Search engine giant Google's recent acquisition of ITA Software will shake up the market for online ticket sales and could leave global distribution system companies that have not branched out into the airline IT sector quaking in their boots.
Google announced on 1 July that it had signed an agreement to buy the US-based flight information software firm for $700 million, with Google chief executive Eric Schmidt at the time saying: "I think you can see that airline travel and search are a perfect opportunity for more innovation, more investment and more interesting products."
Google has yet to detail exactly what its plans are following the acquisition, but Schmidt says the company will "build new flight search tools that focus on end users", the aim of which will be to "get you very quickly to a site where you can buy your ticket". ITA says it will be "business as usual" until the deal closes.
Timothy O'Neil-Dunne, managing partner at consultancy T2Impact, says the acquisition "has the potential, and I stress the word potential, for streamlining the whole process of reservations", which, he adds, would benefit airlines by reducing the cost of distribution. However, this would put pressure on companies such as Amadeus, Travelport and Sabre, as well as on the online travel agencies, because "their cost of distributing an airline product is higher than a Google search that goes directly to the airlines".
Amadeus does not seem to be overly worried about the new developments. It points out that "any overlapping areas in fare shopping are small, given ITA's North American focus". In fact, Amadeus sees the potential for some form of tie-up further down the line: "Given our particularly strong presence in Europe and emerging markets, we believe that co-operation opportunities could exist," it says.
Those most at risk
Those with the most to lose will be GDSs that do not have a presence in the airline IT sector, according to O'Neil-Dunne. "Players with a more traditional, convoluted purchase process stand to be the most at risk. It doesn't necessarily mean that Amadeus will be toast because it has a big footprint in airline IT. However, Travelport does not have a big footprint in airline IT so it's more susceptible," he suggests. "Travelport would have to struggle to find a line of business that's not impacted by this, such as airline IT which is where it is weakest."
Forrester Research analyst Henry Harteveldt is more concerned than O'Neil-Dunne about the impact on airlines of the Google/ITA acquisition. "I think the acquisition's impact will be felt more by airlines, who are concerned about what this may do to their search engine marketing costs and ability to control how their information is displayed," he says. Travel Technology Research believes the acquisition will affect the way in which airlines bundle and unbundle their products.
"Airlines want to communicate low lead-in fares and push up revenues through add-ons and charges. Google/ITA will want to make sure users will find precisely what they want," it says. "Airline yields are often built on a lack of transparency, so there is a potential downside for airlines. This will need careful thought and commercial strategy."
O'Neil-Dunne makes the point that Google would not have "plonked down $700 million" if it did not see an opportunity to reap significant revenue rewards. "[Google] looked at the global amount of money used to promote air travel - the revenue the GDSs get and the advertisements coming to meta-searches - and saw that there is a global pool of money of $15-20 billion. Google is getting 10% of that," he says. "If they streamline the process and can reduce the total cost of the transaction to the airline supplier community, they could maybe double or treble that."
One possible thing in their favour is that airlines, GDSs and OTAs will at least have some time to figure out how to respond to Google's attack on the reservations market because the deal is expected to face some regulatory hurdles. "Due to Google's size, I expect that there will be a thorough investigation, spurred in part by parties who are bitter that they were not the successful bidders," says Harteveldt.
O'Neil-Dunne adds that there will be "significant concerns" when it comes to antitrust issues. "ITA won't be able to do anything with Google for six months, more likely nine to 12 months, so there is time for the others to react," he says, noting that "we will see some strange bedfellows emerging". This point is echoed by Travel Technology Research, which says: "We believe OTAs will now push their GDS partners for technology to play in the new world order of Google/ITA. We may see those like Expedia moving much closer to Amadeus."