Sabre Holdings yesterday announced that American Airlines would join its competitors in Sabre's DCA Three-Year Option program, which for three years exchanges a 12.5 percent discount off Sabre fees for complete access to airline fares--except "opaque fares" in which the carrier is not identified until after the sale. The deal covers the United States, the U.S. Virgin Islands, the Caribbean and Europe.
"Further, subject to certain terms and conditions, the airline has agreed to make available to Sabre-connected travel agents in the covered territory any products, services, commissions, or passenger perquisites or amenities that the airline makes generally available in connection with bookings made by travel agents on any other GDS or on www.aa.com," Sabre stated. Existing airline participants include Continental, Delta, Northwest, United and US Airways.
As for how AA's participation would impact its EveryFare program
(BTN, Oct. 7), a spokesperson with the airline said Sabre agencies that are part of EveryFare will receive an addendum that allows them to cancel their EveryFare contracts. "EveryFare was and is a big success in terms of reducing our distribution costs," she added.
Sabre said it "believes that American's participation in the program, as well as that of the other participants, will play a role in diminishing the shift of bookings away from the Sabre GDS to airline-controlled outlets." Sabre chairman and CEO William Hannigan last month told Wall Street analysts that Sabre did not alter its expectation of losing 4 percent to 5 percent of transactions to direct channels, but noted that "It will be interesting to see what happens as we achieve critical mass" on the DCA program.
With AA's participation, more than 40 percent of Sabre's direct global bookings are covered by the DCA option, meaning Sabre takes a multimillion-dollar hit to revenues. As a result, Hannigan said, incentives paid to agencies will be curtailed.
"These deals will require us to be very aggressive in how we think about all our costs," Hannigan said. "Incentives per booking are no longer growing at 30 percent year over year as they were a couple years ago, but they're still in the low to mid teens, and that has to change."
Despite the revenue hit, analysts who follow Sabre generally like the stability generated by these three-year airline participation agreements, particularly as GDS companies face the uncertainty of regulatory changes by the U.S. Department of Transportation.
"The road has been paved for industry deregulation," Hannigan said. "We believe the momentum has shifted during the past several months as the various stakeholders, including Congress and the Justice Department, weighed in." In a separate but related matter, DOJ yesterday concluded an investigation of Orbitz without taking action.
Meanwhile, in a filing with the Securities and Exchange Commission on the AA agreement, Sabre also said, "Additional financial implications of the DCA Three-Year agreements for the company include potential changes to the booking fee pricing model for airlines that do not participate in the DCA Three-Year Option Program."
Also, Sabre and American extended an agreement in which AA markets Sabre products to support Sabre's "relationships with travel agents and individuals who are also customers of American."