SETTING THE STAGE: THE DEVELOPMENT OF THE AMERICAN AIRLINES SABRE SYSTEM

American Airlines is a division of AMR Corporation, employing over 128,000 people worldwide and reported net revenue in 2000 of $19.7 billion. One of the largest airlines in the world, AMR Corp. operates American Airlines, TWA and American Eagle. In August 2001, American Airlines announced a competitive alliance with British Airways, allowing them to codeshare (run a flight-schedule jointly, for a certain route) across the entire breadth of their respective global networks and opening up a completely new range of destinations to their customers.

SABRE (Semi-Automated Business Research Environment) was developed by American Airlines in conjunction with IBM. Launched in the early 1960s, SABRE was the first computerized airline reservation system, serving American Airlines reservation counters from coast to coast in the USA and from Canada to Mexico by 1964. SABRE was expensive to develop and, when it came on-line, competitors filed lawsuits claiming that it gave American Airlines (AA) an unfair advantage (mainly because AA flights were listed first by the system). Other airlines rushed to develop their own reservation systems: United Airlines' system created the Apollo system, TWA developed PARS (TWA is now owned by American Airlines), and Delta developed DATAS.

Over 90 percent of the 40,000+ travel agents in the U.S. now connect into various direct reservation systems, but as the learning curve is high for a new system and space is limited, each agent tends to be connected to only one system. Appendix 1 gives the ownership of the major direct reservation systems (now called Global Distribution Systems, or GDS) and the major online travel agencies. Different airlines' reservation systems communicate with one another in real time. An agent can access and book flights on other carriers via its primary system, allowing a travel agent, for example, to book an American Airline flight through Amadeus (the direct reservations system owned by Air France, Iberia and Lufthansa) or to book a Lufthansa flight through SABRE (the American Airlines system). The airline consortium that owns the reservation system receives a fee for each reservation made for a competing airline and the airline providing the agent's reservation system is more likely to receive bookings on its flights. Because of this, each airline tries to maximize the number of travel agents connected directly to its own system and minimizes bookings for its flights via other systems.

The initial competitive advantage provided by the SABRE system has continued to operate to the present day: approximately three out of five airline flight tickets are booked through SABRE (Hopper, 1990; SABRE, 2002). Thus, SABRE gave American Airlines a first-mover competitive advantage that persisted, even after other airlines had developed their own computerized reservation systems. American Airlines made more money from SABRE than they did from flying passengers: revenue from the SABRE reservation system consistently accounted for more than 50 percent of the company's total revenues (Hopper, 1990; SABRE, 2002). In 1992, talking about legislation that would force American to divest itself of SABRE, American Airlines Chairman Robert Crandall said: "If you told me I had to sell either the airline or the system, I'd probably sell the airline." However, in 2000, American Airlines completed the process that turned the Sabre Technology Group into its own company. Sabre is now an S&P 500 company and has a 70 percent stake in Travelocity, the online travel agent (SABRE, 2002).

It could be argued that the competitive advantage conferred by the SABRE system has persisted, but only because of continual technical and product innovation:

Initially (in the 1960s), SABRE served only American Airlines ticket and reservations staff.
In 1976, travel agents were first offered a direct, remote-access service; by year end the system was installed in 130 locations, serving 86 percent of the top 100 agency accounts (AMR, 2002; SABRE, 2002).
In 1985, SABRE was the first system that allowed consumers to access airline, hotel and car rental reservations directly, using an IBM PC (the world's first business-oriented personal computer) (AMR, 2002; SABRE, 2002).
By 1986, the SABRE system was extended to the United Kingdom, paving the way for widespread international expansion. SABRE also installed the airline industry's first automated yield management system in this year: this prices airline seats to yield the maximum revenue for each flight (SABRE, 2002).
By 1987, SABRE had become the world's largest private real-time data-processing system, serving more than 10,000 travel agents worldwide (AMR, 2002).
In 1990, SABRE had 40 percent of the air travel booking market. To quote Hopper (1990), "If SABRE doesn't do the job, another system will. SABRE's industry-leading market share of 40 percent means that rival systems account for three out of five airline bookings."
In 1996, the SABRE Technology Group exploited the increasing popularity of the Internet by launching http://Travelocity.com, a leading online Business-to-Consumer (B2C) travel site.
In 2001, SABRE connects more than 59,000 travel agents around the world, providing content from 450 airlines, 53,000 hotels, 54 car rental companies, eight cruise lines, 33 railroads and 228 tour operators (SABRE, 2002), making it the largest Global Distribution System (GDS) for travel services.
New innovations include wireless connectivity via mobile consumer devices and the use of a hand-held device by American Airlines gate staff, to make seat assignments and print boarding passes, making it simple for airlines to accommodate passengers who have missed connecting flights.

Therefore, SABRE can be seen as an evolving set of systems, developed in response to business needs and technical opportunities. Continual evolution itself is not the success factor, it is continual evolution in combination with the opportunistic exploitation of opportunities offered by the industry environment. However, while airlines were developing information systems to exploit new technologies and structural changes in the competitive environment, travel agents were not in a position to do so.