Analysis of original article from Business Week
Travelport cancelled its IPO and debt tender offer this week, citing "volatile equity market conditions". Travelport started the share sale on Feb. 1 with a marketing process to sell between 383 million and 528 million shares at a price of 210 pence to 290 pence apiece. The IPO would have been the biggest in the U.K. since 2007, giving the company a so-called enterprise value of 8.8 times earnings before interest, taxes, depreciation and amortization.
The real question in looking at the future of the Global Distribution Systems is a broader one than just the IPO/Debt Tender Offer of Travelport. Even if market conditions improve and travel demand rebounds, their future is still in question if they continue to embrace the 30 year status quo for this industry.
Sabre and Apollo (one of the predecessor brands to Travelport) were first launched into the travel agency market when the respective brands were divisions of American and United respectively. Beginning in the late 80s and culminating in 1990 TWA's Pars brand and Delta's Datas II brand were later merged into a separate company called Worldspan. About that same time, Amadeus was formed in Europe as a joint venture between SAS, Air France (EPA:AF), Lufthansa and Iberia (MCE:IBLA), while Galileo was formed by a separate group of European carriers. In Asia, around the same time, Abacus was formed by 13 carriers.
Nearly 20 years later, we have just 3 global players (4 if you count Abacus separately, as Abacus is hosted on the Sabre platform and Sabre has part ownership of the Asian company) - Amadeus, Travelport and Sabre.
Over 30 years after the formation of the travel agency global distribution system divisions, these companies still are true to their roots, with the airline traveler as their primary target. In all of these companies, they still rely on booking fees and other IT revenues from airlines for over 90% of their revenues.
As airline fares have declined over time, the fees charged by the GDS companies have increased substantially and as a percentage of the total fare are now seen as "exhorbitent", even though the GDS customers (the travel agents) continue to consistently bring in a higher yield average ticket than their online counterparts (including direct distribution by the carriers themselves.
In the US, 85% of all travel is by car, yet the online and offline travel communities, as well as the GDS companies have completely ignored this key market, the drive market. Hitwise reports that 7 of the top 10 keywords in the travel category are mapping and driving directions, yet the GDS companies have let that traffic all flow to the mapping companies, who do not do a good job of true "trip planning", versus just point to point mapping.
The arguments given by the GDS in why they are not moving in this direction would have you believe that it is a completely different market. Yet our research shows that it is exactly the same traveler under different circumstances. They still need hotel reservations along the way, but the GDS does not provide the tool set that helps the travel agent plan a trip that does not include an air segment.
I have always been an enormous fan of the GDS companies and their ability to bounce back from war, rumors of war, terrorism, global outbreaks such as SARS and natural disasters and even economic crisis. Those external threats tend to have a limited impact over a limited period of time and like the IPO market, are cyclical.
The threat facing these companies is not external, it is internal. Unless they realize that they are making 90% of their revenues on just 15% of the market and that there are new models and new products that can help them tap into the other 85%, potential investors are going to look at the external threats, including direct distribution by airlines to consumers and weigh their willingness to invest, whether in an IPO or in debt instruments.
The GDS companies have dominated distribution for nearly 30 years in the airline arena. I'd love to see them dominate the drive market for at least as long. When they are ready, I'm ready to help.
Editors Note: The GDS systems (then known as CRS) were first installed in travel agencies by the airlines in 1978. By 2000 all of them had filed public offerings. In the last decade, all of them were taken private (Sabre by TPG and Silver Lake, Galileo (later merged with Worldspan) by Blackstone and Amadeus by BC and Cinven. Of the three, only Amadeus still has partial ownership by 3 of the original airline owners, Lufthansa, Air France and Iberi
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