The aim of this essay is to provide an analysis of the SABRE reservation system produced by American Airlines, demonstrating how Business Information Systems (BIS) can be used to gain a strategic advantage. This will be achieved by describing the overall approach adopted by American Airlines and how SABRE provided them with a competitive advantage. The factors that led American Airlines losing their competitive advantage will also be discussed.
One of the key factors in providing customers with an optimal service is ensuring convenience, flow of information, saving time, and the efficient use of available customer service resources.
On the other hand, in times of strict competition it is highly necessary for businesses to be able to provide such services at the lowest cost and in the most convenient manner possible (Linoff and Barry, 2011).
In order to help businesses with customer management, there are now customer management software programs which enable individuals and businesses to organise all their information and retain useful information quickly and efficiently.
Such programs help perform functions such as revenue management, making optimal pricing decisions, managing customer loyalty programs, customer profiling, and bookings and reservations, amongst many other options (Linoff and Barry, 2011).
One such system, introduced by American Airlines in the 1960’s, is the SABRE reservation system. SABRE, which is an acronym for ‘Semi-Automated Business Research Environment,’ was the first information system of its kind and was the result of a joint venture between IBM and American Airlines. Initially, it was used as an electronic reservations system and replaced the old manual procedure of hand-written reservations.
This enabled American Airlines to quickly and efficiently manage its reservations through a computer-based application (Duliba et al., 2001). The initial instalment of the system cost approximately $40 million (£25 million) and was nearly as advanced as the system held by the US government. This was a major advancement for American Airlines as one of the key areas of its business process was now automated, making other functions simpler.
In the following years, new applications were added to SABRE, which laid the framework for efficient procedures in revenue management, optimal pricing decisions, scheduling of flights, cargo and inventory management, crew rotation, and various other flight operations. More recently, e-commerce applications and a selection of hotels, car rental agencies, travel agencies, and other travel and entertainment businesses have been added to the system to enable access to wider areas of related industries with a simple click of a mouse (Varian, 2010).
As it became one of the largest data-processing facilities the in airline industry, the system was installed in various travel agencies around the US and Canada in the 1970’s and began to automate the travel industry. Over one million fares were recorded in the system, making operations at a travel agency more efficient and enabling American Airlines to easily inform travel agents about changes in fares and the available options. Applications such as BargainFinderSM, easySabre, Sabre Airline Solutions, Sabre Sonic, Sabre eVoya, and others were added to the system making it one of the biggest and most widespread business applications available (Central American Common Market, CACM, 2009). SABRE gave American Airlines a competitive edge and delivered many great benefits to the company.
All processes became more efficient, information was dispersed widely, and American Airlines quickly gained sales and recognition amongst its customers. Customers were provided with the opportunity to consider a number of options available to them via one system, which they would previously have been unable to obtain. Customers now had the possibility of accessing exclusive offers, booking tickets to various destinations while comparing fares, and managing hotel, car, and other bookings via one system. In the same manner, American Airlines was able to find optimal prices for selling each seat, quickly manage their flight schedules and employee rotation, and distribute information to travel agents quickly, thus enabling them to sell American Airlines tickets on a larger scale (Burgelman et al., 2008).
Since this system was unavailable to other airline companies, American Airlines gained a prominent advantage in cost leadership, innovation, and product differentiation. Cost leadership means that American Airlines was able to save excessive costs and provide the same services to its customers as other airlines at a lower price, or provide greater value for the price offered. Since the SABRE Reservations System provided American Airlines with ample convenience and information dispersion, it enabled the company to save approximately 30% of its costs on staff (Burgelman et al., 2008). This was because less staff were now needed to perform specific functions, as the system enabled the easy performance of the same functions at a more efficient pace.
The application of Sabre Airline Solutions allowed for new methods of revenue management and the maximisation of airline income, while also providing services such as yield management and crew rotation. This enabled the airlines to reduce costs and provide efficient services at a lower cost than competitors. It also provided customers with options such as the BargainFinder, which helped them find bargain prices in fares and included an application which gave American Airlines the possibility to set fare prices while comparing their own prices to competitors. Hence, with all of the information available, it was easy for American Airlines to obtain an advantage in cost leadership by reducing its own costs and providing customers with more valued service (Melville and Ross, 2010).
Innovation was one of the main competitive strengths that American Airlines capitalised on as it was the pioneer user of the SABRE system. This new innovative technology gave them the chance to begin practices that no other company could offer or had offered in the past. Giving customers a personalised service and the possibilityof accessing their bookings, reservations, and all travel arrangements in one place while saving costs was a highly innovative feature of the SABRE reservation system (Melville and Ross, 2010).
The concept of innovation refers to creating something new or making changes to existing products, and American Airlines was able to capitalise on their innovative product by adding new features such as the previously mentioned BargainFinder, Sabre Airline Solutions, and easySabre. These options and new features added to the innovational aspect of American Airlines as they were always providing their customers and themselves with new options and new services. Hence, American Airlines was able to offer new services and features regularly (Stair and Reynolds, 2012). Through the use of the SABRE system, product differentiation was also achieved as American Airlines was able to offer its customers products that differed from other airlines.
Offers were made exclusively to certain customers and the various available applications were customised and differentiated to serve the needs of specific customer segments. Applications enabled customers who wanted cheap bargains to find economical prices, book vacations with hotel and car accommodation, and find and purchase certain items all in one place. Moreover, the customer relationship management tool easySabre enabled a personalised service for each customer, offering them choices and information according to their personal needs. Hence, American Airlines gained a competitive advantage in product differentiation (Stair and Reynolds, 2012).
Competitive advantage refers to the special edge or the benefit that a company may have in relation to its competitors. With SABRE, American Airlines had an edge over its competitors because it was the first company that possessed an extensive and technologically advanced information system. The system offered benefits such as reduced costs and communication channels that no other company had. In addition, organisational functions and revenue management facilities enabled the company to be more efficient and effectively target its customers by offering a personalised service. Hence, American Airlines was the most connected company amongst all of its competitors and was able to offer and utilise services from an information system that was not available to other companies (Bocji et al., 2009).
With the use of SABRE, and having all information regarding competitors at their disposal, American Airlines had the advantage of creating barriers to entry and cost leadership which made it difficult for other companies to compete in the airline industry. The existing firms also faced increased competition from American Airlines, which made their survival extremely difficult (Power and Shards, 2009).
With the above in mind, it has been demonstrated that American Airlines used their reservation system to gain competitive advantage in a number of ways: reducing costs relative to their competitors; differentiating products to offer personalised services; creating and enhancing new features and options to the system; introducing high switching costs for customers so that they would become used to using the Sabre system; laying expensive barriers to entry for competitors; and, making alliances with IBM in creating the system ( Sabre Airline Solutions, 2012).
In the 1980’s, SABRE emerged as a separate company whose shares were sold on the stock exchange and became separate identity from American Airlines, possibly marking the end of American Airlines’ competitive advantage and leading to the rise of problematic issues between the two organisations. It became clear that the competitive advantage of American Airlines was not permanent as the market position of the company began to deteriorate with time. Issues occurred when other companies gained access to the system and it became connected to a number of travel agents and airlines. However, once incentives such as the cancellation of commissions for travel agents were removed by American Airlines, many travel agents and websites began to hide the fares offered by American Airlines and chose not to display them.
As a consequence, many travel agents today may find themselves pushed out of business as they are unable to sell American Airline fares because of the prevailing dispute between Sabre and American Airlines (Sabre Airline Solutions, 2012). While the SABRE system has expanded to give access to other airlines and is used to connect travel agents everywhere and disperse information worldwide, American Airlines has lost its main competitive advantage and is unable to use the system as an exclusively innovative technology. However, if American Airlines refuses to sell its tickets via the system because of the loss of trust between the two companies, it will harm the business of travel agencies all over the world, risking the popularity of SABRE (Sabre Holdings, 2012).
American Airlines may plan to retaliate against the loss of trust between the two organisations by adopting another information system. This may cause Sabre a great loss, while American Airlines may also incur new switching costs for adopting a new system and enabling travel agents to access the same software as them. However, Sabre may seek to resolve the issues between American Airlines and itself before their contract ends in August; thus, American Airlines may be able to retain their use of the system they originally launched (Curtis and Cobham, 2009; Reinartz et al., 2004).
This essay has demonstrated that the importance and utility of information systems may last a long time, until the systems become obsolete and do not fulfil their purpose. However, it is difficult to sustain the competitive advantage of a system in the contemporary business environment as other companies may gain easy access to the system and the technology may become widespread faster than expected (Curtis and Cobham, 2009). Therefore, while American Airlines initially gained advantage from the initial implementation of the system in the 1960’s, they were unable to sustain this competitive advantage in an era of technological advancement.
While Sabre connected other companies to the system and travel agents used it to find the cheapest fares comparative to all airline providers, other companies also began to gain benefits from the system (Payne and Frow, 2005). As Sabre began to sell its stocks publicly and became a separate company, it began to seek its own interests and charge booking fees to airline providers that listed their fares on their system. As American Airlines wanted to prevent such unnecessary costs, issues arose between the Sabre system and the airline service provider (Boody et al., 2009)
In conclusion, competitive advantages do not last permanently and in the current business environment advantages gained from technology often have a short life cycle. Companies usually must continue to innovate in other areas to sustain such advantages or enhance their position by using better and more advanced technology than what they are currently using. Since American Airlines lost control of the SABRE reservation system, they were unable to sustain their competitive advantage and keep barriers to entry erect for other firms. Nevertheless, they still have a strong position in the Sabre-American Airlines dispute and may be able to regain their former position.
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