Nearly a year ago, Sean Menke became president of Sabre Travel Network, the tech giant’s global distribution system (GDS).
Earlier in his career, Menke was COO at Hawaiian Airlines, CEO at Frontier, and COO at Air Canada. That background gives him insight into how airline executives think about distribution.
We caught up with Menke recently to find out what’s new. This interview has been edited for brevity.
Tnooz: In your past life, you were COO at Hawaiian Airlines and CEO at Frontier. How did that airline background prep you for your current gig?
Menke: I was the chief commercial officer at Air Canada in 2005, and the president and CEO of Air Canada was a gentleman by the name of Montie Brewer.
I had worked for Montie at United when I was a young analyst. I spoke to Montie about what they were trying to do there and ended up going to Air Canada.
Montie’s work was the foundation relative to my views on distribution but more specifically on just how to make airlines work at the end of the day.
Or trying to figure out how they work, because I don’t know if they ever really work.
They’re just a difficult beast, be it labor, be it fuel, be it regulatory. It’s one thing or another.
For me when I look at that experience, you know, the Frontier experience as well as just the Hawaiian experience, the best thing that I’ll leave you with is people always wonder from a sales and distribution side of the equation why isn’t there more time and attention focused on it.
But there are so many things that are going on for a CEO or COO. They’re distracted by other urgent matters, is what it boils down to….
Tnooz: So what is on airline CEO minds right now that outsiders may not appreciate?
Menke: When you look at suppliers, specifically the airline side of the equation, your net revenues are coming down.
If you look at the shift from indirect to direct, that’s completely flattened out.
They’re trying to figure out how they drive more revenue is what it boils down to.
Tnooz: What’s changed?
Menke: Specifically on the airline supplier side of the equation is that there’s been an evolution in distribution.
What has transpired is it has become more complicated. When you introduce branded fares, when you introduce ancillaries, when you begin to continue to grow on a codeshare basis, it gets more complicated.
For me and sort of where I sit today, I feel I am well placed to dialog with suppliers, because I was on the forefront of things that were happening on the supplier side. I was very engaged. I know essentially what works and what doesn’t work and what the difficulty is with what’s taking place.
At Air Canada, for example, when you’re trying to change distribution in your home country, that’s not so hard, from a leisure perspective.
But when you want to influence how corporations look and book, that’s a little bit harder, right? Because now you’re really getting into how TMCs work and that mid-office, back-office area.
How do your changes impact a codeshare partner? How does it impact an alliance partner, a joint venture? How do you look at it in where you don’t have strong point of sale at an international locale?
Tnooz: But as a GDS exec, you would say that.
Menke: Very clearly in North America I can point to who is doing better among the airlines.
I can point to essentially their distribution strategy, how they’re aligning with agencies at the end of the day, and then I can point to others that are doing it completely different and you’re actually seeing a different situation relative to the performance out there.
I can’t prove that’s exactly the causation, but I do believe it’s a driver relative to the ability to engage and create stronger relationships on the agency side at the end of the day.
Yes, the business model needs to evolve, but airlines can’t do it on their own. There is a GDS network that’s out there that actually is broad that actually can be the platform to allow you to be successful in what you’re trying to accomplish at the end of the day.
This leads me to the APIs that we developed that have fed into Sabre Red Workspace.
If you can help sell the products and services the way that airlines want, how do we make sure that we’re then looking at the economic model that essentially incentivizes the
agency community to want to take further actions, which means workflow, to be able to sell those products and services?
Tnooz:OK. Back up a sec. Montie and Air Canada, they were pioneers of branded fares. They experimented with pulling out of the GDSs. So you’ve heard that kind of debate and discussion from the supplier side, in trying to assess the value of the third-party channel. What is it that you now see? How are airlines now thinking about these issues? What’s changed?
Menke: I was the individual that actually pulled the content from Sabre when I was at Air Canada. The primary reason was is you couldn’t sell the products and services the way that we wanted, and the important part of that was is we were competing against a low-cost carrier in that marketplace.
Essentially when we were selling a seat through the GDS it was the lowest fare that was out there, so it was always selling, call it the Tango fare. If you remember Tango.
Tnooz: Right. I remember Tango fares.
Menke: That’s what it was, and it wasn’t the ability really to sell up into Tango Plus, Latitude. That was the driver. In doing that is we just wanted to be able to have the products displ
If you look at where we’re evolved to today as an industry, is the technology is there but it’s not completely there. I still think there’s more the GDSs need to do to be able to enable that.
That’s where the mindset has also changed from the perspective of everything was, “I can do it all direct. I think I can get everything direct.”
There’s a wall, right? That’s what I was talking about when you get that flattening out, and we’ve really seen this in North America that if you look at the GDS share in North America it dropped to probably, and this is just based on our numbers, probably about 48 percent, and we’re seeing it start to come back up.
That’s my point is you can only go so far on the direct distribution channel side of the equation because you get into essentially how corporations need to book through the GDS. They want to book through the GDS.
A lot of your codeshare stuff is booked through the GDS at the end of the day.
Foreign points of sale booked through the GDS.
There’s this realization over time is, at an airline, I can only take it so far, and I have a revenue issue, so why am I not looking at all my distribution channels and the ability?
It shouldn’t be indirect versus direct. It should just be distribution, and it’s incumbent upon us to make sure that we’re helping them sell their products and services the way that they want, and then enabling essentially the agencies to sell those products and services, and then it becomes a discussion really between the suppliers and the agencies on that compensation model on what takes place.
Because we’ve done our job in enabling the technology to be able to serve it up, is what it boils down to.
Tnooz: Okay. Over to Asia. How has the Abacus integration gone?
Menke: We’re a year into it. It’s gone well. If we look at it here are the phases that I’d say you go through is first, you go through the initial, ‘how do I integrate?’, because you’re focused on the integration side of the equation, be it personnel, contracts, and all of that. That really took us I would say in all fairness into the February, March timeframe.
What I’ve really now seen taking place there is the transition into really the commercial mindset of how do you go to market properly, right? Because there was the way that Abacus actually interacted in the marketplace, how they did their contracts, how they were perceived.
What you’re seeing now more clearly is it’s Sabre driving it. Granted, Abacus people, but Sabre’s vision, that we’ve actually gone through that transition in what’s taking place. That’s where you want to get to as quickly as possible because if you get stuck in the integration side of what’s going on, because, you know, you have a lot of the back office stuff, and we’re doing a big SAP implementation in the region.
That’s not easy, but it’s really important relative to just having that common platform internally from a contract might and financial management perspective. That’s essentially layered in right now.
There’s still more work to be done, but we’re seeing essentially that pivot take place which is really important because you get that commercial mindset which is more outwardly focused, not inwardly focused on how do I get through this.
In the first quarter we were a little bit over 40% percent market share in the APAC region, and we continue to see opportunity for growth there. Again, it’s one step at a time, but we’re in good shape.
Tnooz: The national marketing companies, is there any change into the relationship with them?
Menke: So the way that the old structure worked is we had to bring in the NMCs, essentially come to an agreement with them prior to the acquisition of Abacus, so those were essentially all deals that were done prior to what’s taking place. Those are all very stable right now.
Tnooz: There’s been an argument that Amadeus had been able to get some clients in Asia by the success of their Altea system there. Its PSS has been more popular than, say, some of the tools that Sabre offers. Is there any plausibility to that talk?
Menke: The best way to look at it is people have their go-to-market strategy on how they’re looking at things. They’re going to approach the marketplace essentially the way that they feel that they are going to grab share best.
Essentially there’s the PSS side of the equation and that it is a situation where we win some, we lose some, relative to essentially how they go to market.
We have heard essentially that that’s their focus. Maybe, maybe not. On balance when we look at it at the end of the day there’s going to continue to be the capability for us to penetrate the marketplace via our own strategy.
If you look where share is being shifted among the three GDSs, where are individuals winning share or losing share at the end of the day, and we essentially picked up share in every region in the world. So Sabre is doing well.
Tnooz: APAC has a lot of low-cost carriers. Traditionally the conventional wisdom is that LCCs are less interested in the GDS. Is there anything that’s changing there?
Menke: I like this question because this is where the industry has to think about evolving, right? We have agencies that want all content. Then to do that we then have to go and negotiate with all suppliers at the end of the day. Where we have to be careful, right, is when you look at low-cost carriers around the world, their willingness to pay is a little bit different than full service carriers, right? Because they need a broad reach.
With that you also find that low-cost carriers over a period relative to their growth sort of hit a wall that they began to want to move into the GDS, but they’re very, I don’t want to call it apprehensive, but they do it one step at a time.
When we look at the opportunity to essentially continue to grow on the low-cost carrier side of the equation, we have to start thinking about the economic model.
You have to think about value-based pricing from a perspective of, you know, and it sort of does tie back to branded fares. If you’re looking at different options, is there a right economic model that lines up to being, you know, paying for what you feel is value-based?
Tnooz: How does affect agencies?
Menke: That gets into discussions with agencies on, “I can get that content for you, but you have to understand
it’s going to have to be a different incentive structure.”
That’s part of the evolution that we need to get through, is everybody can’t have everything for cheap…. What I mean by that is, if LCCs, you know, they’re going to get to a point that … Listen, in all fairness if they feel that they can continue to grow and drive on direct distribution, that will be continue to be their primary focus, right?
Tnooz: Uh-hmm (affirmative).
Menke: We have seen as they continue to grow, I mean if you look at Spirit and you look at Frontier here, they’re actually large participants in the GDS is what it boils down to.
When you look at those carriers within the APAC region I think it does get to a question of how far, how quickly do they grow?
How big does their geographic footprint actually go to, and then do they have to look at what are the other distribution opportunities that are out there, and that’s just an evolution.
We’ve seen that with EasyJet and Ryanair, right, relative to just thinking differently. Specifically EasyJet more than the Ryanair, but as they’ve increased their geographic footprint, they essentially began to step into the GDS.
And, again, it’s over a period of time, but people need to understand that to be able to have all the content you want at the end of the day, the model does need to change, but we also have to balance it on the supplier’s side that there’s a clear understanding of what that looks like, and understanding how that comes over to the agency side.
Tnooz: How is global market share?
Menke: When people ask me this question on a global basis, I feel like the industry is sort of fighting for everything right now. Nothing is easy right now. You’re not essentially seeing a big drop, but nothing is easy right now.
Tnooz: How about attachment rates? How has that been going?
Menke: For us, if you look at it relative to attachment rates, for us the corporate side has always been big relative to what’s going on.
How do we continue to look specifically on the hotel side of the equation? Because that’s where the biggest opportunity is for us, over the period of time.
When you look at Booking.com and you look at Expedia, they were really able to go after that long tail. They were able to essentially lock in the leisure marketplace at the end of the day.
Our focus is how do we potentially pull that back in, can we pull that back in?
It’s a focus for us because when you look at it from a margin perspective, margins on non-air are higher. How do we get more of that?
Tnooz: Could you elucidate a bit more about your vision of the evolution of distribution?
Menke: The change will start with the mindset that it not direct versus indirect distribution. That’s where it has to start.
Part of the conversation, we talk about this with other individuals, is, remember, distribution within the supplier has been cost management. It hasn’t really been revenue generation, per se.
That type of conversation has to happen at a higher level, and you’re getting into the chief commercial officer, chief revenue officer, chief marketing officer, and they’re looking holistically across the board of revenue generation.
The reason I bring that up is, and this is just from my airline days, is when I think about, and this is the way it works, right, is a sense that you’re going out and you’re planning a network.
You got your planning tools and you’re trying to figure out where you fly. You then go into fleet optimization, if you have multiple fleets, relative to what aircraft do I put on what route.
Then it transcends into, here’s my pricing and here’s my inventory management.
It then goes to distribution, but people don’t talk about distribution. It very quickly goes to direct distribution, indirect distribution.
That has to come back together because as you go through all of this and when you get into the price and revenue management you really start talking about branded fares, ancillaries, personalization, merchandising, and how does that drive into just distribution at the end of the day. That’s a mindset change.
The reason I say that is, if you’re able to drive more branded fare sales or ancillary increases through the indirect distribution channel, you should become agnostic to the channel. You should say, as an airline, ”I don’t care what it is because I’m driving more net revenue at the end of the day.”
This is where I go back to technology and capabilities, that it’s incumbent upon us for a supplier to look at their direct distribution, Airline.com, and then look at how we can sell products to the GDS and say, “You know what? They’re essentially the same.”
Where you have to be very careful and this gets into the personalization and merchandising side of the equation which I tell people to be very careful with because in all fairness suppliers are still trying to figure that out. There’s not another bag or seat that you can sell that’s going to drive a balance of dollars.
In doing that, if we’re really talking to an individual and what does that specific customer want at the end of the day, now you’re really talking personalization. What are you willing to pay for? What are you not willing to pay for? How does that essentially result in a transaction?
That’s the complication, that’s where we are from taking it to the next level.
I do believe it’s, and I don’t want to call it hand-to-hand combat, but it’s not going to be these billion dollar waves coming in. It’s more about building a product and actually delivering the product.
That puts a lot of pressure on the airlines, or even hotels at the end of the day because it gets into customer service.
I bought my branded fare and I got these attributes. If I have a flight attendant and not a great flight attendant at the end of the day could it ruin my trip? Everything that you did in selling me a product, it’s not about what you sold me, it’s what you delivered me at the end of the day.
When I look at that, that’s where you begin to look at you can develop the products and services, but you have to look at it from a revenue generation perspective. Don’t break it up into the direct and indirect side of the equation.
Just think about distribution.
Tnooz:When you look at it relative to the cost of distribution, you have to factor in how much revenue is being generated.
Menke: Yes, but…When I do look at it, and this is how airlines are thinking right now, is that revenues, like I said, are coming down. They have to fix that problem….
Tnooz: Suppliers throughout the ages in all sorts of verticals always want to try to manage the cost of the middle man or get rid of the middleman completely. Isn’t it wishful thinking to think that dynamic will change?
Menke: I don’t think so because if you look at some of carriers that are out there, specifically in North America, they are thinking completely differently about distribution. Senior executives actually spending time with agencies. It’s happening out there.
For me the mindset is changing, and with that, you know, because it does come back to focus on the corporate side of the equation, focus on working with TMCs at the end of the day, working with different constituents that are out there.
Because if you don’t think through what is the next opportunity to grow that revenue, you’re going to be very stagnant, and you’re going to see a separation relative to the airlines that are doing better, some doing better than others.
Tnooz: Sabre sits in the whole set of data about the passengers and the travelers to a certain extent.
Menke: Yes.
Tnooz: My perception is Sabre hasn’t really had as much opportunity to sort of package and sell that back to the airlines. Why?
Menke: Great question. This is a passion of mine.
Let me give you just two things that I often tell people, is when you look at just shopping data in general, we essentially are a lead indicator of just how the global economy is doing.
I can tell you from a booking perspective on the leisure side, on the business side of the equation, APAC, EMEA, specific country. I can tell you what’s going on.
How are we using that information in a way that we’re allowed to use that information to provide insight to people running their business?
Let me give you another example. I grew up as an airline planner. That was what I did first. I did route analysis and stuff like that. Everything that we did was backwards-looking.
I was always looking and playing the data backwards, and you would go through what was called a QSI model, the quality service index model, and you do simulation, etc.
Again, look at the shopping data relative to what people are pounding away in, day in and day out, and it’s not that historical information, because oftentimes people are searching for where they want to go and there may be nothing there.
The example I’d often use is if you look at Roatán in Honduras, go back ten, fifteen years, then there was really nothing there.
Then all of a sudden there was condominiums being built and stuff. There was this essentially drive for people to fly there more.
You’d see another flight going, and then next year another flight.
The question was if we could provide that shopping information to airlines and they could see that actually the shopping to Roatán went up three hundred, four hundred percent, as an airline planner you would really take notice.
Those are just simple examples that are there.
Of course, we have to be very careful with privacy relative to the data and stuff like that. We would not let personal records out. Data would be anonymized. It’s overall patterns.
The other thing that I often talk about is benchmarking capabilities. This can be on the agency side as well as on the supplier side. There’s a lot of data that’s out there that we can do benchmarking and people would need to opt-in if they wanted to participate.
I haven’t met many executives that don’t want to be able to benchmark themselves versus their competition. How can we help in that at the end of the day? It gets much broader than what we’re talking about. It’s how do we use this information to be able to inform and make decisions at the end of the day.
Tnooz: That’s an aspiration a couple of years out?
Menke: To come to full fruition the way that I look at it, yeah, it is a couple of years out.
Because part of this comes into making sure that we, and this is what I consider to be something that we have to do better within Sabre, is we need to think better and understand more of what the suppliers want and how do we build that.
How do we do that even more on the agency side, so making sure that we’re essentially putting things in front of people that they understand that this isn’t just a nice report to look at.
It’s actually something you can make a decision with at the end of the day. It’s actionable business intelligence.
Disclosure: Sabre covered the author’s trip costs to the company’s recent TTX customer event.
NB: Image above is from the Sabre Q2 2016 earnings conference call presentation.