On Airlines, GDSs, and Reach

We have all heard the stories of Bill Hewlett and Dave Packard developing HP in their garage, or Ray Kroc founding McDonald's after an especially large order of restaurant mixers. The story of the GDSs is just as interesting, and it calls into question exactly which entity--the airline or the GDS--has the greater effect on the reach of the other.
The first GDS was installed in a travel agency in 1976, catapulting the airline industry into the age of electronic distribution. American Airlines created the original GDS, SABRE (i.e. "Semi-Automated Business Research Environment"), as an extension of the first-of-its-kind internal reservations system that had been developed several years earlier as a follow-on to a chance meeting between American's C.R. Smith and IBM's Blair Smith. Travel agents could more easily access, book, and purchase fares on American's flights, making the technology a competitive advantage for both the travel agency and American. American believed that the competitive advantage was so lucrative that it was willing to fund the travel agencies' technological infrastructure and pay an additional financial incentive for each segment booked in the new system.

American's senior executives visited travel agency partners near and far to proclaim the benefits of using the Sabre GDS. Many of our longstanding travel agency partners no doubt remember (sometimes intense!) personal visits by American legends Hopper, Bob Crandall, Arnold Grossman, and Peter Dolara. Indeed, some of these agencies still enjoy a relationship with the same American Sales Account Manager who helped sell them Sabre way back when. American grew Sabre in every market that it entered, starting in the United States and then expanding to make Sabre the leading GDS in all of the Americas.

As you look at the genealogy of the few remaining GDSs, you see a similar story. The GDSs remain most dominant in the countries or regions of their founding airlines. Where a strong relationship exists between an airline and a travel agency, the travel agency's choice of GDS is predictable.

This raises the question whether the GDSs could have effectively expanded or maintained their reach if they were unable to provide the most valuable content from important carriers. The interdependency of airlines and GDSs has not been seriously tested since the GDSs' creation, as the legacy GDS business model has been protected by regulation and pervasive full content agreements post-deregulation. The coming years may bring the first true test to GDS reach, as the same changes that have already revolutionized how the end customer purchases travel promises to revolutionize the way travel agencies interact with airlines and other suppliers. As technology alternatives for travel agencies and airlines continue to become more sophisticated and outpace legacy technology, we may at last learn which entity has been more instrumental in adding reach to the other.

This post was republished with permission from American Airlines' Distribution blog.