Let battle commence: How the GDS war has changed

As global distribution systems evolve, the areas in which they compete have changed. A recent PhocusWright report looking at the current operations of Sabre, Amadeus and Travelport makes fascinating reading, as Martin Cowen discovers

GDSs – global distribution systems – are at the heart of what the travel industry is about. But as the industry changes so have the GDSs.

The three major GDS businesses – Sabre, Amadeus and Travelport – have rethought, re-engineered and repositioned their businesses dramatically over the past decade or so.

Travelport recently announced plans for, and then pulled, an initial public offering (IPO) on the London stock market.

It seems unlikely Amadeus and Sabre will follow suit, but nevertheless these businesses are certain to continue evolving. Hopefully, the travel hacks’ tired analogy of them being “dinosaurs” has now gone the way of, well, the dinosaurs.


Changing places

The battleground for the GDS businesses now covers the IT departments of airlines and hotel chains as well as high-street travel agents.

Sabre, Amadeus and Travelport now have a variety of business units, meaning the areas in which they compete have changed, as well as the businesses with whom they compete.

As they all own or have significant stakes in consumer-facing online travel agencies, they are increasingly less behind the scenes and have become more centre stage.

Amadeus has been trying to position itself as a travel technology company, rather than a GDS, for some time, with mixed results.

Ian Wheeler, vice-president marketing and distribution, says: “We carry out satisfaction surveys of our customers that ask them about our brand positioning.

“Each year the percentage of respondents who refer to us as a GDS is getting smaller. In the mature markets we are established as a technology company, but in some markets we are still seen as a GDS.”

Wheeler added that while GDSs are changing, so too are the demands from travel agents on their GDS partners. “The technology itself remains important, but increasingly agents are also expecting the widest breadth of content, good customer support, and a robust system in terms of reliability and speed.”


People power

Earlier this year, US research giants PhoCusWright released a 40-page white paper entitled ‘The Role and Value of the Global Distribution Systems in Travel Distribution’. A fairly dull title for quite an interesting report.

Sponsored by the Interactive Travel Services Association, the paper claimed to be the most comprehensive study done to date on the GDSs.

It looked in detail at the three businesses’ overall GDS operations in North America and Europe. Using proprietary data, the research put into context the size of their business – between them they processed more than 1.1 billion air, hotel and car hire transactions during the year, representing sales of $268 billion.

This figure refers exclusively to their GDS function and does not include any bookings through airline websites they host or consumer dotcoms they own.

Little company-specific information was revealed in the research, other than one key line in the overview.

The net revenues for 2008 show that Sabre and Amadeus are neck and neck – both round up to $2.9 billion, with Sabre slightly ahead. Travelport isn’t that far off with revenues of $2.5 billion.

PhoCusWright chief executive Philip Wolf coined the phrase “clout per headcount” at ITB some years ago, referring to how big a business is compared to the size of its workforce. Some Nasdaq-listed companies talk about annualised revenue per employee.

Using this non-GAAP (Generally Accepted Accounting Principles) measurement gives Travelport a big advantage over the other two. It manages to generate its $2.5 billion of revenues from a workforce of 5,500; Sabre on the other hand employs around 9,000 with Amadeus 8,750.


Consuming interests

All the major players have a consumer-facing presence. Travelport’s is the most interesting – its GTA business unit owns Octopus Travel and Irish-based bedbank needahotel, relatively small players on the OTA stage.

But it also owns 48% of Orbitz Worldwide, which includes the eponymous US-based dotcom as well as European brand ebookers.com. Having paid $1.25 billion for Orbitz, the £209 million spent on ebookers seems modest, although even the most loyal Travelport fan must acknowledge that the investment has been challenging.

The business has improved beyond recognition following the migration of all ebookers’ point of sale in Europe onto the same platform as Orbitz.

Barney Harford, chief executive of Orbitz Worldwide, has said that the business will be focusing on hotels. It remains to be seen whether, in Europe at least, it has missed the boat. The argument is that the hotel market in Europe is so fragmented that there is still room for other businesses to gain traction alongside established market leaders such as hotels.com and booking.com.

A related footnote in the PhoCusWright paper revealed that the GDSs themselves only account for 4% of European hotel bookings, compared with 47% of total air sales.

It’s no surprise then that all three are looking for ways to encourage agents to book more hotels through the GDS. Perhaps a bigger surprise is that agents need encouragement – commission on airline seats is negligible at best, while hotels still offer a decent return.

Sabre Holdings’ consumer presence is the strongest of the three – in 2008 Travelocity Global (Travelocity in the US, lastminute.com in Europe and Zuji in APAC) saw gross bookings in excess of $10 billion.

But if presence is in proportion to investment, Sabre would be expected to be ahead. It bought lastminute.com for £577 million in 2005 – more than double the price paid for ebookers.com.

Amadeus’ consumer-facing presence is via Epode, although its technology is used by a number of its competitors.


Looking ahead

PhoCusWright identified one potential problem on the horizon in its paper, namely the contentious issue of paid-forcontent and paid-for-distribution.

Some airlines – notably EasyJet – charge the GDSs for access to their inventory and leave it up to the GDS to absorb or pass on the cost.

The GDSs argue that they can distribute seats globally and that their investment in technology to facilitate this justifies the cost to the airlines.

When talking about this issue, it is important to remember that Ryanair – 66 million passengers a year and counting – does not allow the GDSs access to its content yet.

Its recent deals with fly.com and kayak suggest it is becoming more amenable to third-party distribution than it has been in the past.

The issue for the GDSs is that many of Ryanair’s business practices end up being adopted by other airlines. IATA’s latest prediction is that the global aviation sector will end this year $5.6 billion in the red, having lost a staggering $11 billion in 2009.

This must work in the GDSs favour as they can provide the aviation industry with products from better yield management tools to crew rostering software.

But GDSs are not charitable organisations, and the costs of developing these tools needs to be recovered. There is more to travel than airlines, and the three businesses are all branching out into other product areas, including rail.

Amadeus’ Wheeler says that Barack Obama’s recent announcement about a proposed $8 billion investment in US high-speed rail was “very interesting”.

Closer to home, the GTMC in the UK recently said that high-speed rail was top of business travellers’ wishlist. This decade is shaping up to be the age of the train.

The economic downturn of late 2008/09 was as severe as it comes, and has fundamentally changed how the world economy functions moving forward.

But despite this, people have still travelled. Most travel bookings somewhere in the world will touch a Sabre, Amadeus or Travelport product, even if the consumer doesn’t realise this. The sheer scale of these businesses ensures that they will be around forever.

That is not in doubt – the really interesting dynamic is how the three businesses will develop in the medium term and the paths they will take.

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