Tom Klein has been working in the travel industry for more than half of his life, and will continue doing it as Sabre’s CEO for the rest of this year, when he will step down.
Klein gave a big picture of view of how he sees the industry at Sabre's annual customer conference Technology & Travel Exchange in Miami this week. Here are some highlights, excerpted for brevity.
On ancillaries being tapped out
Ancillary revenues have been between $60 billion and $80 billion per year over the last couple of years. The growth in that has tapped out.
Most of that is baggage fees.
Airlines began charging for paid seats… But there are only so many paid seats on a plane that can be sold…. It’s getting tapped out.
Roughly 90% of that $60 to $80 billion is sold in direct channel and it is generally lower fare travelers buying them.
For airlines to grow, the next phase of ancillary has to be sold through the indirect channel. The growth has to be in things that are more attractive to the more premium traveler….
It will also be incumbent for suppliers to incentify the indirect channels to sell these ancillaries…..
That growth is going to add complexity. Complexity is generally the friend of intermediaries. The more complex the product, the more complex it is to comparison shop, and the more you want an experienced intermediator.
There are a few other things that are going to drive complexity in the airline industry further.
One of them is airlines are now thinking about revenue-managing across the broad network. That doesn't just include their airline only, but also includes all of their partners as well.
They're thinking about how do I optimize and how do I schedule and how do I create partnerships and how do I think of my network as a virtual network as opposed to my network connecting to somebody else's network and having pretty thick seams in between them.
We're thinking about seamless revenue management; seamless scheduling across multiple airlines.
Airlines are also rethinking loyalty…. Some airlines are saying it means the people who pay me the most, not the people that fly the most.
They're looking at total revenue optimization. Historically for airlines, revenue management is based on the base fare.
Our next generation tool for airlines for revenue optimization is the holistic revenue optimizer that looks at a traveler's history and then starts to break it down and try to make informed decisions about how do you value one traveler versus another or types of travelers based on the history of what they might spend holistically, not just what they might spend on the base fare.
Airlines are having conversations with us about their internal technology, about us provisioning that.
On tours and activities as an opportunity
For travel agents, the missed opportunity is to stay connected with their customers during the trip. They ought to take the place of not only concierges but also of that static itinerary that a lot of travelers get today.
It's going to be incumbent on leisure travel agents and travel advisors to stay connected to travelers and to help them fill in the whitespace on their itineraries while their customers are in-destination.
Agents need to recommend experiences on the fly. The last thing travelers want to do is go back and spend 45 minutes in their room trying to book something for tomorrow because they heard it might be full.
They can instead depend on you and you can make money filling out that itinerary.
(When Tnooz followed up by asking if Sabre was interested in tours-and-activities content, Klein said:)
Right now, we're really focused on making sure we have the pipes in place to help agents stay connected to travelers....
Having the plumbing in place, the content doesn't necessarily have to actually reside in the system. We could charge a small toll for passing through content, and that's probably a better model.
Price-driven travelers that were really benefiting from review sites like TripAdvisor are starting to say, "You know what? I can't spend as much but I want a unique experience, too. I don't want to go where everybody else goes. I don't want to just go to the number-one rated TripAdvisor attraction."
Let me give you an example. It’s about a hotel concierge. I was recently standing in line behind another couple, an American couple in Vienna.
I don't know Vienna well at all but the concierge at the hotel in Vienna said to the couple, as he was talking about a restaurant, “Go see such-and-such. It's the number-two rated Trip Advisor restaurant."
The couple left and I said to him, "You're not going to have a job if you keep doing that. That's too easy. Anybody can look that up. What's unique in Vienna? What different about Vienna?"
On hotel competition
In the hotel business, there's not agreement on who the competitor is. An independent hotel like the Fontainebleau in Miami might view a group of hotels as a competitor.
The small brands, say a Mandarin Oriental or a Shangri-La, might view the luxury brands inside the Marriott or Hilton families as their competitors.
Hilton and Marriott, increasingly, think about the companies who distribute their product the most as their potential competitors.
While they have big relationships with Expedia or with Booking.com, they view them as competitors, too. Their behavior in the marketplace demonstrates that.
The major chains view major OTAs as competitors because those companies are filling almost as many rooms at some properties as the brands themselves. That's the first thing.
The biggest brands are going to think about their competitor in a way that's much more reliant on competing from a digital marketing perspective, competing from a customer relationship perspective.
The smaller brands are going to have to leverage technology providers, and we're a big one in that segment, to give them the same kind of scale and the same type of capabilities as the big brands....
On hotel tech investment
Just like the airlines, the hotels are coming out of a really great cycle, a really positive cycle. Financial analysts and the hoteliers themselves are saying that we're going to enter either a flattened or down cycle in hotels.
That said, hoteliers are still going to refresh their technology.
The primary place they're going to spend time is in getting digital marketing out to the customer -- to expand their ability to, again, sell more products and to change the customer experience while they're mid-trip and on the property.
How many unit points of failure there are in a thousand-room property, where guests are asking for services and trying to get things done? Digital tools to help solve for that is where hotels are going to spend money.
We're seeing a lot of venture capital and a lot of startups coming into the industry, primarily with on-property innovation.
Again, with the down cycle or flat cycle, hoteliers will be more dependent on distributors to find people to fill their hotels. Down cycles are generally good for intermediators as suppliers use price discounting to stimulate demand.
On OTAs and Google
These are vast digital marketing machines. They're outspending any direct brands… and even the biggest brands… by a factor of 9 or 10 or 15 times from a marketing perspective.
The biggest OTAs are spending almost $2 billion a year on Google. Not many direct brands can keep up with that.
That spend is going to allow them to know the customer better than any single brand ever can. They have a bigger view of what the customer is shopping for. They have, in many cases, more and more repeat customers and a better view of history across multiple segments of travel.
They're dong a better job of using that data and really getting into understanding what customers need and want.
This is not a channel for just low-fare or low-room-price customers. This is a channel that is increasingly getting smart about customers and what they want.
Again, whether you're a supplier or whether you're a traditional travel agency, you need to think about these entities differently. They are, again, just vast marketing machines and they don't view their competitors as other people in the travel industry.
They view their potential competitors being the platform players: Google, Apple, Alibaba.
They're banking on their deep vertical expertise in travel to allow them to continue to be successful.
I actually think that's right. Travel is complex. Travel is messy. Travel is not 90% margin like many of the businesses that Google and Facebook and others are in.
This is a tough business and the deep vertical expertise, the customer insights, the customer data that the OTAs are collecting, I think, gives them a big competitive edge against the platform players.
When it comes to the big platform players, I think they'll increasingly, again, learn how to spend money with those players to optimize their sites.
On corporate travel
I want to talk about a trend that isn’t talked about a lot in the travel industry. We need to take heed of the fact that organizations are increasingly focused on data about their people. ...
Companies have always said people are their most important asset. There is a high level of disbelief by people in organizations but the people at the top believe that's true.
But today, in our talent-starved world, it really is the most critical thing for any company executive to do, to focus on talent acquisition and retraining and where we're getting it, how we care for them, how we keep them safe but also how we keep them efficient and how we measure outcomes.
In travel, this goes beyond the legal requirements of duty of care. Caring for the people, keeping them safe, keeping them efficient, measuring successful outcomes, those are the things that I think are going to drive corporate travel going forward.
The cost control that we see today will not be an expense-led discussion. It will be a trip-led discussion and a travel-led discussion.
That means that we've seen this 10-year trend where travel really was in a procurement track. It reports up to the CFO. It's about expense.
That will soon be balanced where travel will become as much of an interest of the chief human resource officer, not just the chief financial officer. Again, it will be an holistic view that's trip-centered, not expense-centered.
On what you should expect from Sabre
We want to advance the business intelligence and data analysis capability of every product and make sure the data and recommendations are relevant to you, no matter what job you have in the company.
Whether you're the CEO of the travel company or whether you're a front-line agent, we should do something that gives you better insights to your business or better insights into your customers that is presented in a way that's easy to act upon.
That goal is in the mind of every product manager for every product across our portfolio, whether it's for airlines or hotels or travel agents….
Usability and design is another key thing to look to Sabre for. Business software has historically failed at this. Historically, business-to-business technology was driven by efficiency and it was driven by cost point and it was driven by functional capabilities.
That's no longer good enough.
We have to be great in user experience and design capabilities. We're making big investments here. Every product that goes out the door, we're looking for it to be not just designed beautifully but to also advance the user experience in a meaningful way.
We're implementing some really state-of-the-art capabilities internally at Sabre that are business to business offering tools from another company. When I look at those tools, they are not beautifully designed.
Our people and our teams still complain about them. They're orders of magnitude better than what we had before. But it’s still not beautifully designed.
Certainly, as our workforce demographic changes, the expectation is for software that looks like what we use every day as consumers.
Finally, Sabre Red Workspace. You're going to see a lot about it and hear a lot about it.
It is targeted to be a distribution platform that's very broad and that's agnostic to innovation, meaning that whether it's a developer, whether it's a competitor, whether it's a travel agency that wants to develop into the platform to create better services for our customers an your customers, we want that platform to be flexible enough to do that. We want it to be an agnostic foundation.
On artificial intelligence and machine learning
There are robotic concierges coming. People are working on it today, using technologies like IBM Watson technologies to create an electronic recommendation engine for concierges.
Artificial intelligence does have applications in travel because, again, the industry is so complex and there are so many things that all of us do every day that just require too much manual handling, too much time on the phone, too much time trying to track people down to either put a trip back together or to create an experience that you need for customers.
There are artificial intelligence capabilities that will start creeping into our industry that will start to solve some of those problems for us and take workload off of us so that we can do some of the things like I mentioned earlier like create itineraries on the fly while the traveler is out taking the trip.
On working for a GDS
I'm not too sensitive about it after 20-some odd years, but people take shots at the GDS. They say the technology is old.
We've been around for a long time but we get more and more messages per minute than Uber does. More dollar volume buying happens in the Sabre travel marketplace than Amazon does around the world. You can't do that with old technology.
You have to have genius technology, both on the software side and on the data side. You can't operate at the scale that we operate and the speed that we operate without having state-of-the-art technology.
The GDS challenge is to provide generally seamless buying. That means, we have to sell the product the way the supplier wants to sell it but make it easy for travel agencies to compare and to provide their customer with the product that they want.
On Lufthansa's Euro 16 booking fee for the GDS channel
Their more important problems include labor issues, and a Star Alliance partner, Turkish Airlines, that has growth aspirations and, frankly, in many cases, a better product, given their class.
They also have Ryanair flying into Germany with good access to the market, and underpricing their low-cost airlines, Germanwings and Eurowings.
The direct distribution aspect of their strategy doesn't solve any of their most important problems as an airline.
Earlier: Sabre CEO Tom Klein to step down
Sabre gives a peek at the 2017 refresh of its agency desktop
NB: Disclosure – author’s attendance was supported by Sabre.