BTS Adds Fees

<B>BTS Adds Fees</B>
<I>Sabre Clients Don't Get The GetThere Pricing Move</I>

By Jay Campbell


In a move that is alienating scores of clients, Sabre's GetThere subsidiary on July 1 will levy on its BTS corporate online booking product a $1,500 monthly maintenance fee and raise per-trip prices to $6, from roughly $4.

A May 1 letter that Sabre sent to clients, obtained earlier this month by Business Travel News, detailed the new prices and noted that the merger between Sabre BTS and GetThere is complete. Some customers said that while Sabre is offering little or no room for negotiation, a follow-up letter granted lower prices for "power users."

"As part of the merger process, an analysis of the costs of delivering world-class service and providing the online booking system revealed that current pricing will not support continued technology investments nor preserve existing service levels," wrote GetThere CFO Mark Miller. "While other industry costs have continued to rise, BTS prices have remained static since the product was introduced in 1995."

Larger BTS clients snickered that "static" really meant "virtually free" and that the service they have experienced of late is far from "world class." Further, they said, they are being required to pay more for a product that they will not be using by this time next year. By then, GetThere plans to have converted both customer sets to a product that is GetThere's DirectCorporate at its core, with some BTS features added.

Coupled with what many BTS customers called the "impersonal" nature in which they were informed of it, the pricing change has prompted dozens of clients to begin looking elsewhere for a booking tool and, some said, a global distribution system (see story, this page). Several also have put the brakes on further expansion of the BTS product within their companies, particularly internationally.

"I will be looking at other options," said Debbie Horrell, contract manager at the World Bank in Washington, D.C., which had integrated BTS into its pre-trip approval and expense reimbursement process.

"GetThere approached us with a change of scope in the terms and conditions of our contract, which they have a right to do," said John Guarneri, global travel manager of BP Amoco in Warrenville, Ill. "But any time there is a change in any of our programs, we'll see if it is still competitive in the market and look at other sources that may be available to us." Guarneri also said this turn of events "could be a trigger for us to revisit the GDS," noting that "if we do go with another booking tool, it may interface better with a different GDS."

A number of other buyers who control large corporate travel budgets echoed similar sentiments, but most preferred to remain unidentified.

"We're not real pleased with how they're handling it," said one member of the Corporate Travel 100. "It was like, 'Wham. Take it or leave it.' "

"They're saying, 'Screw the contract, here's our new terms,' " said another buyer. "I've never seen a group of corporate travel managers in so much vocal unison, and they're all incensed. This is not a side issue. It's a lot more about the principle than the money."

Some early adopters complained that personnel changes at BTS have cut them off from proper customer support and the recognition that they, too, helped build the BTS product.

GetThere COO Jeff Palmer said the motive in changing BTS prices was to charge an "equivalent price for equivalent systems that have an equivalent future." GetThere's pricing always included a maintenance fee. According to Miller's letter, the new BTS maintenance fee covers site hosting, "site administrator access to the technical support group for resolutions of your product issues" and "maintaining bandwidth and uptime."

"I'd argue that we didn't raise prices," Palmer said. "We didn't go beyond a price that was already working in the marketplace. We have two comparable products, so how can I have two separate price schedules? While being fair to the BTS customers and their concerns, I'd have an equal and opposite concern if I continued to offer them advantageous pricing over clients who bought GetThere."

In addition, he said, "I would defend the pricing notification as being entirely consistent with providing improved service. Less money doesn't improve service." Palmer said as a result of the merger, some customers have a different sales or account representative than they did a year to 18 months ago.

Asked why he thought clients reacted the way they did, Palmer said it's "human nature. Most people, when they perceive a price increase, do not view it well. I'm not surprised some expressed concern here. I appreciate their concern and we're doing everything we can."

Complicating the consistency of communications, Palmer said, some BTS users bought the product through their travel management companies, rather than directly from Sabre. Indeed, some buyers said their agencies went to bat for them and struck out in attempting to negotiate lower pricing.

Palmer maintained that the product still is well worth its cost, given the "tremendous opportunity for savings."

Still, Palmer admitted that addressing two customer populations is a challenge. "We tried to be straightforward in the letter and in the same timeframe, but our intent was that there was more than just a letter. We also communicated over the phone or face to face to explain the rationale and work with them to be sure they were comfortable that it was appropriate. We certainly want to keep all customers and keep them all happy."

Keeping them happy is one reason Sabre previously did not implement a maintenance fee, said one source familiar with the company before the GetThere acquisition. Sabre considered a monthly BTS maintenance fee, but decided it would not have generated enough revenue to "justify grief we would take from clients."

The source said BTS was more attracted to a model in which clients would pay a monthly fee, less the trip fees they had accumulated for the month. In that scenario, and assuming the maintenance price would have been about $1,500, clients with more than a few hundred transactions a month would pay for the transactions and not the maintenance.

Some sources said GetThere already works that way, allowing certain clients to count their transaction fees toward the maintenance price. Palmer would not comment on that model. Parallel to that, several sources said that even the new price structure is negotiable, though some said they were not impressed by the offer they received.

"We did talk to them after the first notice came out, and got nowhere," said one buyer. "Then, it seems they have a standard 'next letter' that goes out, not allowing for negotiation, but saying, 'Here's our new new proposal, X instead.' It was about half-way between what we had before and what they dictated in the May 1 letter."

By all accounts, no BTS clients were allowed to "grandfather" their original agreements--even those who worked closely with Sabre in the early days of BTS development.

One source familiar with Sabre suggested that the company was aiming at clients that are not pushing for higher adoption, since the vendor incurs "huge" expenses whether a client processes "two trips or 2,000."

While noting that "there is a cost to maintaining a site, even at low utilization levels," Palmer would not comment on the speculation about "fluff" clients. "We take it on faith that the reason people bought these systems was because they wanted to use them," he said.

Clearly, accelerating the profitability of the GetThere subsidiary is a major goal for Sabre, even as its revenues make up just 2 percent of Sabre's total. But the pricing strategy could backfire if the travel managers who have spoken to BTN put teeth into their threat of switching GDSs.

GetThere in the first quarter posted a 240 percent higher year-over-year operating loss of $16.3 million on revenues of $10.9 million. For 2000, GetThere's operational loss was $76 million, up from $22 million the prior year, on revenues of $12 million. Sabre expects the subsidiary to be profitable in late 2002.

Sabre executives told Wall Street analysts that they expect to see a continuation in the "strong impact" of GetThere losses on the corporate bottom line.

During January's fourth-quarter 2000 call, Sabre executive vice president and CFO Jeffery Jackson said, "We expect those losses to consistently narrow. We haven't stepped up spending, but we do expect hefty revenue growth rates." During that same call, Sabre chairman, president and CEO Bill Hannigan said, "there certainly is room in a northerly direction between the Sabre BTS price and the GetThere price" and "with the current pricing structure, we have gross margins in the low 70s.