Two major distribution players changed hands in December, each going into deeper private pockets in deals that increase the challenges US carriers face in their campaign to curb distribution costs.
Worldspan, the struggling but widely used Global Distribution System (GDS), was snapped up for $1.4 billion by Travelport, the privately held parent of the Galileo GDS and of the Orbitz internet sales website. Sabre - the nearly ubiquitous GDS that owns Travelocity, other consumer-oriented Internet sites and a major airline consultancy - went private in a $4.5 billion deal that positions the powerhouse to shrug off short-term shareholder pressure.
Both are now poised to compete more aggressively against emerging "alternative technologies" from web-based rivals, such as ITA Software or G2 SwitchWorks, and from powerful airline-controlled and consumer Internet sales sites. As Travelport chief executive Jeff Clarke said in announcing the Worldspan buy: "There's been significant price deterioration in the industry."
Worldspan, once held by several major airlines, has been privately held since 2003. But its strategy of positioning itself as the backroom supplier to other travel-sellers suffered as its prospective customers such as Expedia found cheaper technology on their own or elsewhere. Sabre, spun off by American Airlines in 2000, suffered by comparison as major carriers trimmed their payments to the many travel agents who rely on Sabre and also cut payments to the GDSs themselves.
Forrester Research analyst Henry Harteveldt estimates the GDS share of US airline bookings declined from 70% to 50% in the last five years, forcing the GDSs into a game of fighting for a slice of a shrinking pie even though the travel and airline industries enjoyed stronger demand. Consultant Richard Eastman of the Eastman group sees the new private status of all three major GDSs "as perhaps ideal because it frees them from the short-term profit requirement and lets them shed their legacy systems so they can compete with the Expedias and the like".
European GDS Amadeus was transferred from airline owners to private equity in 2005. Harteveldt sees Sabre's new private status giving it the leverage to make acquisitions that could be as significant as its $1.1 billion purchase of European site lastminute.com in 2005.
But Norm Rose, a consultant with both PhoCusWright and TravelTech, warns private equity would stress cost cutting, potentially slowing technological research and development
Eastman says the Worldspan deal was a boon not just for Worldspan, "which has been without a strategy except to say it was for sale", but also for Travelport, known as Cendant until going private in a $4.3 deal in 2006. The Travelport acquisition stands to create a powerhouse to rival Sabre, although the Sabre privatisation was planned before the Worldspan takeover emerged.
Source: Airline Business