When is a train like an airplane? When they both use Sabre’s reservation and load management software.
Trains have always been the mode of transportation that has linked the major cities of Europe. Historically, passengers boarded the train at the station and purchased a ticket on the train or right before boarding. That left railroad executives with little data to determine ridership rates.
Airplanes, on the other hand, have a very sophisticated reservation system. They know to calculate their usage rates and use that knowledge to increase ridership. And they can overbook or discount prices to increase passenger utilization.
SNCF, the national railway of France, wanted to take advantage of their airlines’ way of doing things. The impetus was the TGV, the high speed train that links Paris and other international cities like London. SNCF wanted passengers to make reservations for assigned seating on these new trains.
In 1989 SNCF approached Sabre as the TGV train operation was gearing up. SNCF, which became the world’s first railroad to adopt an airlines system, partnered with Sabre to create this unique software system.
Najah Naffah, Sabre’s vice president, rail division, says the project took almost four years to clone its airline systems for the French railroad. One critical aspect of the assignment was SNCF’s goal to create a General Distribution System. (GDS.) This is a generalized computer system that allows the owner, in this case Sabre, to sell its reservation services to travel agents the world over. Currently Sabre operates one of the four GDS systems used for the airline travel.
Keeping The JV On Track
Sabre, which at that time was a division of AMR Corporation, created the software to allow this program to become a GDS for the rail industry. The two companies decided to create a common Application Service Provider (ASP) for this DGS for hosting other rail systems at the SNCF computer center in Lille, France.
The joint venture, which is called ResaRail2000, decided to concentrate its sales efforts on the national rail systems in countries that share a border with France. Currently the Lille computer center hosts the “inventory” of Eurostar, which operates a high-speed train between Paris and London, and Thalys, which runs a high speed train between Paris, Brussels and Amsterdam. The JV provided these customers with the application it hosts at Lille. Other customers include the national rail systems of Belgium and Switzerland, which also access the system to sell products such as Eurostar and Thalys.
The JV partners decided that Sabre could also sell the software to railroads not on its European list of stops. In addition to the licensing fee, Sabre is selling professional services, systems integration and maintenance. Currently its sales staff is marketing aggressively to all high speed train operators worldwide.
Sales Efforts Gaining Momentum Like A Runaway Train
The sales efforts are gaining momentum like a runaway train since the system has proven its worth. For example, the system handles about 10 million messages per day, reserving 150 million journeys per year with planned availability in excess of 99.97 percent. That is a good platform for sales.
While hosting is very profitable for the JV and less costly for the customer, some foreign railway owners, especially those in Asia and the Pacific Rim, are wary about having their application hosted in France. “Someone just needs to be the first one. The ASP needs psychological acceptance. Then the others will follow,” Naffah says.
Naffah labels this joint venture an Economic Interest Group (EIG). This structure allows the two corporations to do business together without creating an independent legal structure with capital and employees. Each partner assigned the appropriate staff to the project. The partners share the revenue, based on booking fees paid by the hosted operators. When Sabre sells the software, it pays a royalty to SNCF, helping to recoup its development costs.
In the decade since the JV started, the two partners have gotten along well with no major disputes. Each side had competencies that blended well with the other. “There’s no competition between the two groups. Just mutual understanding of our respective role: SNCF as a rail operator and Sabre as a technology supplier,” says Naffah. In addition, Sabre’s comprehension of French culture helped. So did SNCF’s understanding of the ASP business model.
This partnership, after 10 years of successful operation, turned into an outsourcing opportunity for Sabre. In 1995 the two parties signed a contract to transfer the software to SNCF so the company could run the reservation system itself. This year SNCF decided to outsource technical maintenance of one functional area known as “Decision Tools” to Sabre.
“They can easily handle the reservation system on their own,” says Naffah. But the Decision Tools portion requires a special technical expertise in operations research that is costly to develop and retain in the railroad industry. This new contract has a five year term.
The ASP platform has been Sabre and SNCF’s high speed ticket to success.
Lessons from the Outsourcing Primer:
- An Economic Interest Group (EIG) allows two companies to move from a customer-supplier relationship to a partner to partner relationship. Then, they can work together to create a new products and develop new business without forming a third corporate entity.
- When competencies complement each other and each party understands the culture of the other, outsourcing relationships bloom. An outsourcing provider can be an ASP and supply traditional outsourcing services at the same time.
- Models and experience from one area can work well and be leveraged for related industries. In this case, an airline model became the basis for a railroad model.