Sabre, Travelocity & the Future of Travel Distribution

Founder of Travelocity, Former Chairman at Kayak.com and Former CIO at Sabre

Why is this interview interesting?

  • The history of Sabre and formation of the GDS business
  • Potential impact of coronavirus on Sabre and Amadeus
  • GDS pricing structure and bargaining power with airlines
  • Core differences between hotel and air travel distribution
  • The founding of Travelocity and how Expedia stayed closer to the customer to own the transaction
  • Strategic analysis of Google in the travel value chain
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Executive Bio

Terry Jones

Founder of Travelocity, Former Chairman at Kayak.com and Former CIO at Sabre

Terry was part of the founding teams of Sabre, Travelocity, and Kayak.com, all multi-billion dollar travel companies. He started his career with 24 years at American Airlines in marketing and IT, capping his career as Chief Information Officer of its SABRE division from 1998-02. While at SABRE he led a team of six working on a project that became Travelocity.com. Terry served as CEO of Travelocity for seven years transforming it to a public company with $3bn sales. Travelocity was taken private in 2002 and Terry moved to become a founding member of Kayak.com. He served as Chairman of the company from its founding until it was sold to Priceline for $1.8 billion dollars in 2013. He is a venture capitalist with General Catalyst and Sierra Angels.Read more

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Interview Transcript

A great place to start would be to take a step back and for you to provide some context to the founding story of Sabre, in the early days?

Sabre was the internal reservation system in American. When airlines deregulated, travel agents were going nuts because, suddenly, they didn’t know the price of anything. They didn’t have computers. I was an agent at the time and it was very, very hard to make a booking. You had to do it all by phone; call five different airlines. The airlines got together and decided to form a joint company to put reservation terminals into travel agents. At the last minute, that fell apart and United said, “We’re going to do it ourselves.” Every airline tried to do it themselves. At American, we put ours out. United did, Eastern did, TWA did, many carriers put them out. They charged below cost because the idea was, if I have my system in a favorite travel agency, I’ll get more share. That actually worked. There was a halo effect because the displays were biased, so that if you had the American system and you said, “I want to go from New York to LA”, you saw 27 American flights before you saw one from anybody else. That’s the way they started. Airlines spent lots of money. American spent hundreds of millions of dollars putting it out. They thought it was a good investment.

What were the dynamics between the airlines and the travel agents and how the GDS sat in the middle of those two suppliers?

It wasn’t a GDS then because they were each airline owned. It was okay because, let’s say, I own an agency and most of my business was on American; I wanted the American system. At my agency for example, we had TWA’s system because we were mostly international and, in those days, the systems didn’t do international pricing, so the people themselves at TWA would do the work for us and that was helpful. The big change that happened was the government filed an anti-trust lawsuit against the carriers saying, you cannot display your flights first. American said, it’s alphabetical order. That didn’t work as an argument. That’s a joke, of course. United didn’t like that. In the end, we fought hard, but we lost. What happened was, the Justice Department said, you have to list by some impartial feature. By price, by time, but not by name. So we listed by time. '

They said you have to let everybody in, you can’t preference people, because we were preferencing other airlines too. They said we could charge for participation. Overnight, Sabre became a billion-dollar business. Eventually, it was more profitable than the airline for a good many years. There’s a great quote that I use in my speeches, which says, if the start-up gets the distribution before the incumbent gets the innovation, then the game is over. That’s what happened here because we were installed everywhere. Sabre was dominant, United was second. Therefore, the other systems over time, left and the GDSs were born. Because they had the distribution and they were a gatekeeper, they could charge a fee.

I’m curious about the Sabres or the GDSs today and how they’re going to perform in this type of environment with Covid-19. How did the GDS companies or those systems perform 9/11 or in the early days in previous crises, compared to what you would see today, do you think?

For 9/11, at Travelocity, I remember the numbers. Our business was down 70%, initially, for the first few months. Then it leveled off about 30% below, for the next year. It was terribly difficult. The same was true with Sabre and Amadeus and the other GDSs. This is even worse. Airplanes are 98% down, I think. Now, they’re coming up; I see numbers from airlines and hotels coming up every day. It’s getting better, but they’ve had to take out more debt. Some of them have laid off people. Certainly, Expedia have laid off people. So have peripheral companies that I know of; one of the advertising companies I work with laid off half of their staff. It’s been very hard. It’s a tough time. These companies have cash and they can survive a while. They’re not getting bailed out like airlines are. It’s a very difficult time for them.

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Sabre, Travelocity & the Future of Travel Distribution(May 28, 2020)

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