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AA, Sabre speak after settling differences.

Article Excerpt
American Airlines and Sabre Holdings recently came to terms on issues that bitterly divided the nation's largest airline and global distribution system provider. Among the agreements was AA's decision to trade access to its Web-only fares and other content for a discount on its Sabre fees. In separate meetings this month in the Dallas/Fort Worth area, BTN editors interviewed AMR Corp.'s Dan Garton and Sabre's Bill Hannigan for their perspectives on hot topics, including the fast-changing travel distribution environment.

BTN: First in developing the Everyfare program and more recently joining with Sabre's DCA Three-Year Option, American Airlines has been pushing distribution cost savings. Where does the industry now stand?

Dan Garton: If you think about what has happened to those costs during the past 15 years, it is impossible not to see this as an inflection point. I don't know that it is possible to forecast what will happen at the end of these original terms, but the days of increasing prices for a product whose embedded costs are declining are over.

BTN: The GDS providers see that they need to rein those costs in themselves.

Garton: To varying degrees, even they talk that way. Previously, people have been quoted saying that it is a cash cow and that they would take advantage of it as long they could. Now, we are seeing a turning point. There are more competitors, and the industry they are serving is so weakened that the idea of charging increasing rates in an environment where the cost of technology is declining is not viable.

BTN: Which brings our discussion to Orbitz.

Garton: We see Orbitz as very attractive source of distribution, a supplier-friendly source. Corporate travel on Orbitz is an evolving trend, clearly not as quick to change as the non-corporate customer, but the unmanaged corporate travel group is very large and very valuable. Those customers are seeking less expensive solutions. Whether it is Orbitz or any similar business Internet site, it is likely to grow.

BTN: Back to EveryFare, which was deflated when American enrolled in Sabre DCA. What did that program accomplish?

Garton: We wanted to create momentum in a direction, and EveryFare definitely did that, but we did not think--and still don't think--that it should have been only that. The concepts in EveryFare were right on because they were trying to adjust the relationship to be more closely tied to the travel agency and GDS rather than the obscure situation we have now.

Money flows around in a 360-degree circle and people take bits and bites out of it here and there. It is very cumbersome. Today, the GDS has leverage on us because the person who buys its services is the travel agent, yet we pay for them. EveryFare was trying to create the incentive for the travel agent to negotiate with the GDS company.

BTN: How will the industry be impacted by developments at travel agencies to create their own GDSs--TravelBahn at American Express and new direct-connect technology at Carlson Wagonlit, for example.

Garton: Frankly, it is not surprise. It is a form of vertical integration. Those guys look at opportunities to grow a profit and naturally, like any other company, look to see if they should grow horizontally--should they buy Rosenbluth--or grow vertically. Clearly, Navitaire is a modern technology. The question is whether it has scalability. As far as the impact, what we always worry about is whether...

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