Sabre eases focus on outsourcing contracts
Wednesday, August 16th 2000, 12:00 am
By: News On 6
Reservation system, software to be prime business
By Katherine Yung / The Dallas Morning News
Sabre Holdings Corp. is no longer looking to information technology outsourcing to generate significant growth, its top executive said Tuesday.
Instead, chairman and chief executive William Hannigan said, the company will focus on selling software that would help airlines do everything from price seats to design work schedules for flight attendants and pilots.
The decision, reached within the last few weeks, dismantles the company's previous plan to generate half of its revenue from information technology outsourcing over the next two to three years. It comes after Sabre failed to win new outsourcing contracts from British Airways PLC, Continental Airlines Inc. and United Airlines Inc.
"We just weren't winning enough in that sector," Mr. Hannigan said in an interview. "We had gone after a couple of very big outsourcing deals and come up dry."
For Sabre, information technology outsourcing involves installing and maintaining computer systems that handle customer reservations, passenger check-ins and other services for airlines.
It accounted for 40 percent of Sabre's $2.4 billion in revenue last year. The other 60 percent came from Sabre's computer reservations business.
The new focus for the Fort Worth-based company, which owns the popular Sabre computer reservation system used by thousands of travel agents to book flights, "makes a lot of sense for them," said Gregory Gould, an analyst at Goldman Sachs who follows Sabre.
"They have a lot of applications they had originally designed for American Airlines that they now can sell," he said.
Sabre's ability to continue to increase profits in its core computer reservations business should help offset the effect of the company's transition to its new strategy, Mr. Gould said.
Sabre doesn't plan to exit the information technology outsourcing business, but it will take a lower profile, Mr. Hannigan said.
The company will continue to do this type of work for its two biggest customers, American and US Airways Inc., as well as a number of smaller carriers.
However, Sabre won't shy away from diverting resources currently used for information technology outsourcing to its software business, said Mr. Hannigan, who took over Sabre's top job in December.
Sabre had planned to become a bigger player in information technology outsourcing since more airlines are hiring outside companies to do work once handled by the carriers themselves.
But information technology outsourcing only yields Sabre half the profit margins generated by its travel marketing and distribution business, Mr. Hannigan said. It also doesn't generate a consistent stream of revenue.
"This is probably one of the most important contributions Mr. Hannigan is making strategically," said Matthew Fassnacht, an analyst at J.P. Morgan Securities in New York. "The software business is not as competitive as technology outsourcing, and Sabre is more of a leader in this area."
Sabre now plans to concentrate on making acquisitions only in the travel marketing and distribution industry, Mr. Hannigan said.
The company announced an agreement Tuesday to buy Gradient Solutions Limited of Dublin, Ireland, for an undisclosed amount.
Gradient specializes in online travel services and products for travel companies and airlines, including seven major European carriers.
Besides its computer reservation system, Sabre also owns a 70 percent stake in Travelocity.com, the largest online seller of airline tickets.
Sabre's strategy shift comes five months after its former parent, AMR Corp., which owns American Airlines, spun off its 83 percent stake in the company.
By gaining complete independence from AMR, Sabre had planned to win more information technology contracts from customers concerned about American's ties to the company.
But in April, British Airways, American's partner in the oneworld airline alliance, awarded a 10-year information technology services contract to one of Sabre's rivals, Amadeus Global Travel Distribution SA.
Sabre's stock closed Tuesday at $28.81, down 6 cents a share.