02 May 2007

Pegs and Wizcom - Last Gasp II

Yes folks the old models are dropping like flies. In my humble opinion, here is another one that will soon be biting the dust...

Pegasus - whose CEO was once called a very derogatory name in public by one of his big customers - has JUST managed to scrape through and get enough cash in the till with a recent offering. Not wishing to even hide their intent on cashing out - the current investors made it very clear they wanted the cash for themselves - oh yes and to buy out Wizcom from Blackstone. This they have managed to do.

But life isn’t so rosy. Pegasus revenues have been falling for some time. Its customers and suppliers are defecting and its business is not as relevant as it once was.

I feel very strongly that despite the underlying trend of disintermediation the team at Pegasus made a mistake many years ago when they didnt develop a solution for Wide Area Availability (aka Availability Search). Hoping to capitalize on what was then a monopoly - they refused to address the question. Well now they will pay the piper.

Their relevance is no longer as strong as fragmentation and bypass are the order of the day. Pegs can no longer rely on the GDSs nor their supply side partners.

I would like to put to rest one awful truth out there about the GDS being a higher yield market for Hotels. While this is technically true it comes at a price:

1. The product/content served up is pretty poor.
2. The technology sucks.
3. Travel Agents are in the main lazy and don’t look hard if the product is not available easily via the GDS.

Consequently the premium paid by users for hotels booked via the GDS Travel Agency (TMC type) bookings versus those booked using Pegasus linked to say and OTA such as Expedia has been of the order 20%+ (source TravelClick). But this is an unnatural act. In today's tight market for product (with occupancy levels at historic highs) this is unsustainable. The hoteliers got VERY smart in recent years and manage now to have the upper hand. Pegasus is largely irrelevant and their total share of the market is falling.

As bypass of different types occurs and fragmentation is the order of the day it is not just Pegs Switch business that suffers but the other pieces also. The rep business has seen significant erosion due to new players at cheaper rates and better services/technologies emerge.

Even the HCC business is coming under fire - without the ubiquity of the Switch carrying all Travel intermediary business - the value of the switch based HCC counting falls away. Perot is the beneficiary of this.

So good luck to Mike and John as the struggle to hold on to the business. There are already more holes in the dyke than you have fingers...



No comments: