Familiarity breeds contempt, they say. Consider the many mundane miracles we take for granted: 110 volts at the flip of a switch, clean water on tap, gasoline on nearly every street corner, supercomputers that fit in the palm of a hand. Another humdrum marvel is online travel. Admittedly, it’s hard to imagine planning a trip as high technology, what with talking lawn ornaments and former starship captains as pitchmen.
Behind the scenes, however, there’s some heavy-duty information science and engineering taking place. And much of the innovation needed to create the online travel industry had its origins right here in Dallas-Fort Worth, where leading players in the industry continue to thrive.
Rick Seaney knows first-hand the technological hurdles that have been overcome to make online travel possible. In 2002, XXI Technoloies, a company led by Seaney, a former oil and gas technologist, and his business partner, Graeme Wallace, was hired by Dallas-based Hotels.com to figure out how to quickly calculate flight fare information for online visitors. The challenge was that each day there were 160 million new airline prices to sort through. That’s right: 16 plus seven zeros.
It took 14 months, but Seaney and Wallace were able to find a solution. Just a few months later, Hotels.com was acquired by Seattle-based Expedia, which scrapped the solution in favor of its own. Rather than throw in the towel, Seaney and Wallace took that technology to build a new system and formed FareCompare.com in 2006. Today the Dallas-based company attracts three million visitors a month, providing what Seaney describes as a Kelley Blue Book or Consumer Reports for airfare prices. There aren’t too many other companies out there doing what FareCompare.com does, Seaney notes. But one of them, ITA Software, made headlines last summer when Google announced it was buying the Massachusetts company for $700 million. The proposed deal caused consternation among online travel companies, including Southlake-based Sabre Holdings.
Joining forces under the banner of FairSearch.org, Sabre, et al., sought to raise public awareness of the deal and pressure the Department of Justice to squelch it on antitrust grounds. ITA technology powers a number of third-party air-fare search engines, and the FairSearch.org members are concerned Google could manipulate search results to its advantage. The Justice department is conducting an extended review of the deal, according to The Wall Street Journal.
Lay of the Land
The ITA scuffle is interesting, says Lorraine Sileo, head of research for Connecticut-based PhocCusWright, but the real question is, “What are they [Google] going to do in the hotel space?” The reason is most online travel agencies, like Travelocity, Expedia, Priceline and Orbitz, “don’t make money on selling air,” she notes. Booking hotels is where the juicy margins are.
The online travel industry will reach $97 billion in 2010 in the U.S. alone, says Sileo. Online air travel accounts for $50 billion, and hotels and lodging adds another $27.7 billion. The remainder is split among car rentals, cruises, and rail.
Airline reservations used to be lucrative for travel agents, Sileo points out. That was until around 2001, when airlines decided they would no longer pay the standard 20 percent commission. The travel industry changed overnight. A key beneficiary of that change was Hotels.com, Sileo says.
Founded by Bob Diener and Dave Litman, Hotels.com launched even before the advent of the web. The Dallas company originally was called Hotel Reservation Network. After it was sold to Expedia, Diener and Litman went looking for their next big opportunity. In 2009 the duo launched Getaroom.com, which, as the name suggests, is focused on hotel reservations.
Both Hotels.com and Getaroom.com were technology-intensive startups, says Diener, but the company had plenty of help thanks to DFW’s strength as a “great tech center.” It is also a hub for innovation by global distribution system (or GDS) companies serving both the hotel and airline industries.
In hotels, Dallas-based Pegasus Solutions was a GDS pioneer, says Diener, calling the company a “central switch” connecting hotels with inventory to online travel agents and other third parties. Pegasus was “instrumental” in getting hotels online, agrees Sileo, noting it was “the way almost all hotels got their first Internet presence.”
In airlines, Sabre Holdings holds bragging rights as the original GDS, with a history that stretches all the way back to the earliest days of computing [see sidebar]. Sabre launched what was one of the very first online travel web sites in 1987, EaasySabre, predating the world wide web. Sabre again introduced revolutionary change to the industry in 1996, when it created Travelocity, says Sileo. Today it may seem like a no-brainer move, but it was a “very risky” thing to do at the time, she notes.
Airlines on Board
Beyond technology and service providers, online travel in DFW has also benefited from the presence of American Airlines and Southwest Airlines. Known, logically enough, as “suppliers” in industry jargon, airlines are the heavyweights of online travel. According to Sileo, 59 percent of all airline tickets are purchased directly from airline sites themselves. The rest are sold through online travel agencies and other third parties, known as metasearch sites.
Well, that’s almost true. Southwest is the exception because it doesn’t make fare information available online to third parties. It’s a point the company has sought to drive home through a recent advertising campaign, says Chris Mainz, a Southwest spokesperson. The exclusivity helps the company better control the customer experience and maintain customer relationships, he explains.
That’s important when 81 percent of Southwest’s passenger revenue in 2010, more than $10 billion, originated through its website, according to SEC filings. The trend is expected to continue, Mainz says. Southwest plans to build on that foundation by adding additional services to its website so visitors can also book hotels and rental cars. The goal is to “become a one-stop shop” for all travel needs, Mainz says.
American Airlines follows the more typical strategy of working with third parties, says Julie Woodside, a manager in charge of online distribution strategy for American. But AA also sees the value in going direct to consumers.
The new phenomenon in online air travel is something called “ancillary services,” Woodside says. Typical ancillaries would include enabling travelers to pay for premium seat selection, boarding priority, one-day airport lounge access, merchandise, and in-flight services. Such services are not currently supported by GDS providers, notes Woodside, so American can only offer them through channels it owns.
Game-changer: Mobile technology
The GDS players are working hard to solve the issues, says Woodside, as on the horizon lies a real game-changer: mobile technology. Emerging mobile applications will allow companies in the travel industry to provide real-time, customized, and geographically relevant services, says PhoCusWright’s Sileo. It’s all part of shaping the travel “experience,” she says. Winners will effectively use technology to inspire and excite before the trip, during it, and after the travelers return home, she forecasts.
Even as all these changes are taking place in the United States, the rest of the world is waking up to the value proposition of online travel. For many years, online travel was slow to catch on internationally because web users were uncomfortable providing credit card information or were more accustomed to using cash. Those patterns are changing, says Sileo, and online travel players see “a lot more room for growth” overseas.
Nearly three quarters of U.S. travelers begin their travel planning online, says Diener. Internationally, that percentage is much lower, but growing. That’s why Getaroom.com is aggressively expanding in Europe, Mexico, and the Caribbean, he says. South America and Asia are next.
Today’s online reservation systems can trace their lineage all the way back to 1959, when IBM and American Airlines, then based in New York City, got together to build SABER (Semi-Automated Business Environment Research).
The idea for the ambitious project took shape from a conversation between two executives during a cross-country flight. It was based on the computer system that helped control the U.S. air defense network in place in those days, called the SAGE (Semi-Automatic Ground Environment) system.
At the time, SABER—later changed to “SABRE” and then “Sabre”—was the single largest commercial order, outside government deals, that IBM had ever received. The cost was $28.5 million.
Based now in Southlake, the enterprise that resulted from all this—Sabre Holdings—has four companies and employs about 9,000 worldwide. The companies are Travelocity, Sabre Travel Network, Sabre Airline Solutions, and Sabre Hospitality Solutions.
In 2007, Sabre Holdings was acquired by affiliates of private investment companies Silver Lake and Fort Worth-based TPG. The purchase price was reportedly about $4.5 billion in cash and the assumption of $550 million in debt.