research, development and installation of the system costed $40 million and 400 man-hours. The system was capable of processing 80,000 calls per day. Over the next four years, the system's telecommunication network spread throughout the US...

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

4] Headquartered in Fort Worth, Texas, AMR Corporation is a provider of domestic and international flight services through its subsidiaries such as American Airlines and American Eagle. The company generated revenues of $18.6 billion in the fiscal 2004 and reported a net loss of $761 million.

 

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