Sabre Travel Network is negotiating the next set of content agreements with travel suppliers and eyeing new economic models with travel agencies. Chris Kroeger, STN senior vice president of North America, last week spoke with BTN editors about those and other recent global distribution system developments.Business Travel News: Has Sabre received any pushback on the new policy of charging for passive segments
(BTN, Nov. 14)?Chris Kroeger: I would not characterize it is as pushback, but there has been some misinformation or misunderstandings that are being perpetuated by some in the marketplace. There seems to be a belief that we are actually taking YK passive segments away from our customers, or no longer providing free access to our systems to do some things that travel management companies value. That is clearly not the case. Our policy change in no way affects the legitimate uses of YK segments. If there is content not in our system, we will not get in the way of TMCs doing what they need to do. The problem came about when some suppliers and third parties began taking advantage of the YK. Some suppliers were actively encouraging some agencies to shop and do what they need to do in Sabre, then book with them on their Web site, and merge that information back into the GDS. Some were not only encouraging that, but building software to automate that process. These were cases of suppliers using Sabre to bypass Sabre, which clearly falls outside of what we consider legitimate purposes and fell into the category of what we deem as abuse of that particular capability. Some new third-party systems—new entrants, other aggregators, etc.—were doing similar things. They were saying: "Book this content, that actually is available inside Sabre, outside of Sabre and then just YK it back in and everything will be fine for you, the travel management company." It made sense for us to address that. We expect to be compensated for the value we deliver. There still is plenty of opportunity for TMCs to use the system to shop and search without actually paying for any of that. A supplier can present its product without ever paying a booking fee. Information can be loaded into the system without any compensation for Sabre. We still allow a tremendous amount of that, but there is a reasonable limit to how much of that free activity is allowed to happen.
BTN: Under which circumstances might new economic models in travel distribution come about?
Kroeger: Any changes to the economic model need to be the result of a multilateral discussion. To date, there has been unilateral pressure to change the model. Specifically, some airlines have been pretty vocal about extracting the agency incentive from the economic flow. Our view is that there are four constituents at play: the suppliers, the TMCs, us as the GDS and ultimately the traveler or the corporation. The ripple effects ultimately end up in the lap of the person actually buying the product. All four parties need to be involved in what that future world looks like. We think that will happen, and we have seen it in other markets. There are certain versions of opt-in models in place in other marketplaces, for example. Whether that makes sense, or what it would look like within the U.S. market, will evolve as discussions with airlines evolve. TMCs are saying that, as there are changes in the economic models, they need to do their analyses to determine the value of keeping content aggregated versus the value of the incentive stream coming in, and what kind of trade-offs they are willing to make. The corporate travel managers I have spoken with realize that the economic changes that take place with the other three parties ultimately are borne by that fourth party. They want a voice in it to make sure they are not adversely impacted, or that they are at least able to participate in the trade-offs. They also recognize the value in integrating content and services into end-to-end processes, because that creates efficiencies and creates what they end up paying the TMC for in terms of service fees. If that gets mucked up—either too drastic of cuts on incentives or too significant of inefficiency injections—they will bear the brunt of it, and they are not going to let that happen.
BTN: Regarding hotels, please give us an update on the use of preferential displays.
Kroeger: From a Sabre perspective, we want to enable a few buying and selling models. Some are totally neutral, in which the buyer of travel wants to make his or her own decisions. We will continue to enable that model. Then there is an emerging model that allows ourselves, suppliers and travel management companies to win in a preferenced world. A supplier would participate in a program that gives it greater screen presence in the Sabre display and, in exchange for that, it guarantees that its full range of rates is available in the system. Ultimately, the TMC's customers benefit by knowing they have access to that full range of rates. If there is a corporate traveler that has a negotiated rate with a hotel company, the TMC will always be able to get at that rate. It is when there is an indifference that we can bring in some preferencing. Even in a world where there are negotiated preferences already established, it is rare to have a corporation with one relationship with only one hotel. Typically, they have a multitude of preferred hotels. In that world, preferencing can be beneficial because within Company X's 50 preferred hotels, a hotel can ensure that it has greater presence in front of that corporation by participating in some of these preferencing models. Hoteliers that have been participating have been responding well. But we are not forcing preferencing on someone who does not want it.
BTN: Is there any additional appetite for display bias on the airline side?
Kroeger: There is the opportunity to work with airlines in our private channels—the Nexion host agency environment, the Jurni network consortia environment, etc.—where we establish a set of preferred suppliers and work within those networks to ensure those agencies are selling disproportionately to those preferred suppliers. As it relates to the neutral channel, the marketplace will decide what that looks like and whether or not it makes sense to take some of the things we are doing in the hotel space and also do them in the air space. There is tremendous demand for neutrality to stay in place, but there is a growing willingness in certain situations to accept a preferencing model if there is value delivered.
BTN: In which way is the new full-content agreement with AirTran Airways
(BTNonline, Oct. 13) different than typical airline content deals available prior to GDS deregulation?
Kroeger: It is not just a GDS deal. It covers many different aspects of Sabre's business. There is an airline solutions element, there is a Travelocity relationship and then, of course, there is the distributing through the Sabre Travel Network of agencies. Before, your GDS booking fee discussion had to be standard and structured, and available to every other airline. Now, being able to look holistically and combine pieces, we are able to structure something unique to each airline. You still have a set of airlines that have needs that are similar enough where you can still have a standard model that works for them, and we have that. Yet, even there you have some flexibility that we did not have before, like, for example, our new value-based pricing approach to booking fees. There is a booking fee for trips that fall within your home country. There is a booking fee for trips that go between your home country and another country, and another booking fee for trips that start outside your home country. Each of those has a unique value to the airline, each of those has different complexities from a pricing perspective and each drives different revenue for the airline. Previously, there were also regulations around terms of agreements. Before our Direct Connect Availability Three-Year Option agreements, they were generally one-year, rolling agreements. That is what we were regulated to do. As we came out of regulation, we are able to lengthen agreements. That creates some stability and confidence in the aggregation of content. We have set our sights on five years because that is a meaningful period of time to protect and build confidence. AirTran is a good example in which we were able to do that.
BTN: Since value pricing does not yet apply to those airlines covered by DCA3, do you suspect it would become an integral element of the next generation of content deals?
Kroeger: For some, it might. Other carriers prefer simplicity.
BTN: Back to hotels, where do hotels and corporate buyers stand right now in terms of getting 2006 rates loaded by the end of the year
(see story)?Kroeger: In general, as it relates to hotels, that is an area where we have been investing heavily over the past few years to ensure we have the systems and technology to facilitate an even smoother and more efficient process of selling and buying. The open systems allow the seller to make sure they are presenting their product in a way that is even more appealing to the buyer and it allows corporate travel buyers—whether they are doing that directly or through their travel management companies—to find the hotel that matches their needs. Inside of that is the way that our systems talk to hotel systems, which facilitates things like providing greater efficiency around the loading of rates.
BTN: How complicated is it to access truly complete hotel inventory through the global distribution system, considering there still are so many independent properties?
Kroeger: Today we have roughly 60,000 hotel properties in the system. Some of those are truly individual but many are part of chains. With our enhancements in technology and the move to open systems, we have actually now opened our ability to take that to over 100,000. Then there is the practical side of finding which hotels want to participate and which ones we need to fill the needs of our customers. That then becomes a discussion with those individual properties—what their distributions strategy is, how their systems are able to synch in. One of the things that we have focused on over the years is recognizing that it does run the gamut. You have some hotel chains that have fairly sophisticated IT infrastructures, then you have others that are not as advanced. How do we, as a single point of aggregation, tap into those different sources? The smaller, less tech-heavy hoteliers can still get value from distribution and the ones that have more significant technology investments to do the same.
BTN: Apart from hotels, are there any efforts to load other types of lodging inventory, such as corporate housing or extended stay apartments?
Kroeger: In the longer term, our investments in the hospitality area certainly enable us to look at different models. There are entities out there today that sort of specialize in that and from a technology distribution perspective can leverage the same infrastructure that is used to sell a single night somewhere into selling an extended stay or an apartment or whatever it is. Part of that is reminding the marketplace that we can be a source for that type of arrangement. A lot of times people think—based on history—that they go here for this and another place for that. You have to remind people and demonstrate to people that you can come here for both.