Deborah Freedman, Sr. VP, Sabre - testimony to Senate Cmte on Y2K

Introduction

Good morning Chairman Bennett, Vice Chairman Dodd, and distinguished members of the Special Committee on the Year 2000 Technology Problem. On behalf of The SABRE Group, a world leader in electronic travel distribution and information technology solutions, I appreciate the opportunity to address the issues facing the airline industry related to the Year 2000 technology problem.

My name is Deborah Freedman and I am Senior Vice President_Application Development for the SABRE Technology Solutions division of The SABRE Group. In that capacity, I am responsible for coordinating Year 2000 programs both for The SABRE Group and for the company's airline customers, which include, among others, American Airlines, US Airways and Canadian Airlines.

While The SABRE Group is a diversified information technology company, we are perhaps best known for our groundbreaking computer reservations system, or CRS, through which travel agents and others electronically book $66 billion of travel per year, including about one-third of air travel worldwide. Readying the SABRE CRS, the world's largest privately owned computer network, for Year 2000 has been an enormous part of our company's effort. However, our responsibilities in this area also extend to many other participants in the transportation industry.

Until 1996, The SABRE Group was the information technology operating division of American Airlines. In October of that year, our company had an initial public stock offering. Today, almost 20 percent of SABRE is traded on the New York Stock Exchange, with the remainder owned by AMR, American's parent company. Although our ties to American Airlines, our largest customer, are thus quite strong, we are rapidly expanding our business relationships with other air carriers and travel providers, through a growing number of joint ventures and similar transactions. Our unique expertise in developing information technology solutions for the travel industry_a legacy of American's leadership in this area_has created increasing opportunities for us as a supplier of software tools and outsourcing services to airlines, hotels, railroads and others. In this capacity, we have helped our customers, particularly our airline customers, address the Year 2000 problem. At The SABRE Group, we have developed a rigorous, systematic approach to the Year 2000 problem that I am pleased to share with the Committee today.

In the remarks that follow, I will explain (i) the particular Year 2000 challenges for the airline industry, (ii) the SABRE Group's implementation plan for Year 2000 readiness, (iii) the company's current state of compliance and (iv) our current airline industry assessment.

II. Year 2000 Challenges In the Airline Industry

As the Committee is now acutely aware, the Year 2000 problem surfaces when computer systems fail to recognize and process date/time information across the turn of the century and beyond. The airline industry depends heavily on computer automation for advance travel bookings and complex planning functions. Because of their early booking and planning needs, many airlines require systems that can process Year 2000 dates during the first quarter of 1999. This challenge is made even more complex for the airline industry because of the high level of automation and the operational reliance on date/time scheduling. Additionally, because of the elaborate interdependencies of the airline industry, individual companies cannot realistically operate in isolation from other industry participants. Indeed, the overall success of the industry will largely be determined by how well industry participants ensure the overall flow of information not only through their own systems, but also through others.

Airlines depend on computer systems for almost all aspects of their operations including flight planning, crew scheduling, capacity planning, pricing, ticketing, and billing. The day to day operations of a major air carrier require hundreds of individual systems to work in concert so that the carrier may deliver quality service to its customers. The platforms for these systems vary from large mainframes handling millions of transactions involving flight operations and reservations, to simple personal computers handling staff planning for small airports with just a few gates.

A telling, visible example of how a single system failure could directly affect the flying public is "electronic ticketing," a technology only introduced over the past three years, but which is quickly becoming an industry standard. Flying "ticketless" has added a great deal of flexibility and convenience for a growing number of airline passengers. Ticketless passengers carry no paper tickets; they merely verify their identity and receive their boarding passes. A failure of the electronic ticketing system would make it impossible to retrieve the ticketing information for those without paper tickets. The traveler in most cases would have limited information to present to the agent to prove that he was a paying passenger. Regardless of the Year 2000 readiness of all other systems, if airlines were unable to recognize passengers ticketed for each flight, operations would dissolve into chaos. The challenge for air carriers is to ensure Year 2000 readiness of all critical systems so they can continue to provide uninterrupted service to the traveling public.

Along with ensuring the Year 2000 readiness of carriers' individual systems, the airline industry must validate the interoperability of the systems throughout the industry network. Airlines regularly trade passengers with each other as they make their way from point to point on the globe, and the smooth transition of those passengers depends on the electronic transfer of data between carriers. Consumers have come to depend on one stop shopping with their travel agents or their favorite Internet sites for air travel and other reservations through a seamless presentation of data collected from varying sources. The systems providing the data as well as the communications lines carrying the data must be Year 2000 ready in order for the industry to continue operating efficiently.

III. Year 2000 Readiness_The SABRE Group's Approach

Individual corporations in the airline industry must undertake aggressive programs to guarantee their Year 2000 readiness prior to experiencing time/date related failures. The following describes The SABRE Group's recommended approach to program implementation.

Comprehensive Year 2000 programs begin with a complete inventory and assessment. During this phase, the portfolio of systems, hardware and software, third party products, and infrastructure components are identified. The inventory is classified by taking into account "the time horizon to failure" of the systems, the impact of time/date to the systems processing, the consequences of failure on the systems, business criticality and system interdependencies. At the completion of this phase, and based on these classifications, a master implementation plan is developed.

Within the implementation plan, more detailed project plans outline the resources and effort required for analysis, design, remediation, and testing. These detailed plans roll up to the high-level implementation plan to ensure that any slippage in one project reflects the impact to downstream systems.

After the detailed plans for each system are completed, remediation and testing of the relevant infected components begin along with the testing of systems believed to be compliant. Comprehensive testing includes three cycles. In the first cycle, an initial baseline test captures the exact functionality and date processing of the system as it currently operates. The second testing cycle is completed after remediation modifications are completed, and the results are measured against the baseline to ensure the system processes correctly in the current date. The third cycle of testing involves future date testing, which measures system processing during the turn of the century into the Year 2000. The tests include standard date testing, measured against the baseline results, along with other critical Year 2000 dates such as leap year 2000.

The final step of the Year 2000 process is a comprehensive project completion review. The review focuses attention on the level of analysis, validation of the component level inventory, completeness of the documentation, and validation of the tests performed and the resultant outcomes.

IV. The SABRE Group's Year 2000 Readiness

The SABRE Group has made Year 2000 readiness a major corporate priority since 1995. The company's Year 2000 project has the goal of ensuring that hardware and software systems operated or licensed in its business, including systems provided to our travel agency subscribers and technology outsourcing customers, including airlines, are designed to operate and properly manage dates beyond 1999.

Dedicated to providing the world's most technologically advanced and most reliable travel and transportation management systems, The SABRE Group has invested significant financial and human resources to ensure our Year 2000 readiness. Early planning, careful correction and thorough testing are keys to successfully managing a Year 2000 program. The SABRE Group's vast Year 2000 project involves checking more than 200 million lines of software code, confirming proper system interfaces with more than 600 hundred suppliers, and providing new software for in excess of 40,000 travel agencies. At peak, The SABRE Group applied the equivalent of more than 700 full-time employees to fixing the Year 2000 problem, and to date, the company has expended more than one million labor hours on the project.

The SABRE Group utilizes a methodology focusing on detailed system analysis and complete, repeated testing of all systems. A master implementation plan takes system interdependencies into account to prioritize and schedule system completion across the program. This analysis determines the amount of testing and type of remediation each system requires. The tests involve detailed examinations of the systems in both the current date and other dates through the turn of the century and beyond.

As a result of this carefully executed implementation plan, The SABRE Group is pleased to report that the majority of its core systems are either completed or are in the final testing phases of the Year 2000 project:

The core SABRE computer reservations system is currently Year 2000 ready.

The core functions of The SABRE Group's other real-time computer systems, including flight operating systems used by airlines to check-in passengers, determine aircraft weight and balance, plan routes and process bags, among other things, are Year 2000 ready. Only testing of minor subsystems remains to be completed.

Year 2000 testing of other software systems operated by The SABRE Group is substantially completed and dozens of systems are currently being used to process dates beyond 1999.

In May 1998, The SABRE Group began installing Year 2000 ready software and hardware at travel agency customer locations around the world. This effort is expected to be completed by the first quarter of 1999.

Substantially all of the other software marketed by the SABRE Group to customers in the airline, hotel, trucking, rail and other industries is expected to be Year 2000 ready in the second quarter of 1999. More than 70 percent of these applications are to be completed by the end of 1998.

75 percent of the hardware testing is complete to date with the remaining planned to be complete by the end of the year. Much of this testing was accomplished by first testing at the vendor site on identical hardware, and then testing the devices within the SABRE data center. When the process began two years ago, 25 percent of the devices originally tested failed the SABRE test scripts.

With the vast majority of system level testing and validation completed, the focus of The SABRE Group has now turned to business continuity planning and industry component testing. Business continuity planning includes coverage requirements for key dates, such as the rollover of the century and "day in the life" testing, which simulates business operations in the next century. It also involves contingency planning to determine how manual processes could be used to assist with day to day operations in a Year 2000 failure. Planning now for the unexpected failure may enable the business to continue operations in the event that a failure comes to fruition. While failures may cause business operations to experience a degradation of productivity, we are working to prevent the worst case scenario_shutting down operations.

Industry component testing is the validation of the data feeds and interfaces each company receives from other members of the industry, suppliers, and the government. Testing of industry components validates the interoperability of systems within the travel and transportation network. As an example, The SABRE Group's systems mentioned above interface with 600 external companies throughout the industry. The Year 2000 program team is aggressively analyzing every interface to determine the priority of the interface and the potential affect on the business. Efforts are currently underway to schedule Year 2000 testing with all of the companies with which we trade information. The SABRE Group's ability to schedule testing with external companies and the government will in large part be dependent on their completion schedules. The interfaces range from weather feeds to pricing data, as well as the transfer of passenger and cargo information between carriers. Timely industry component testing will in large part determine the industry's overall success.

V. Airline Industry Assessment

The interrelationships among participants in the airline industry is such that individual system failures can have dramatic impacts on other members of the industry. As an example, a passenger may be booked by a travel agent on multiple air carriers within the same trip. The reservation is processed through the travel agent's CRS, and that data is then transferred to the carriers on which travel will occur. Let's assume that one of the air carriers failed to complete its Year 2000 work. As the data for the flights was processed by the travel agent the traveler could receive his itinerary clearly showing travel dates/times, flight numbers, carrier, and seat assignments. A later failure of a single carrier could leave that passenger trapped mid-way through his trip without ongoing reservations. Imagine the disappointment and inconvenience of setting out from Washington, D.C. to the Bahamas for a New Years 1999 celebration, only to find yourself stranded in a connecting city with no hotel, no car, and no way to reach your final destination.

The individual compliance efforts of industry members will need to be competed by the end of 1998 to ensure adequate testing time for the interlocking components of the industry. For those companies that are significantly behind, tough triage decisions will be required as to the systems which those companies choose to let break, when they determine full compliance is not reasonable alternative given the time and resources available. The validation of industry components is already moving to the forefront of the testing initiatives and will prove to be the final hurdle in the Year 2000 race. As time and resources continue to be at a premium, it is crucial for industry participants to dedicate appropriate personnel and system capacity to validate interoperability throughout the industry. As many companies within the industry are not yet finished with their internal Year 2000 readiness, industry component testing has not yet become a priority for those members. Over the next few months, The SABRE Group will use industry component testing as a bellwether for readiness of the industry. In our contacts to date, less than 50 percent of the companies with which we have tried to schedule testing are ready.

From an international perspective, The SABRE Group has seen a similar geographical disparity in aviation industry readiness as has been noted in other industries. In general, U.S. airlines appear to have gotten a head start on carriers from other regions of the world. Most companies are addressing the problem, have active plans for completion, and are completing the final stages of internal system testing. Europe is behind the U.S. in completion but is actively addressing the problem. Corporations in the Far East appear to have only recently focused any attention on the problem and lag the rest of the world in completion.

In general, the airline industry has taken an aggressive approach to addressing the Year 2000 challenge, but the validation of industry interoperability has only just begun. The true determination of the state of the industry will become more apparent over the next six months as corporations succeed or fail in demonstrating their readiness to those who must interoperate with them. Those who fail in this effort will be at high risk of finding fewer companies willing to continue the strategic business relationships that are the lifeblood of the airline industry.

The International Air Transport Association (IATA) and the Air Transport Association (ATA) are both engaged in significant efforts to determine the readiness of airports, travel related suppliers, and air traffic control. I will defer to other members of this panel whom I am confident will address these efforts in detail.

VI. Conclusion

The SABRE Group is working diligently to ensure that our customers and the traveling public can depend on our systems in the Year 2000 and beyond. The company believes, however, that the airline industry as a whole, as well as related government agencies, must also work to ensure that the world's transportation infrastructure is ready for the Year 2000.

I would like to commend the Committee for its fine work and leadership on this important policy matter and express my thanks again for allowing me to address the Year 2000 challenges for the airline industry.