25 February 2009

Travelport Reports - Its Ugly Out There

In the last quarter of 2008, Travelport's bookings plummeted. And there is no reason to believe that Sabre is not down by a similar amount. Amadeus is probably doing a little better but not by much.

GDS based total transactions were off a stunning 15%. What was a worry in August at the Q2 numbers has turned into a full scale rout and ensuing panic with these numbers.

Once you peel back the usual corporate BS - you see that there is some very worrying underlying trends.

Trend #1 - move to a late booking environment. This has not been seen in the USA for a long time if ever. In Europe the switching of consumer behavior occurs often. Early vs late has therefore become something of a game between sellers and consumers. For the US sellers this is a very worrying trend. Even more so when US players have to play by the quarterly report microscope rules.

Trend #2 - traffic is just off. its off 10%+ at the end of last year judging by all the data with a pretty steep dive at Xmas and also January started way off.

Trend #3 - all markets are similarly affected with the exception of LATAM (which is relatively small) and GCC also relatively small at around sub 10%. What is also noticeable is that Europe seems to be holding up about the same as the USA but that Asia Pac is really off. This bodes better (but not well) for Amadeus but not for Travelport and Sabre must be really hurting, the latter as a result of powering Abacus.

Trend #3 - GDS based bookings seem to be falling off faster than total pax. This is very worrying and I have written about this before. This is driven by two factors: less corporate traffic (which is way off as we have seen from premium airlines like Cathay and BA) and by more shopping which has resulted in leisure shoppers moving towards buying direct (as we have seen from Expedia).

Travelport therefore stated that Q4 2008 "overall volume declines and 9 percent lower GDS revenues. GDS bookings fell 14 percent in the Americas, 15 percent in Europe, the Middle East and Africa, and 21 percent in Asia-Pacific." Moreover Gordon Wilson head of Travelport's GDS business reported that traffic was even further down in January of 2009. Still a 6% point delta between GDS revenues and transactions points to airlines paying more. This will further exacerbate the conflict between airlines and their former GDS children.

Interestingly in this debate - what we see are the first signs of an acknowledgment of the sea change. The withdrawing from the holistic one size fits everything model has finally come to be acknowledged by the external analysts and even the GDSs themselves.

Former Thomas Weisel stock watcher Jake Fuller--last week hinted at the Masters' Program conference - that the Private Equity players would not be able to sell their GDS based assets in a recovering market any time before the seminal 2011 airline contract negotiating period. Thus the value of the GDS write downs will have to be massive. In turn this would trigger concerns of the debt holders and also any bank to lend more money for basic services such as continuing "normal" investment at usual levels let alone investment in any fundamental changes to cope with a downsized GDS business.

Even Jeff Clark hinted at a number of scenarios such as a return to the NMC/NDC model. he said "If in 2010 and 2011 we continue to go down by 15 percent per year, all bets are off. At that point, you start to look at very different types of technology to move fewer volumes, you start looking at different regions in different ways, and perhaps go to different partnership agreements. Today we're investing in sales and marketing organizations because we have enough scale in those markets to do it. You might go back to (NMC/NDC type) relationships at that point to 'variable-ize' your cost structure."

That type of commentary makes Sabre's recent comments on being THE aggregated source for content sound pretty hollow. Especially when being used to beat up on emerging potential competitors.

I will say this again. The GDS model is definitely wonky if not completely broken. Someone just needs to be honest about it and address the reality of the new world order. Sounds like some people already have it on their radar.


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