The travel distribution industry closed out 2006 with the kind of GDS merger mania insiders have been predicting for years: Now there are three — but that’s not all that has changed.
As far as the GDSs go, “it was never a question of whether consolidation would take place, it was simply a matter of who’d buy whom,” writes Henry Harteveldt, VP and principle travel analyst for Forrester Research, in the introduction to TDR’s 2007 GDS Yearbook. “And you have to admit, the Galileo-Worldspan merger makes a lot of sense,” he adds.
Despite shrinking from four to three distribution powerhouses — Amadeus, Sabre Holdings and Travelport — this is no longer the era of the traditional GDS, and that’s what makes things exciting. Big 2006 changes are still sending out serious shockwaves.
1. GDSs reinvent themselves. Thinking outside the box, the distribution companies became “market-based businesses,” Harteveldt notes, pointing to content deals they struck with major airlines, which seemed to satisfy both GDSs’ desire for long-term commitment and suppliers’ demand for slashed distribution costs.
Don’t think the GDSs are through transforming. This year, they’ve continued to seek out emerging markets (e.g., Sabre is catering to African agencies) and diversify their selection of agency services, both the user-friendly, high-tech and the corporate travel consulting kind.
2. Alternatives fill gaps. The distribution system alternatives (initially called “GDS new entrants” (GNEs)) — such as Farelogix, G2 SwitchWorks and ITA Software — have lost a little luster since their big-splash industry debut, but don’t write them off. While the GDSs spent 2006 wooing airlines, the alternatives proved their viability in savvy negotiations with “numerous direct link contacts that bypass the GDS,” Norm Rose, president of Travel Tech Consulting, Inc told TDR in an end-of-the-year interview. Plus, “the corporate market represents the key tipping point for GNE adoption,” Rose added.
3. Airlines call the shots. Several network carriers took the bull by the horns in 2006 and slapped a $3.50-per-segment fee on non-preferred booking channel transactions. That move represents a need to reach distribution cost parity that will put everyone on a level playing field, Robert Mann, airline analyst for R.W. Mann & Co, Inc., told TDR in 2006. “It’s part of the disciplining of distribution costs that’s been going on for 10 years,” he added, which will continue as carriers drive more traffic through their own websites.
Bottom line: There’s no crystal ball to tell you what your next mistake or giant opportunity might be. But you can find out where you’re headed by paying close attention to where the industry has been — and being ready to take advantages where they come.
Thumb through a copy of TDR’s 2007 GDS Yearbook for clues to long-term trends, financial successes, key M&A activity and coming shake-ups. Plus, because we know you’re curious, the book offers an inside look at the FY2006 performance of these very private (at least for now) GDS companies. Get your own copy today!