system. Past the turn of the millennium, it starts to become increasingly obvious that the Internet opens for radical changes in the travel and tourism industry. The central point is moving upwards to online systems giving consumers direct access to book and buy almost any travel service. Just as the global distribution systems of the 1990s reduced the airlines’ reservation systems to mere internal information warehouses, the online travel agencies of the 2000s are about to turn the distribution systems into simple transaction bases. In order to avoid being left behind, Sabre invested heavily in making a strong position in the expanding online business as well as in upgrading its distribution system. Like many other corporations, Sabre was taken over by an investment company at the end of 2006, having no influence on its strategy, however.
In 2005, Sabre had total revenues of $2.5 billion and in 2006, $2.7 billion. 60 percent stemmed from its distribution system, 30 percent from Travelocity and 10 percent from its IT solutions.38 Following the sluggish years of 2001 to 2004, revenues take off from 2005. The online business expands strongly, and by merging with lastminute.com, Travelocity almost doubles its income and moves into a position as one of the world’s leading travel agencies. It provides travel information, booking and sales to holiday and business travelers as well as travel producers. Furthermore, Travelocity extends its business to include almost every kind of travel service to holiday and business travelers.
The distribution system of Sabre Travel Network is upgraded, too. On the one hand, this network works as the wholesale of travel information for Travelocity, the retailer. On the other hand, Sabre Travel Network provides similar information to several airlines, railway companies, cruise ships, car rental companies, hotels, tour operators, travel agencies, insurance companies, etc. By upgrading and extending its services, Sabre Travel Network penetrates further into the value chain of its customers, paving the way for airlines and others to outsource their booking portals. By 2007 in addition to numerous travel producers, more than 50000 thousand travel agencies in plus one hundred countries on all continents use Sabre Travel Network.
TABLE 5 Revenues of Global Travel Agencies and Distribution Companies in $bn, 2007
Source: www.sabre-holding.com. www.amadeus.com. www.travelport.com. www.worldspan.com. www.priceline.com. Estimates, excluding IT solutions for airlines.
In 2006, Sabre Travel Network had an estimated 30 percent global market share of travel distribution, leaving the remaining market share to its three competitors Amadeus, Travelport (Galileo) and Worldspan (Table 5). All four companies provide almost the same services. Sabre Travel Network competes by upgrading its products to more comprehensive solutions, in cooperation with Travelocity, too. New competitors have entered the travel distribution market, however, which have made this market more complex and marked by intensive competition. For example, strong search companies such as Google and Yahoo offer combined searching across travel producers, travel agencies and other travel related websites. As countermeasures towards this blurring of industry boundaries, Sabre Travel Network has partnered with Yahoo!, AOL and American Express. Finally, new alternative distribution system providers covering more narrow market segments and with limited functionality competed by way of low prices, for example ITA Software, G2 Switchworks and Farelogix.
Sabre Travel Network also competes with airlines that have developed web-based consumer booking systems and sales channels of their own. Simultaneously, the airlines put pressure on the global distribution systems by requiring reduced prices. A reverse development is seen, too, as some airlines begin outsourcing the operation of their sales channels to Sabre, for example US Airways and Delta.39 Business men and holiday travelers are not really interested in shopping from one airline website to another.
The direct marketing and sales of travel services take place through Travelocity. Buying lastminute.comis an important part of Travelocity’s expansion plan. But it includes much more than that. Several other online travel agencies are bought, including Scandinavian Rejsefeber, and the global car rental firm HolidayAutos.com. Through subsidiary companies and acquisition of other companies and brands outside its main basis in the USA, Travelocity has positioned itself in, for example, Canada, Mexico, UK, Germany, France, Scandinavia, Japan, and Australia.
Travelocity’s main competitors are Expedia, Orbitz and ebookers, Priceline, the leading US and world travel agencies, as well as Opodo in Europe.40 A new group of competitors are emerging based on information consolidators and consumer generated content (see below: Social Travel Networking). To meet these challenges Travelocity will have to upgrade to a higher level of competitiveness based on consumer interaction.
Travelport/Galileo and Worldspan
Just like Sabre was disengaged from American Airlines during the 1990s, the distribution system Galileo was separated from its mother companies United Airlines, British Airways and KLM, as was Worldspan from Delta Air Lines and Northwest Airlines.41 Galileo was taken over by investor companies, first Cendant and renamed Travelport.42 Travelport includes the distribution system Galileo, the online travel agencies Orbitz and eBookers as well as the wholesale travel provider Gulliver’s Travel Associates. By the end of 2006, the travel and tourism activities of Cendant were spun-off to the investor company Blackstone Group. At the same time, Blackstone acquired Worldspan, owned by Worldspan Technologies. The two companies merged to form a stronger Travelport, becoming thereby the world’s largest distribution system in addition to its leading online travel agencies.43
Merged Travelport and Worldspan complement each other well. Worldspan is a world leader in IT and web-solutions for travel distributors and intermediaries, covering more than half the world’s online transactions of the travel and tourism industry. Most of Worldspan’s revenues originate from the USA. In reverse, Travelport, of which Galileo is the largest part, receives most of its revenues from outside the USA. Concerning online travel agencies, Orbitz is strong in the USA and eBookers in Western Europe. The new Travelport has annual revenues of almost $4 billion. Tens of thousands of travel agencies around the world, hundreds of airlines and several car rental companies, cruise ships and railway companies, etc. depend on the travel information and solutions of Travelport.
Amadeus
In the 1990s, Amadeus started as a mutual distribution company owned by four European airlines, Lufthansa, Air France, Iberia and SAS, of which SAS gave up its ownership.44 Gradually Amadeus expanded into a global distribution company that loosened bonds to its mother airlines. In 2005, Amadeus was taken over by the investor group WAM Acquisition. Although Amadeus expanded world wide, Europe remained its main base and market, serving primarily airlines, just like the other two large distribution systems. In 2005, Amadeus had revenues of $2.5 billion.45
Similar to the other two leading distribution systems, Amadeus operates numerous airline reservation and booking systems, and in addition tens of thousands of travel agencies who provide travel information about tour operators, cruise lines, ferry lines, railway companies, car rental companies, hotels, insurance companies, etc. Like the other distribution companies, Amadeus meets the increasing competition from web-based travel intermediaries by upgrading its services and redefining its business model to include more and more parts of the customers’ value chain. At the same time, several online travel agencies have been acquired, including
