IT SOLUTIONS PROVIDER AMADEUS may be just 20 years old, but it has outgrown most of the competition to become one of the biggest in the industry.
Amadeus currently boasts a 31% market share of travel agency bookings (the major part of its distribution business) and in 2006 it processed 499.5 million. In the same year, revenue was up 10.9% over 2005, reaching Û2.683 million ($4 million). In the first six months of 2007, the number of bookings handled had risen to more than 281 million and revenue was up 11% over the same period the previous year. In January, transactions per sec. peaked at 20,000.
Today, Amadeus offers access to 95% of the world's scheduled airline seats, 248 hotel chains, 22 car rental companies and a wide range of other travel providers such as cruise lines, rail companies, ferry lines and travel insurance companies. In addition, it has invested in a diversified IT product line based on its new open-architecture technology platform, powers airline websites and hosts airlines' e-ticketing activities.
Amadeus was conceived out of a need to compete with global distribution systems. American Airlines had its Sabre and United Airlines had Apollo. By the mid-1980s, Apollo and Sabre workstations were starting to appear in European travel agencies and there was a very real danger that European carriers would be at a significant disadvantage.
"European airlines would not get a look in if they were being filtered through a US system," VP-Strategic Airline & Partner Program Hans Jorgensen tells AP. "We had large home markets that we needed to defend."
In 1986, four airlines--Lufthansa, KLM, Alitalia and British Airways--began work on a GDS that would give them a competitive edge over the US systems. Other carriers, such as SAS, joined this group, which eventually led to the Assn. of European Airlines project to develop a common CRS for Europe.
However, it quickly became clear that the European Commission would be unlikely to approve a single common system because of the competition implications. As a result, two airline groups began working on separate CRSs. British Airways, Swissair, Alitalia and KLM developed Galileo and Air France, Iberia, Lufthansa and SAS came up with the Amadeus solution. By August 1987, Amadeus had established its headquarters in Madrid with a team of just five people and Amadeus Marketing was created formally as a company in October that year. The Amadeus system went fully operational in 1992. Now the company has close to 8,000 employees worldwide, made up of some 95 nationalities.
In addition to the Madrid HQ, Amadeus has two other main sites, the biggest of which is the product development and management operation in Nice that employs some 2,200 in-house staff and 600 contractors. This is where all the computer programs and applications are created. A further 700 staff work at the operations center in Erding, Germany. This is the Amadeus computer powerhouse and the data processing center is one of the biggest worldwide dedicated to travel. Every day it manages more than 480 million transactions and processes more than 3 million net bookings. More than 75 million passenger name records can be active in the system at any one time and more than 8,700 end-user requests run through it every sec. during peak hours, resulting in more than 500,000 physical disk accesses per sec.
The data center also houses what Jorgensen describes as a "server farm" where individual servers host a specific data purpose and then interface with the other servers to provide the same or better quality at lower cost. This is the basis for the open-architecture system that Amadeus has developed despite the skepticism of older platform suppliers such as IBM.
"They said it couldn't be done," says Jorgensen. "But 2,000 man-years of effort since work on redesigning the old architecture into an open architecture began in 1996 has paid off. IBM has since congratulated us for achieving what they believed was impossible." The move away from a legacy IBM platform has helped reduce operating costs.
In 2000, British Airways and Qantas asked Amadeus to develop a new-generation passenger system, now known as the Altea Customer Management Suite. BA had wanted to reconfigure its system, described by Jorgensen as "the mother of airline systems" (it was being used by 27 other carriers), but as it moved to refocus its activities on core businesses it was looking for somewhere to outsource its IT requirements. It turned to Amadeus, which essentially took over the BA system and, with €300 million ($465 million) of investment and five years of innovation effort, evolved it into the Altea CMS. It is, according to Amadeus, the "first new-generation IT platform for the airline industry for 30 years," replacing the legacy systems developed in the 1960s and 1970s with one that "allows the airline to unlock the full value of each traveler."
Some 40 airlines are signed up and in 2005, in the biggest-ever IT deal in the sector, according to Amadeus, Star Alliance opted to implement the Altea CMS as its common IT platform. The CMS consists of Reservation, Inventory and Departure Control modules.
At present, the GDS business accounts for the lion's share (between 75% and 80%) of Amadeus's airline business. Although IT accounts for only 15% and e-commerce for about 5%, Jorgensen stresses the growth potential of these areas. "In proportion of revenue, GDS is still the most important business area, but in the long term it may not be as profitable as it currently is as the airlines switch to greater use of direct marketing and Internet sales," he says. "IT margins are much smaller, but we work on long-term contracts, usually between 10 and 15 years, so the revenue stream is more secure. We are not so vulnerable to the cyclical nature of the travel agency business."
He dismisses claims by some carriers that Amadeus has a monopoly in this sector, pointing out that while there are some 735 airlines in the world, only 40 are signed up to the Altea CMS so far. But the IT business element has been a great success and he is confident of continued growth. Amadeus also is considering expanding its IT activities to other affiliated market sectors such as hotels, car rental and railways.
E-commerce is another area that is set for expansion. "The Internet is here to stay and so too is one-to-one marketing," Jorgensen says. Last year, online bookings made via Amadeus grew by 20%. Its e-Travel Airline Suite consists of three solutions. The e-Merchandise Solution, an online calendar search interface offering easy-to-find fares by product family, has helped major airlines achieve an average 8% increase in yield and 30% increase in revenues. This is complemented by the e-Retail Solution, a fully integrated Internet booking engine, and the e-Service Solution for post-sales servicing that enables passengers to update and change their travel themselves after reservation.
Amadeus says more than 70 of the world's leading airlines use the Amadeus e-Travel Airline Suite to power more than 250 websites in more than 80 markets, and more than half of the top 50 carriers rely on Amadeus e-commerce solutions for their domestic or international websites and their shopping, booking or servicing functionalities.
The IT provider also claims to be the "undisputed leader in the provision of e-ticketing solutions." Its e-ticket distribution network, the largest in the industry, includes 262 airlines and 154 markets. To date, 90% of tickets issued through the Amadeus System are e-tickets. On the purely technological front, it also has agreements with 66 carriers to host their complete e-ticketing activities and has built the IT links to enable 1,125 interline agreements between airlines.
The company also has a range of solutions specifically targeted at low-cost carriers, including an LCC-specific CMS based on adaptive technology, distribution solutions and IT outsourcing and networking services. It currently boasts 58 LCCs--accounting for 48% of the world total--among its Amadeus GDS customers.
Jorgensen is confident about the future and says that Amadeus is always looking for new ways to expand and innovate. Despite an anticipated downturn in GDS requirement in the long term, he is confident that the company can diversify into other strong areas of growth as carriers find ever-more-imaginative ways of optimizing data exploitation.
He does acknowledge that rising fuel prices and any potential downturn in the global economy will hurt airlines and therefore any and all service providers, including Amadeus. "If the airlines sneeze, we catch a cold," he says. "We are maybe projecting a less positive this year than last year, but our market share in the US, the biggest travel market in the world, is no more than 10%. So we are less exposed there and business remains buoyant in other markets for the time being. We can only hope the US is able to stave off recession."