End of an era: AMR Corporation to shift from Sabre to Hewlett-Packard

Henry Harteveldt [Posted by Henry Harteveldt]

In October
1959, American Airlines (AA) and IBM created the precursor to eCommerce with an
electronically based inventory and reservations system. This system grew into
what we now know as Sabre, the first airline computerized reservation system.
Once owned by American Airlines, AMR (AA’s parent) spun off Sabre in 2000. Sabre
Holdings is not only the one of the largest travel technology firms, but one of
the largest private-sector transaction processing systems in the world,
regardless of industry

AMR and
Sabre are so intertwined that it’s hard to imagine one
without the other -- kind of like "Cher" and "farewell tour.". And yet on August 26, 2009, AMR called off the central part of its Sabre relationship, announcing it would sign a letter of intent with

Hewlett-Packard

(HP) to
develop a new, “next-generation” Passenger Services System (PSS) called Jetstream. Jetstream will take over many of the functions that AMR currently runs on Sabre.

As outlined
by Monte
Ford
, American’s CIO, Jetstream will allow AMR to “meet the customer where
the customer wants to be met." Among the applications that Jetstream will run, for
both American and its regional airline affiliate American Eagle, are:

  • Reservations
  • Airport departure control
    system (DCS)
  • Baggage service
  • Scheduling
  • Pricing/faring
  • Revenue management

Jetstream’s
benefits include

  • Being based on “open source”
    applications. Jetstream will make use of service oriented architecture (SOA) and,
    as feasible, cloud computing. This means lower development costs and
    faster time to market.
  • Jetstream will be developed in
    a modular manner. This "building block" approach will enable faster implementation, give AMR the ability to
    sunset legacy systems or applications as new Jetstream modules are
    introduced (helps AMR reduce operating costs), and allow AMR to pace its
    capital expenditures – a not-insignificant factor, considering that
    Jetstream will probably cost AMR several hundred million dollars to
    develop. A modular product benefits HP, too, since it can offer the whole
    system or just components to other airline clients.
  • Providing AMR with a more “customer centric” perspective, rather than the traditional airline/travel industry
    approach, which is based on individual passenger name records (PNRs). This
    will provide AMR with what Mr. Ford called a “single view of the truth” for
    planning, marketing, and operational decision-making, from front-line employees
    up to corporate execs. Jetstream will provide AMR with a single, consolidated gateway to the operational, business, and archival data it needs to make well-informed decisions. AMR, already a sophisticated data user, will have the ability to be better at what it does. Currently, most airlines have to pull data from multiple systems and databases. Consolidating and aligning the data will provide greater clarity and consistency of the information.
  • The ability to interface across the AA enterprise,
    including all of its channels: Call centers, Web sites, kiosks – even the new handheld
    devices
    AA employees are testing at Boston Logan International Airport.

Jetstream makes HP a major airline
IT player

HP is no
stranger to travel technology systems. Its NonStop servers power airline
systems including, perhaps ironically, Sabre’s fare shopping engine. HP and AMR
are no strangers to one another, either – the two have been working together
for 10 years.

Still,
there’s no question that what helped HP clinch this deal was its May 2008
acquisition
of EDS (which closed August 26, 2008). Why? EDS owns an airline
reservations system, SHARES, and has been developing the framework of a new PSS – no
doubt the foundation for what will become Jetstream. EDS also has a strong coterie
of airline industry technology professionals in its ranks. All of this clearly added to
HP’s strengths by providing useful domain expertise and additional insight into
the complex nature of airline reservations, sales, and service technology systems.
Jetstream catapults HP to the forefront of travel technology providers,
providing a formidable new competitor to the traditional travel IT leaders,
including Accenture (which owns the Navitaire reservations system), Amadeus,
IBM, ITA Software, SITA, Travelport GDS and, of course, Sabre.

By the way,
Sabre’s not totally out of the AMR technology picture. Mr. Ford stated in his August 26, 2009
press call that AMR would continue to work with Sabre for flight operations and similar other types of applications.
However, because EDS/HP manages aspects of Sabre data centers, you know there’s
some awkwardness there. Also, what’s not yet been decided – or at least publicly
disclosed – is the fate of AMR’s Tulsa data center.

Forrester’s take

What AMR and HP are about to commence upon is the technology equivalent to a team of doctors simultaneously
doing a brain transplant, heart transplant, and extensive corrective surgery.
The systems that AMR will move to Jetstream literally represent the brains and
heart of the airline. This is not an undertaking for the weak and squeamish.
It’s a gutsy, but smart move for AMR to make. Mind you, that's not a reflection of Sabre. Sabre, HP, and Amadeus, which was another contender for the contract are each excellent technology providers. We commend AMR for recognizing it has to make the
investment in this new technology solution to be a smarter, better, more agile competitor.
Given that all airlines fly the same aircraft, tend to serve the same markets,
offer fairly similar products and charge about the same, technology is an
increasingly important competitive tool

Finally,
the Jetstream announcement includes a nice piece of airline geek trivia:
“Jetstream” was the name TWA applied to its Lockheed
L-1649A Starliners
(one of the last versions of the elegant Lockheed
Constellation). TWA’s assets, of course, were acquired by AMR in 2001. What
goes around...

So what do you think of AMR's decision? Did it come as a surprise? And did you expect HP to be the winning partner? I'd enjoy learning your thoughts

As always, thanks for your time.


Comments

re: End of an era: AMR Corporation to shift from Sabre to Hewle

The only reason I found the announcement surprising is that AA already has the best customer-facing technology among airlines I've flown. It's impressive that they want to preemptively take a large jump ahead.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Excellent analysis Henry. I also found it interesting that in the official press release there was no mention of EDS at all, only HP. This despite the fact that EDS software and staff are at the very core of the HP solution. This seems a strong indication that HP intends to sunset the EDS brand.Changing reservations platforms is a long and very expensive process. Hopefully AA will enjoy enough financial health (and professional services support) to enable this project to be execute on schedule.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Nice analysis, Henry. To your question, I don't find it particularly surprising though. As you point out, the first version of the system was launched in 1959 and has grown and evolved over the years. I suspect that the system had grown extremly unwieldy in 50 years and as new demands are placed on the old system, the costs of these new apps can be extremely high given the systems' antiquated architecture.HP/EDS is surprising to the extent that Sabre is their existing supplier. However, EDS has developed considerable expertise in the airline industry. For example, they were the outsourcing provider for Lufthansa and had even launched a joint venture with them (don't know if the JV still exists).This notion of a "single version of the truth" is one that I am seeing more and more. When HP announced its own investment in its proprietary BI system, NeoView, Mark Hurd also talked about a similar idea. Even when companies implemented ERP systems, they allowed multiple instances, or the original architecture was compromised by acquisitions.In a time when agility and flexibility are paramount, having accurate unified data is critical. To me, the surprising element is why companies haven't recognized this before.Regarding your point about multiple and simultaneous transplants, is this really the case? They seem to be using a phased and modular strategy which should allow some reasonable risk management.On a speculative note, maybe HP should buy Sabre as well.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Relevent also is the fact that Sabre (the company) long ago (2001) sold its AA and US Airways SABRE system hosting business to EDS, the operator at the time of SHARES. My view is that was really the day that AA said goodbye to Sabre and this is the outcome of the train of events set in place when AA spun off Sabre.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

what amazes me is that no one, absolutely no one is talking about how EDS got state legislators involved when things were leaning towards Amadeus. It is no secret that AA had consider the potential PR wreck had they gone to a foreign provider -- thus shipping millions of development and implementation dollars overseas. Even if Ford/Arpey wanted to pick the better solution, they just couldn't defend the decision. Let's face it - it wouldn't be very "American" to do that given the current economic conditions.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Hi all,Sorry, I should have been more on the ball re: responding to your comments sooner.@Colin, AMR has always recognized the value of technology to the business. We haven't done a formal assessment of different airlines overall technologies. Two years ago we named AA.com as the best airline Web site among the top US carriers. AA also is one of the savviest, smartest users of revenue management applications. What's impressive is that AMR is choosing to invest in one of the most complex, far-reaching and, frankly, risky IT/business strategy projects at this time. It would have been perfectly easy (and understandable) for AMR's Exec Committee to say "Yes, we know we need to do this. Yes, we want to do this. But let's wait until the economy improves."@Steve, I don't know why the press release did not mention EDS. I am not familiar with the branding strategy HP is using regarding EDS. IIRC, EDS was discussed in the media conference as a contributing factor to HP's strength.@Vijay, re: your question about the phased approach - yes, they are doing a modular approach. The complexity of what AMR wants to do is akin to the heart transplant, brain transplant, etc. I guess I shouldn't have said they'd be doing all that "simultaneously." Re: your point about HP buying Sabre -- that certainly would be interesting, wouldn't it? I don't see that happening, though. Too expensive, and I'm not sure what Sabre would bring to HP that HP lacks, but needs.@Phil, I agree with you. Sabre contributed to this decision back in 2001 with its decision to outsource so much of its operation to EDS.@Greg, I am not familiar with any of the HP/EDS political efforts re: this contract. I can't comment on that. I'm not so sure that AMR focused on the nationality of the two firms. After all, until last week AA used to fly Airbus A300 aircraft. Plus, American Eagle flies aircraft built abroad as well (e.g., ATR, EMBRAER). Amadeus bought the former SystemOne CRS/GDS from Texas Air Corporation (former parent of Continental Airlines and Eastern Airlines). Amadeus' North American HQ remains in Miami, and it's opened an office in Chicago to service United Airlines as it (ever so slowly) shifts to the Star Alliance Common IT platform. Plus Amadeus has bought some smaller niche airline/travel companies in the US (Airline Automation Inc., Vacation.com). As a result, Amadeus employs a sizable number of people in the US, though clearly its US employment is far smaller than the number of people it employs in Europe.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

@Greg, I just heard from Amadeus that they employ approximately 700 people in the US. Far smaller than HP, of course. I believe that if US employment was a critically important decision factor, though, Sabre would not have been ruled out of the race several months ago.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Dennis Schaal, Travel Weekly's tech editor, has a post about the AMR-HP decision on his blog as well.http://dennisschaal.blogspot.com/2009/08/amadeus-common-it-platform-may-have.html

re: End of an era: AMR Corporation to shift from Sabre to Hewle

Interesting analysis. I don't think you appreciate the actual complexities of what HP/AA are undertaking though. Rather than 'heart transplant' etc. think more creating a new heart from scratch (using different materials and with no existing blueprint to copy). The move away from powerful mainframes with highly efficient software, 'battle-hardened' over decades towards unix-based systems requires extremely careful architecture decisions and a total rethink in terms of the way the airline applications operate and, crucially, interoperate. The 4 year timeframe quoted is highly optimistic and is likely to mean the first small piece of the puzzle being implemented on an open systems architecture, certainly not a fully functioning and 'full function' airline system.

re: End of an era: AMR Corporation to shift from Sabre to Hewle

The desire by several large airlines has been for some time to re-platform their CRS/GDS systems - for both operational and financial reasons.AA sold Sabre to EDS, UA sold Apollo/Galileo Travelport, DL/NW sold Worldspan to Travelport and NW sold their stake in Navitaire (PRA Solutions at the time) to Accenture.The DL - Priceline deal turned an $18m investment into $1.34B.Honestly, the US majors have made more money and profits from IT than they have from pax and cargo.Of course now all of that free cash flow is going to Private Equity Firms - Blackstone, TPG and Silverlake - along with AA pension money via American Beacon (Doug Herring was running - now he's back working for Bob Reding).So, although this is tantamount to simultaneous brain/heart/liver&kidney surgery - there is a pot of gold at the end of the rainbow - if they are successful.And THAT is the motivation for Arpey and Ford.I've seen the tech arch for both the new Sabre CRS/GDS system and AirSOA (EDS's next gen of SHARES) - my bet is on Sabre delivering first - better and cheaper.So have you seen what DL / Dr. Theresa Wise is "focused" on? Future Operations Communications & Information System (FOCIS) http://www.flightglobal.com/blogs/runway-girl/2009/07/exclusive-deltas-focis-initiat.htmlSo while AA focuses on CRS/GDS - DL is going to re-invent Flt / Tech Ops/MRO.Maybe that's why Monte Ford / Arpy / Reding / Hearing killed project Motega - the next gen Operations & MRO IT project.AA focuses on CRS/GDS and DL focuses on Flt/Tech Ops / MRO - and the competition is limited since they aren't going head to head.One way or another - there's more profits and cash flow there (IT) than there will ever be in pax.