<H1>Between The Lines</H1><H3>By Cheryl Rosen</H3>In the gallop for first place among a shrinking field of competitors, the Amadeus/System One partnership appears to have stretched its neck out a bit further over the wire. Overall travel-agency location market share figures for 1995 (versus 1994) were Amadeus, 32.5 percent (up from 30.9); Galileo, 27.4 (down from 28.1); and Sabre, 26.5 (down from 27.5).Worldspan increased its share from 13.5 in 1994 to 13.6 in 1995.
Much of Amadeus' gains came in the Americas, but it also made good headway in Europe, with locations rising 16 percent. It reported a 6 percent increase in overall bookings even as the number of computer terminals into which it is hooked dropped by 6 percent-a sign of the increasingly diverse ways in which CRS bookings are being made. In Latin America, Amadeus overtook Sabre for first place in agency locations, with a 43 percent increase, although Sabre held the lead in terminals. Galileo, in third place, posted a respectable 22 percent gain.
Worldspan made considerable headway in Europe, increasing its locations by almost 30 percent and overtaking Sabre, which is meeting fierce resistance on the Continent.
Much of last year's action moved to the Asia-Pacific region. Galileo has installed the biggest number of terminals in the region and is selling through the highest number of locations of any non-Asian CRS. Sabre, on its heels, also saw double-digit increases in both terminals and locations. Amadeus saw 200 percent growth, but remains far behind.
It's not easy to rejuvenate an industry that's tied down by billions of dollars worth of hardware, dominated by a handful of global conglomerates and serving a customer base whose biggest players are its owners. So when the CRSs started talking about changing the way they do business by cutting costs and addressing new markets in new ways, skeptics abounded.
In 1995, though, the CRSs' promises began to take shape, and in 1996 they have begun to assume real substance.
In the face of organized resistance to CRS price increases from airlines including Northwest and Delta, and the increasing competition in the consumer-direct arena from budding technologies and the Internet, the CRSs are acknowledging the need to hold the line on costs and prices, while at the same time upgrading their services.
For the CRS industry, 1995 and the first part of 1996 have been good years-as they have been for the travel industry in general. At home and abroad, the CRSs grew revenues and installations worldwide in 1995. More business travelers are booking through centralized travel departments and preferred global travel agencies, and corporate bookings of hotel and car rentals are boosting CRS revenues.
On the horizon, and increasingly on CRS sets, are new customers in the emerging markets of Eastern Europe and Asia. And the global alliances forged by the CRSs over the past two years are paying off in reduced fixed costs.
That pleasant scenario is one the CRSs expect will last for at least two years, and perhaps as many as 10. Even as suppliers begin to connect to the Internet and launch products that allow travelers to book direct, the systems and the customers clearly are not yet ready for a great migration away from CRSs. How quickly the threat will be upon them, and how much market share it will eventually steal, is a question each CRS surely is pondering in private. But it will be some time before such systems prove a real alternative to the value of the huge global databanks the CRSs hold-and by then, they say, they will be ready.
Still, each of the CRS companies in 1996 is beginning to give serious thought to the role it will play in a world that soon will include an abundant array of consumer booking options-by PC, by telephone, by kiosk. Like pinballs poised at the top of their run, the CRSs will need to bounce nimbly off the bumpers of the travel-agency distribution channel on the one side and consumer demand for direct-booking products on the other, and slip safely into the slots that offer the biggest scoring potential.
For now, while not dismissing the risk, they seem eager to get on with the run. Said Sabre Travel Information Network president Jeff Katz, "I'm an intensely competitive guy, so everything looks like a threat to me-and the threat is real enough for me to have changed a lot of our technology direction and market direction. But it will be very hard to replace the broad scope and capabilities of the CRSs, and it will take huge amounts of time and money to develop another system that's even close to as useful."
When all is said and done, he said, "it's good for us to have to compete and to adapt. And the beneficiaries of that will be our customers."
Meanwhile, short-term projections for CRS growth remain upbeat. The 1995 EDS Global Market Overview report predicts that revenues will grow a hefty 37 percent over the next five years, from $2.98 billion in 1996 to $4.08 billion by the year 2000.
Better news still for CRS customers is the fact that the evolving online environment already is stabilizing prices-and that downward pressure should continue, if not increase, in the years to come.
"1995 was clearly a year of backlash from the airlines to a flurry of CRS fee increases," said Nicholas Athanasiou, vice president and co-director of the travel, transportation and hospitality consulting practice at Arthur D. Little in Cambridge, Mass. "The CRSs have gotten the message that they need to focus on lowering cost."
He noted that in order to reduce their own operating costs, Galileo and Apollo have merged their data centers, Worldspan is reengineering and American Airlines has established Sabre as a separate subsidiary. "There's a new mindset," he said. "We know what the airlines did to travel agents with the commission cap; now they are telling the CRSs they'd better get their houses in order too."
Here's a look at how each CRS performed last year.
Market leader Sabre Travel Information Network accomplished "a record year in terms of results and growth, and at the same time produced good customer satisfaction," according to Katz.
Katz said Sabre was pleased with its efforts in Latin America, Mexico, Canada, India, Japan and China. Despite what Katz termed "political obstacles" that continue to hold back Sabre's growth in Europe, the international marketplace-especially in Asia-"is still a growth opportunity and still looks encouraging." In particular, he pointed to new relationships in Japan, Mexico and India as "the biggest and best of what we currently have on the platter."
In 1996, Sabre will be focusing on three things: building its relationships with "associates" in the airline, car and hotel sectors; the release of the Business Travel Solutions system for the corporate market; and rapid international expansion. All of that will take place as a new and separate subsidiary of AMR Corp., and no longer as a subsidiary of American Airlines.
With $40 billion in annual air volume running through the Sabre pipeline, "we think we already deliver a lot of value to our associates," Katz noted, "but our big challenge is making sure we continue to do that, and communicate that value to our suppliers."
Surely the most exciting thing on the drawing board is Business Travel Solutions. Offering three modules, including an automated booking system, a travel-management reporting system and an automated expense reporting system, BTS will be a test of the corporate market's readiness and ability to embrace new technologies. At the same time, it will test the technical support capabilities of the travel agency community, upon which Sabre will rely to provide customer support and technology consulting.
While Katz said he hasn't seen corporate travel managers much more involved in CRS decisions this year than they were in the past, he expects that to change as BTS and other corporate-based products roll out. "There clearly will be a more active role for them, and their ability to be a potent policy executive is going to grow because the tools that are available to them are going to be better," he said.
With the combination of BTS, plus Travelocity and Eaasy Sabre for the "do-it-yourself, unmanaged travel market," STIN's game plan is to be "the best tool provider in a multichannel world," Katz said. "We want to pump more revenue through the travel-agency pipeline and do it at lower cost."
Katz said that while it is "difficult to put a crisp timeline" on the movement toward automated bookings, Sabre is forecasting that the market share booked that way in five years "will be large enough to measure but not to transform the industry. It will be an evolution-there are a lot of marketplace behaviors to change and a lot of technologies to introduce and get accepted. We've done a lot of studying of technology adoption curves, and whether it's e-mail or ATMs, the adoption curve is pretty predictable."
More important for Sabre in 1996 is getting its own finances in order, in light of its April spinoff from American Airlines. "The reason we created a subsidiary was to make sure we had the wherewithal to compete," Katz noted. "In the short run, being an entity unto ourselves will allow us to accelerate our partnering opportunities-and that's probably our chief competitive need. In the short run, it also will improve our focus on customers, now that they are our customers and not American Airlines' customers."
Some say that the separation from AA will hurt Sabre, which has often relied on the partnership between the airline on the one hand, and travel agencies and corporations on the other, to help sell the Sabre product. "When you're part of an airline, sometimes in the back of your mind you think there's a secondary reason to use us," Katz acknowledged. "Now, we will never have the luxury of taking customers for granted, if we ever did before, and our focus on the customer is much more intense."
Still, American is not abandoning its relationship with Sabre, which remains, after all, under the AMR corporate umbrella. American will serve as a "launch partner" for BTS, Katz said, "helping us push the business and helping to tell the marketplace that this is a good way to do business, and the way American wants the marketplace to do business."
And does Katz envision a further spinoff of Sabre, out of AMR altogether? "No decision has been made, and I eagerly await the future to see what happens," he said. "For right now, we want to take advantage of being a separate subsidiary and of the clearer mandate on investment and focus."
Despite concerns over rising Sabre fees this past year, Sabre prices will go up only 3 percent in 1996, Katz said, "and I think we'll continue to see moderate pricing direction in the future." Improved revenue from international business, leisure tours and data services should continue to grow at fairly high rates and take some of the fee pressure off the airlines in 1996, Katz said, and by 1997 BTS should be contributing to the coffers as well.
On the international front, Sabre in the fall scored a coup in France when it signed a new contract with Carlson Wagonlit that covered 40 French agencies. In Asia, the CRS company opened a regional Hong Kong office in October.
A full year after its May 1995 merger with System One, Amadeus Global Distribution's plan for 1996 is clear: to migrate all its global customers to a single unified Amadeus platform, and to move into the consumer-direct market with its OneLink Website for transient travelers, a direct-booking monthly disk for Continental frequent flyers and its Travel Management Solutions product for the corporate-direct market, scheduled for release by the end of the year.
Since the merger, which vaulted Amadeus to the number-two position in the global market, the system has added 30,000 hotel suppliers and 40 airlines, and is "very close to adding a cruise product," said Amadeus senior vice president of marketing David Jones.
While Amadeus in Europe always will work through travel agencies, Jones said, in the United States "it's much more realistic to go right to large corporates direct with an automated product, as it's much more common for corporate travel managers to direct their agency to use a given CRS," he said.
Even while the merger and the migration to a single platform should help hold down redundancies and lower costs, the CRS is laying the groundwork for a possible fee increase in 1996. It plans to start discussions with providers and "hopefully have a meeting of the minds about what's acceptable before making an announcement," Jones said.
While System One's fees in the United States are about the same as Worldspan's, fees charged by Amadeus are the highest in Europe, Jones acknowledged.
Amadeus had a good year in Asia in 1995, beginning with a major thrust into Australia in May and capped in October with the creation of a regional marketing unit, Amadeus Asia Pacific, headquartered in Bangkok. It will continue to focus on that region through 1996, looking especially at Thailand, Hong Kong, China and India, markets that Jones characterized as "exploding."
In Europe, Amadeus' drawing board includes an expansion into potential new sources of revenue growth such as rail and tour products, and new hotel and car companies. While acknowledging that its battle for the British market has been a slow slog against Galileo International, which is owned in part by local hero British Airways, there are "signs of things beginning to turn around" under a new management team, Jones said.
In the United States, the company has won the endorsement of three travel agency consortia of varying size and makeup: SRG International, the global alliance of super regional agencies; Woodside Travel Trust; and Riverside Travel Group, with 41 agencies in the Pacific Northwest.
But perhaps the CRS's biggest accomplishment last year was its great leap of faith into the online environment.
"For us, 1995 was our positioning year," said System One sales and marketing vice president Jim Davidson, "and 1996 is going to be a year focused on consolidation, on aligning ourselves for future growth and on establishing an Internet presence. We want to be first."
In May, System One began beta testing a private-label automated booking service that runs over the Internet for a corporate agency customer, and it has about a dozen more agencies lined up. "I think that providing the booking engine for agencies and corporate intranets is going to be a big business for us," Davidson predicted. "Corporate travel managers are getting more active in technology decisions as a whole in order to help their companies get a better handle on the return on their travel investment," he said.
Even while noting that Amadeus will work directly with corporations, Davidson said his division of automated booking in the corporate world includes the continued participation of travel agencies in most circumstances.
"We're not system integrators, and we're not interested in maintaining customer relationships with corporations, establishing policies and procedures, doing updates and modifications and customer support on an ongoing basis," Davidson said. "Agencies will manage the relationship with the customer, as they have always done."
Outside the United States, meanwhile, System One staffers will conduct a sales blitz in Central America-a region that needs both a strong international system and a strong U.S. one, Davidson said. The campaign will be directed from the new training and sales facility in Mexico City. In the Caribbean, System One is converting the agencies that have been handled by Tarex Cable & Wireless, the local telecommunications company.
And on the global data front, American Express is beta testing Amadeus' Global Max system, which the CRS "will certainly leverage when it's up and running," according to Jones.
"Our long-term strategy is to bring together the database management and data reporting capabilities of Global Max and DataPro," Jones said.
Galileo International started off 1996 with a much-needed bang in its home European market, winning the three-year Carlson Wagonlit consolidated contract to provide CRS services in Austria, Denmark, Greece, Hungary, Italy, the Netherlands, Switzerland, Portugal and the United Kingdom. But despite the win, the CRS looks like a company focusing on price-cutting as its major strategy for 1996.
Of course, one could speculate, that may well be because its true vision for 1996 is to merge with Worldspan-a deal rumored by industry insiders to be in the works at press time. And indeed, the image of a three-way partnership of Galileo, Worldspan and new Worldspan partner Microsoft remains among the most tantalizing of all possible CRS stories for 1996. Now there's a team that could actually make the vision of automated booking on the Internet a reality.
But in the here and now, Galileo is fighting an inch-by-inch turf battle in Europe, although Craig Thomson, managing director for Europe, the Middle East and Africa, maintained that he is pleased with last year's figures. A sales effort that focused heavily on the French and German markets paid off with 30 percent segment growth in France and 39 percent in Germany, bringing overall segment growth for Thomson's region to 22 percent, although over a small base.
Bookings in the Middle East almost doubled, and the CRS "held its position against strong competition in our home markets in Europe," Thomson said. He added, however, that market share in Germany "doesn't have huge volume," and business in the United Kingdom, Holland and Switzerland is not growing much.
The company did well in southern Africa, however. Spurred by a full migration to the Galileo system, a massive increase in economic activity and the traffic boost provided by the Rugby World Cup, the CRS racked up almost a 100 percent increase in volume. At the same time, alliances in Turkey and Kuwait show promise for 1996, Thomson said.
While calling the first-quarter numbers for 1996 "on track for growth," Thomson said that unlike other CRSs that have been increasing prices, Galileo addressed some of the issues that were of concern to the airlines and reconfigured its pricing, especially in Europe. "The net result is that our pricing is now very much lower than the competition-overall 8 percent cheaper than the general market," he said.
The price revision, which took place in April, was aimed at "ensuring that Galileo International remains the lowest-cost provider of global distribution services available today," the company said.
In the area of technology development, the CRS again seems to be either holding out for that promised link to the Microsoft Network through Worldspan, or simply lagging behind the competition. "We've taken the position of not competing in the direct market and not announcing any direct products," Thomson said. But the company did role out a disk-based system called Travelpoint at its 1996 annual conference.
Lynne Rosenbaum, vice president of Apollo Travel Services, Galileo's U.S. marketing arm, seemed far more upbeat about technology. She pointed to Galileo's Travel Manager expense reporting system and said the company also is developing a three-module system, like those coming from Sabre and Amadeus.
She, too, discounted the immediate impact of direct-booking tools on the CRS. "I don't think it's going to be an all-or-nothing thing; people won't use automated tools exclusively," she said. "For some trips, they'll do a fabulous job, but if you're going on a multi-leg or international itinerary, or if you need a lot of flexibility, an automated system isn't an efficient way to do it."
What the CRSs offer agents, she said, "is a relatively standard format for working with information that originates in many places, on a single screen, in a consistent manner. And based on where the Web is now, I think it will be a long while before it's a real alternative for agencies."
In the short term, Apollo is rolling out Spectrum, a CD-ROM-based hotel booking product that shows maps and hotel information "in a more accessible way than the CRS," said Rosenbaum.
Apollo did well in 1995 in a very active corporate market in which mega agencies like Rosenbluth and American Express moved a lot of market share, and tie-ins with United and USAir helped move corporate accounts to Apollo.
"What I hear is that in certain situations, airlines encourage corporations to use a certain CRS," Rosenbaum said. "It's very difficult to document, but word of mouth says they're doing that as they improve their relationships with corporate buyers and talk to them more than they used to."
This year "has started out gangbusters" for Apollo, Rosenbaum said, in terms of the number of segments the company is seeing (which means people are traveling more, despite the relatively high fares) and in terms of conversions. Both last year and this year, hotel bookings are up markedly, she said, noting that the trend toward corporate travel consolidation and pushing hotel bookings that way is "absolutely helping that."
"The tools that are available to check policy compliance are improving, and travel managers have become a lot more sophisticated and assertive within their own environments in demonstrating the benefits of preferred supplier agreements," Rosenbaum said.
Like Galileo, Apollo hasn't increased its fees in the United States for some time and has no plans to do so in the near future. "While I firmly believe that the CRS is an efficient manner of distribution, we don't want to get too far out of line or we'll create an umbrella for other technologies to come in," she said.
Even while Galileo seems to have its technology on hold, Worldspan Travel Agency Information Services, the party of the second part in the industry merger rumors, seems to be focusing on little else. That hardly comes as a surprise, given its new partnership with Microsoft, under which Worldspan will build the booking engine for the Microsoft Travel Network.
The Microsoft connection was without a doubt the biggest accomplishment of the year for the smallest CRS. And in the larger scheme of things, that merger, coupled with the fact that Worldspan was moving its customers to a new open platform and a new workstation technology, caused the CRS to face many technology decisions a step ahead of its larger competitors.
"Last year there was a tremendous amount of turmoil regarding new automation trends, and a questioning of the role of CRS companies," said Sue Powers, Worldspan vice president of product marketing. "A lot of industry forces caused our company to think about the right product lines to have, and how to serve our customers in the new environment. We spent a lot of time evaluating our strategy and the direction of our business, our product line and our technology platform."
Out of all that came a mandate for 1996 to focus on the three core values of a CRS, Powers said: providing a shopping capability across industry suppliers, consolidating travel purchasing in one single system and consolidating travel information for travel agency and corporate customers.
In the consumer arena, Worldspan will work on agreements with many providers to be the booking engine for consumer-oriented products, as it will be for the Microsoft Network. A few such deals already are in the works, Powers said, including one to build an automated booking system for Northwest over the CompuServe online network.
Also in the pipeline is a corporate product line, including booking and expense reporting modules, scheduled for release before the end of this year. The Compass executive information system, a reporting package already in beta test and scheduled for a summer launch, will be marketed to both travel agency and corporate customers. Its "database with a corporate view" will be able to run reports on who is traveling and where they are staying, as well as the data necessary to support fee-based arrangements, including tracking the number of calls or cancellations per reservation.
Powers agreed that Worldspan's investment in open systems and automated booking tools is a long-range plan whose return will be virtually unnoticeable in its revenue stream in 1996-and will just barely make a dent in 1997. She predicted a return of one-tenth of one percent in revenue growth from automated booking systems this year, and "under 20 percent for the next three years, but growing each year."
In the meantime, Worldspan's continued focus on Europe is showing returns, especially in Eastern Europe, "where there is still a lot of opportunity to automate agencies for the first time," Powers said. "Significant operations" also are under way in Mexico.
At home, the CRS has seen real growth in the number of bookings from hotels and cars coming through the system, and market share growth being driven by the large corporate agencies. While noting that "corporate travel managers are getting involved in influencing CRS decisions a great deal more than they used to," she also said that Worldspan's airline owners rarely are asked to tie in CRS contracts with airline deals.
Powers said that Worldspan's position as the smallest CRS, and arguably the least global one, forces it to remain "more flexible and competitive in the marketplace, and not get complacent." At the same time, its airline hosting business, which handles the internal operations of Delta, Northwest and TWA, "allows us to achieve the economies of scale of a large data center."
In all, Powers seems comfortable with Worldspan's position as an independent creator of technology solutions for bigger and better-known entities, and expects that to continue, certainly through 1996.
"I don't believe the general public knows our name, and they certainly do not recognize it the way they do Microsoft or AOL," Powers said. "So we are positioning ourselves to be a behind-the-scenes partner, focusing on our strengths and partnering with companies that have consumer brand identification. We have always seen ourselves as a distribution and travel information management company that will be at the leading edge of technology, whatever form that might take.