Editor’s Note: This year we expanded our coverage of the technology companies that do the behind-the-scenes work of powering the technology systems of the world’s major travel companies.
We’re sitting down with a handful of industry leaders for our new Travel Tech CEO Listening Series to discover where they think the industry is heading.
It was only in January that Sean Menke became the chief executive of Sabre, a travel technology company based in Southlake, Texas, with 10,000 employees worldwide.
Yet Menke has already come out fighting.
He says his company is well aware of the recent spate of glitches that have downed airline reservation systems. While Sabre wasn’t responsible for all of the affected systems, Menke says he has “pulled forward some additional spend and re-prioritized projects to get at some of the key issues that need addressing.”
Menke faces industry critics who imply that Sabre hasn’t invested adequately in its various systems.
On its April 2017 quarterly earnings call, the chief operating officer of American Airlines, Robert Isom, said that the airline’s rollout of a premium economy product has been slow because it has to work with its third-party distributors “to make sure that the product is being appropriately displayed in all the systems.”
This echoed comments earlier this year by United’s president Scott Kirby, who fretted about the technical abilities of the middlemen and by top executives at International Airlines Group, the parent company of British Airways, who said that they are frustrated.
Menke says claims of a “technical debt” are full of nonsense. He says his company has been aggressively ramping up its capital expenditure.
Those were among the newsier highlights of Skift’s first one-on-one interview (in full, below) with Menke in late April.
First, the backstory: A majority of Sabre’s revenue still comes from being one of the world’s four major middlemen of airplane tickets, along with Amadeus, Travelport, and Travelsky.
Airlines distribute their fares via these so-called global distribution systems, or GDSs. Sabre, for one, provides booking platforms to more than 400,000 travel agents worldwide plus connections to online travel agencies like Expedia.
These airline middlemen were supposed to be old news, overtaken by newer technologies and nimbler startups. On the contrary, today, after a couple of years of revenue growth, Sabre’s market capitalization has risen to about $6.4 billion. That’s a huge jump over its April 2014 valuation of $3.93 billion at its initial public offering. The jump reflects consistently rising revenue growth.
Menke was previously the CEO of Frontier Airlines and a top commercial executive at Air Canada and Hawaiian Airlines. He plans to use his past airline experience to inform his retooling of Sabre’s relationships with carriers. Having been the executive at Air Canada who limited Sabre’s access to some fares in 2006, he understands hard negotiating tactics.
Distribution isn’t all that Sabre does in aviation. Another side of the house is its information technology services, including reservations systems, for airlines and, to a lesser extent, airports. Menke hopes that technological advancement in this division will lead to revenue gains that offset the business he fears he may eventually lose on the distribution side.
But air isn’t the whole story, either. Like its peers, Sabre wants to diversify beyond its air distribution business, which — while still a cash cow — is facing pricing pressures. Sabre’s most successful non-air line of business is its enterprise software for hotels. Its flagship product is SynXis, the central reservation system used by more than 30,000 hotels.
In an interview, Menke discusses his plans for the travel marketplace company and his view of what’s next for the industry.
Skift conducted the interview before the company’s May 2 earnings announcement and before reports of a (still unresolved) investigation into a security breach in the company’s hospitality platform. The interview has been edited for brevity and clarity.
Skift: Since you took the top job at Sabre, analysts have often mentioned that you have held executive positions at airlines. What is it about that airline executive-level experience that informs how you approach your job as Sabre CEO?
Menke: I’m big on teamwork, accountability and precision. That’s what makes an airline run every day. So that airline experience shapes how I approach things here at Sabre.
Plus I also know how much our customers rely on our technology – airlines, agents, corporate accounts, and hotels. So I have a very strong affinity with the customer and their needs and expectations.
But I also know that success comes down to motivated employees. If you give employees the tools, they will take very good care of your customers.
So I’m keenly focused on how we better equip our great employees with the ability to do their jobs. That’s what they want to do. They thrive on taking care of our customers and exceeding our customers’ expectations.
Skift: Last October and November, there were outages at some airlines. Some of those airlines happened to use Sabre technology, though not all of those airlines had a reservation system outage of which Sabre was the cause. But the media attention and Congressional discussions on the outages, in general, have made tech failure a hot topic. How is Sabre doing its part to avoid airline outages?
Menke: We are completely focused on the reliability of our system. That’s what we sell. That’s what we do. And as a former airline executive, I know how much our customers depend on us. And they are not shy in telling us that as well.
In fact, I recently told someone that I don’t feel the pressure of running just one airline – I feel like I’ve got the responsibility of helping run hundreds of airlines, and I take that responsibility very seriously.
We have invested hundreds of millions of dollars in our technology infrastructure roadmap. We’ve recently pulled forward some additional spend and re-prioritized projects to get at some of the key issues that need addressing.
One of the issues challenging the industry is the intense growth in shopping which is happening with greater frequency week by week. When a shop takes place by an airline, an agency or a consumer using an OTA, airlines are sending back more results than ever before, given the growth of branded fares and fare bundles.
So there is more shopping taking place than ever before, and more shop results being returned. That means more data is being put through the system.
We are rapidly moving more and more of our capabilities to leading edge technology and the cloud to provide us with enhanced infrastructure and also installing additional servers as a back-up to handle the traffic. That is just one of the many commitments we are making to our customers.
The entire airline industry is grappling with greater demands on their technology infrastructure. They will continue to rely on a combination of mainframe, mid-range, and cloud-based solutions. And Sabre will continue to make the right investments to keep our customers’ confidence. Fits right in there with the impeccable performance that we are committed to.
Skift: Let’s talk about Travel Network, the distribution arm of the company, which you headed from October 2015. No major airline CEO is going to pull the plug on GDSs as a channel. But many of them say that GDS technology needs to improve.
Critics say Sabre has a large “technical debt” that it needs to pay down, so to speak, in heavy research and development and capital expenditure (CapEx). They say the company might need to boost its spending on hardware, software, and labor by as much as an additional $300 million a year. To what extent does Sabre have a technical debt, and to what extent do you plan to boost investment?
Menke: I guess I’d start by saying those claims are wrong. While there has been chatter about “technical debt,” “mainframes,” and other such topics, we have continuously evolved our technology architecture and platform solutions to take advantage of more efficient, stable and secure solutions.
We are choosing to accelerate our already extensive adoption of the latest open source systems, so-called midrange processing vs mainframe processing, as well as the introduction of cloud-based solutions for our customers.
We have made continuing, significant investment – CapEx and OpEx – in our technology architecture, network systems, platforms and applications over the last 3, 5, 7 years. This has allowed us to grow market share across all our global businesses and geographies, while operating at the industry’s highest levels of performance across a number of metrics, such as uptime, speed, and bookablity.
For the 4 years 2013 thru 2016, we significantly increased overall annual technology spending – CapEx and OpEx – approximately $200M on a total base that went from about $750M to nearly $1B. We grew revenues by an even greater amount. That combination is how we achieved benefit from investment in our technology and were able to scale the business for positive, financial operating leverage as well as customer wins.
For 2017, we are consciously focusing our technology investment to drive performance and efficiencies through common technology platforms that enable quicker innovation, the highest levels of stability, and ever increasing levels of security.
So we have a clear, focused strategy to invest in the business, continue to build the appropriate architecture, continue to deploy more open-source and cloud-based solutions, and deliver the right technology solutions for our customers.
Skift: There’s talk in the industry that “full content” distribution agreements between airlines and GDSs like Sabre may be replaced with different agreements.
If so-called “full-content” distribution agreements with airlines evolve into something less than “full content,” logic dictates that Sabre Travel Network would have to give up significant pricing to keep all of the content — or else not have received as much content which would make it less attractive to travel agencies. Let’s say the full-content agreements go away. Should investors not be too worried about that, and if not, why not?
Menke: First of all, we believe that full content generates the best marketplace for agents and travelers alike so that all available options can be easily compared.
Furthermore, from the airline side, the GDS value proposition is as strong as ever. A Bank of America Merrill Lynch analysis issued in 2016 found that GDS pricing has fallen approximately 20 percent over the last ten years, due to the deregulation of the GDS industry and fee structures that incentivized carriers to provide full content offerings via the GDS.
But with that said, while the carriers’ focus over the past several years on driving branded/bundled fares and ancillaries exclusively via direct channels has generated new sources of revenue growth, we believe that opportunity is becoming saturated.
By ignoring indirect channels, carriers now realize they have been leaving money on the table, which is why there has been significant growth in carriers making ancillary and branded fare content available through the GDS.
Tapping into the full potential of indirect channels to sell branded/bundled fares, ancillaries and customized offers – especially to business travelers who are less price sensitive than leisure travelers – provides the opportunity to drive new revenue and growth for airlines.
To help airlines realize the opportunity, Sabre is investing in content acquisition and shopping capabilities while agencies are making investments in their mid/back-office systems to properly ticket and fulfill ancillary and branded fare transactions.
Relying heavily on the direct channel while valuable customers continue to shop via indirect channels also ignores a basic rule of retailing: when a customer has his or her credit card in hand and is ready to spend, let them spend!
Don’t tell them to come back later or go down the street. Make the sale and close the deal. The GDS can facilitate that transaction quickly and efficiently. The explosive growth of mobile is changing the landscape. Consumers want marketplaces.
The Sabre GDS has been the Amazon of travel, and as we see, consumers are embracing marketplaces more than ever. We help our airline partners get in front of consumers wherever they are shopping, at a very low cost of customer acquisition compared to the all-in costs of other tactics.
It’s our job to continue to enhance the value proposition for the Sabre GDS in this e-commerce environment, and we are focused on that and believe it will continue to thrive.
Skift: Sabre also offers a suite of enterprise software solutions for airlines, such as SabreSonic, the reservation system used to by airlines to handle about 789 million annual passengers. What are reasonable expectations for Sabre regarding its chances of winning some of the airlines that process 650 million annual passengers and that are currently running their reservation system on older or internal platforms?
Menke: In Airline Solutions, we own the broadest solutions portfolio in the market spanning reservations, retailing, planning, and operations. With a global customer base of over 225 airlines and our proven ability to serve airlines of all sizes, we believe we have a unique perspective on the evolving needs of our customers.
As large reservations deals come to market over the next five years we believe we will win more than our fair share. But we’re also focused on helping our customers deliver on a vision of the connected airline. By connecting applications and sharing data across solutions, we can tackle the legacy complexity in airline operations and help our customers deliver a better experience for travelers across the entire trip.
If I were to borrow my old airline hat for a second, I think the real way to think about reservations systems moving forward is a holistic approach to distribution.
As carriers look to personalize and customize their offerings, they need to bring together the insights from the direct and indirect channels to have a keener point of view of the customer. Airlines also want to deliver a consistent experience across various channels, and we are in a unique position to deliver that capability at any point of sale.
So we think our GDS expertise and insights can combine with the passenger systems we already provide to give our airline customers more value.
Skift: What is the Sabre Red re-launch about and why is this summer’s re-launch of Sabre Red significant?
Menke: The 2017 global launch of our new Sabre Red Workspace is the first application we are bringing to market on our new Sabre Red Platform.
As the market maker between travel providers and our agency distribution partners, we have collaborated with both sides of the marketplace to ensure we are delivering a customer led, market-leading offering that addresses their collective needs with industry-leading capabilities.
For travel providers, the new Sabre Red Workspace and orchestrated APIs enable them to sell their goods and services the way they want them sold and with a brand experience that is more consistent with their direct offering from base fares, to branded fares, and ancillary products.
For agents, in addition to equipping them with tools and insights to help them retail this broader array of goods and services from travel providers, we are also delivering a world-class user experience to address the changing needs of the agent demographics.
Plus we are improving workflow and automation to efficiently manage and fulfill the increased offerings and complexity while k costs.
I believe it will be a game changer for all parties in the travel distribution system. Its graphical interface and consumer-grade user experience will be tremendous tools for agents.
And I think travel providers will be very happy with how it enables them to sell how they want to sell. We are getting very positive reactions from customers – both airlines and hotels, as well as agents – who are seeing the preview of the technology.
And our successful pursuit of the Flight Centre account last year also gave us valuable feedback and insight to incorporate what agents need and want in a new technology platform.
Skift: Sabre has seen strong revenue gains via its hospitality IT services. What are your goals for that effort in the next few years?
Menke: There is a big opportunity in hospitality, and our goal is to seize it. Even very large lodging companies are using legacy technology that doesn’t support today’s operating complexity. As lodging companies grow and adapt to more consumer and management demands for better technology, they realize that trying to build their systems is no longer efficient.
We have done very, very well in the mid-market segment – medium-sized regional chains. And we were the first to break through with a true enterprise deal in support of Wyndham Hotel Group. We think there is a lot of opportunity in that segment.
We have a digital deal with Carlson Rezidor to support all 1,400 of their properties, and we are in talks at various levels with lots of household brand name hotel operators. I can’t get into specifics, but we feel good about the market opportunities in that sector.
Skift: Is Sabre’s suite of hospitality solutions essentially complete? Or are there still major strategic gaps in value offered that you need to fill in either by building or buying?
Menke: We’ve got a new version of our property management system coming online later this year. That’s our focus at the moment, as that’s what the market has been asking for. The goal is to roll out the update for the select-service market first (think a Marriott Courtyard or Hyatt Place kind of property) and over time roll it up to support full-service hotels which have much greater demands as they manage food service, spas, meetings and events along with lodging.
Beyond property management, there are some other areas where we will continue to expand our current offering, such as business intelligence and analytics, and other areas where we aren’t active today but could see adding in the future, such as in the groups and meetings space parts of the business. Regarding build vs. buy, we’ll continue to do a mix of both as has been the case over the last decade.
Skift: CEOs sometimes have philosophies about how they want to affect company culture. Six Sigma. Test and Learn. Agile development. That sort of thing. Is there one example you can cite that illustrates the spirit of your approach to the CEO job and how you plan to set the pace and tone of Sabre that you can share?
Menke: I recently read a book written by Jim Whitehurst, a former Delta executive who is now the CEO of RedHat, the world’s leading provider of open source software.
Jim transitioned a very structured management environment (airlines) to the open organization that characterizes RedHat. In fact, I’ve asked my management team to read his book “The Open Organization.”
Now I think that a truly open organization probably needs to start that way and retain that culture as it grows – as RedHat did – so it’s much more challenging to get an entire company and all its employees to reverse engineer how they do things.
But every organization can adapt some of the characteristics of an open organization like RedHat around collaboration, decision-making, personal accountability, and creativity.
But I’m also a pretty structured guy. So I like to start meetings with an understanding of the purpose, and I like to end those meetings with a clear understanding of what needs to get done in follow-up, and who is on point to get certain things done.
I’m am also committed to continuing to break down the silos that still exist around the company, which somewhat naturally developed when we operated as a holding company. So for example, our incentive comp program had different formulas for each business unit and staff group.
We’ve just moved to a companywide formula to drive home that we all share in the successes and shortcomings to drive better teamwork and a better understanding of the entire company, rather than a focus on the one specific area in which an employee works.
I’ve shared with our employees my four priorities around which I will manage: commercial growth and leadership; innovation in product and technology; unparalleled teamwork; and impeccable performance. Those aren’t built around slogans or gimmicks. It’s simply laid out as the four areas where we need to excel.
Skift: Finally, can you talk about Sabre’s corporate booking and corporate traveler experience products? What’s the recently revamped strategy there?
Menke: Our focus in the corporate travel space has been usability, and specifically on mobile. Our user experience team conducted hundreds of qualitative usability sessions to evaluate what travelers really want and need from a corporate booking tool.
As a result, GetThere is now a mobile-centric tool that integrates with TripCase and lets travelers book, cancel or change their plans in-trip, which is an industry first. Of course it does what travel managers needs as well, with fraud protection through Virtual Payments, flexible integration with expense providers and travel risk management via SafePoint.
Visa is an excellent example of its success. Before implementing GetThere, they had a 17 percent adoption rate companywide – but within a week of launching their adoption rate spiked to 70 percent. That’s a powerful testament to its appeal to business travelers.
And it gets back to our earlier discussion about what consumers want and how the GDS is a powerful force in delivering frictionless transactions, a great mobile experience and a robust marketplace.
Check out other articles in Skift’s Travel Tech CEO Series, including interviews with the CEOs of Amadeus, Sabre, and Travelport.