AMR Set To Spin Off Sabre As Separate Subsidiary

<H1>AMR Set To Spin Off Sabre As Separate Subsidiary</H1><H3>By Cheryl Rosen</H3>Dallas - AMR Corp. last week took one more step toward the spinoff of its Sabre Group technology arm (BTN, March 4) with the announcement that it will reorganize Sabre as a separate AMR subsidiary, rather than a part of American Airlines Inc., in this year's third quarter.

In so doing, said chief financial officer Gerard Arpey, AMR hopes to take advantage of "the recent downward trend in market pricing for a lot of the services the Sabre Group offers, and allow American to bid from other companies services that are today provided by Sabre."

Under a new 10-year contract between the erstwhile sisters, Sabre has slashed $40 million off its price for maintaining American's data center and processing its commercial and real-time applications.

AMR chairman Bob Crandall said Sabre "will continue to be closely aligned with American Airlines," and AMR will "continue to study additional Sabre Group transactions," including strategic partnerships and an initial public offering of stock.

In a call-in press conference hosted by Arpey, he said the restructuring leaves AMR free to pursue "any number of strategic options" and to "refine the arm's-length relationship between Sabre and American Airlines." It also will raise American's revenue by limiting flight privileges for Sabre employees, and lower the airline's cost for the data-processing services, he said. About $850 million worth of AA debt and $350 million worth of real-estate leases for structures occupied by Sabre personnel will be transferred, shifting $1.2 billion worth of red ink from the airline's ledgers to Sabre's.

Citing Sabre's need to offer travel distribution services "as an unbiased provider over the Internet," Arpey said an autonomous Sabre will "think like a technology company, not an airline company." The move positions Sabre to form relationships with other customers and partners.

"Sabre sees the need to migrate away from the mainframe model of making reservations into an Internet-oriented world," said Tom Wilkinson, president of the Travel Management Group in Alexandria, Va. "It sees itself going in a broader direction than the traditional CRS business, like building interfaces between corporations and individual airline reservation systems-and that's a threat to airlines that use their mainframes as a sales tool."

Wilkinson said he envisioned Sabre and IBM jointly building automation for both sides of the reservation process, with Sabre's Business Travel Solutions accessing a wide variety of airline res systems like IBM's new AMSYS (see story, Page 1) and bypassing CRS fees. "As a separate entity, they don't have to worry about conflicting with their parent's distribution strategy," he said.

Arpey said Sabre has been "making a lot of money" while American has been trying to hold down its distribution costs by exploring direct avenues of distribution.

AMR's financial results for the first quarter show half of its pretax profit of $265 million coming from Sabre, with Sabre's sales rising 12.5 percent over the same period in 1995. American Airlines also did well, quadrupling its net earnings from $37 million to $157 million despite a fuel-tax increase, a new labor contract and the worst winter weather in history along parts of the East Coast. American Airlines' passenger revenues rose 6.4 percent, while American Eagle's soared 28 percent.

A post-commission-cap drop of $5 million in commission payments to travel agents helped too, as did a $4 million decrease in the cost of food service.