13 February 2010

US DoT Tentatively Approves BAAABI. Branson Pissed

For some reason on a Saturday the US Dept. of Transportation has announced its approval of the BA+AA+IB transatlantic alliance. In a continuation of its policy of pro-oligopoly, it demanded only a small concession of 4 slot pairs at LHR be surrendered. Far less than the EC has demanded and far less than its own demands 8 years ago for 16 daily slot pairs to be surrendered.

Virgin Atlantic Chairman Richard Branson is obviously not a happy person.

Already the applause has come from some groups such as BTC who believes that 3 alliances are an inevitability. Given the previous rulings it is unlikely that the EC will impose greater restrictions but it does seem to be a bit of a joke to only ask for 4 slots to be surrendered. A far better arrangement would have been to demand that new slots be made available for new entrant carriers. But the status quo seems to be the protectionism and cronyism that has been a hallmark of the US DoT.

If the competitive authority was truly doing its job then it should open up the market for total freedom. Well we shall see. Next week in Spain the negotiations for the next round of Open Skies between Europe and the USA open up. High on that agenda will be total deregulation and relaxation of sovereignty rules.


Recovery? What Recovery….

So the first shoots of spring are around us. Lots of folks are very happy and walking with a new spring in their step. So what about January numbers? Well not so good actually. Yields are still in the toilet and transactions are not as healthy as they could be. We have two sources which should start ringing some alarm bells. OAG reports that capacity is up again for the 6th month in a row. It is continuing to rise at a time when restraint might be a better policy for economic health. And we still see yields in the toilet.

ARC’s numbers show an improvement over 2009. But the numbers are still way down on 2006/7/8. The legacy airlines are feeling the pinch. The LCCs are continuing to grab market share. Total pax numbers are up. More than the percentage of GDS based ARC bookings in the USA.

In looking at these number specifically for the USA we can see that the drop off in 2009 was 19%. For 2010 the drop off from 2008 was still 13%. More worrying should be the yield situation. While transactions are off 2010 vs 2008, revenues are still worse off at 17% when comparing the gross transactions and revenues for 2010 vs 2008. So while traffic is coming back the yield recovery is less. Thus GDSs and transaction model players will be a little happier but those whose livelihood depends on the revenue side of the equation must remain worried. Airlines clearly must think this is going to be a cause for little celebration yet. Long term the numbers tend to confirm the view that there has been a fundamental shift in the market on the revenue types. However there is one factor that ARC’s numbers do not illustrate. The value of the Ancillary Revenue. So if we look at the airlines they can be happy to know that if they are achieving AR revenue boosts of above 4% across the board then they are doing well. What will be interesting is that this is revenue that the Agency channel is missing out on. Perhaps now the agency channel will start to think more seriously at the value of AR to their bottom lines as well.

So this tells us that there is clearly a price being paid by the market and the recovery will be a lot slower than anyone wants. However there are some opportunities to be had if people are smart.


British Airways, Less Could Be More

BA is finally coming round to accepting its fate. The airline is making noises similar to that of its close cousin Qantas prior to the latter slashing premium seats on its fleet.

So three new stories should give some context to BA's future positioning with regard to its premium products.

Firstly - First is having a Makeover. BA unveiled its new first class "demi-suite" this week on a 777 used to and from Chicago. The new seat allows for the same number of seats in the cabin (although I have not been able to confirm this) while upgrading the onboard experience. There is a wider bed, a closet for your jacket (more self service from BA) and a better set of seat controls and "unique personal windows"!!!! One thing is for sure. There will be a lot less First Seats out there by the time the roll out of the new first class is complete in 2 years.

Hot on the heals - of this announcement - Open Skies will be flying Paris to IAD. Providing a premium service between the French and US capitals would seem to make sense. Although I have to question whether any government personnel from either country would be flying on a British Aircraft.

Finally Willie Walsh has been spouting off that he will see a reduction in short haul premium seating. Frankly I have noticed of late that the front cabins of the Airbus European Fleet has less of the full seats and more of the convertible seats.

So BA is moving down market. It has to. That is where the market is. Anyone willing to pay 600 Euros for a one way Biz seat in Europe must be off their heads (ok guilty but I had no choice!!!).


Ancillary Revenue’s Achilles Heel

In a Beat Article last week – TRX reported that less than 1 per cent of transactions that they process had ancillary revenue.

The statistics are sound – perhaps. Why do I say that? Because they are analyzing information that shows ONLY what it can show. And therefore this is where the Achilles heel of Ancillary Revenue floats to the top. The problem is that the agency tickets cannot accommodate (except in very rare circumstances) Ancillary Revenue items. So the total possibility of fulfilling Ancillary Revenues via the agency channel is almost zero. So the study shows what we already know. IE that you cannot fulfill Ancillary Revenue in the agency channel.

The airlines – particularly US legacy based ones – need to move the process of Ancillary Revenue away from fulfillment just from the airline’s own fulfillment process into the sales channel that constitutes the majority of sales. The airlines need to expand their AR. This is obvious. But the constraint is that the largest tool for selling Airlines’ products – the GDSs – cannot accommodate the sales process. Indeed the current generation of tools will not support this. For proof – I turn to Travelport’s latest Product Advisory. For this I am indebted to Professor Robert one of our regular contributors to the Blog. In PA 917 (Version 01) Airline Additional Services Display Functions in Apollo™ and Galileo™ on page 2 Travelport clearly state’s that the Galileo Desktop will not support Ancillary Revenue.

The initial release of Airline Optional and Additional Services will only be accessible on the Apollo and
Galileo systems via Terminal Emulation (TE). A separate and subsequent will be sent relative to release
to the Worldspan Terminal Emulation (TE) environment. Merchandising capabilities for Galileo Desktop
(Viewpoint) will not be developed. Travelport’s Universal Desktop will include enhanced merchandising
functionality, including access to expanded content, product descriptions, itinerary comparisons, and upsell

Click on this link – page 2


Thus at the very moment the airlines need Ancillary Revenue to improve their bottom lines – one of the largest channels for this potential revenue is blocked to them.

The airlines clearly understand this and are indeed perplexed by the legacy GDSs reluctance to adopt AR. However this exposes the fundamental issue – the true Achilles heel which is that the legacy GDS process does not support AR. So we are clear – it is not that it cannot be done. Already ARC supports the processes. Airlines are able and willing to support the infrastructure that will enable AR sales via the agency channel. The clear proposition is the Airlines need the Agency Channel. The Agency channel has diverged enough from the GDS dependency to enable its own solutions for service of its customers and their partners. So Troy can be saved. What do you think?


12 February 2010

The Travelport IPO Debacle. Investor Payback?

Despite some generous concessions at the last minute by the Travelport team on their feather beds and parachutes and reduction in the initial offer price, the “London deal of the year” has fallen apart and so there is to be no IPO for TP for at least another 6 months probably not now until 2011. A spin and a brave face allowed the announcement of the cancellation as follows: “We will consider bringing it back to the market at a future date, when equity market conditions are more favorable."

I have spoken to several people who have been on the periphery of the deal and spent the last few days chatting with some investment analysts who have familiarity with Travelports IPO Book. Based on these conversations I would like to give some analysis which I hope will put the failed IPO in perspective. I think we have to look at things through three criteria. For this IPO to work – the general economic climate had to be good, IE the market had to receptive to the type of deal, the specifics of Blackstone and its partners in being able to pre-sell the deal and then for the market herd to either accept or not the package. Finally the critical assessment of Travelport – its recent performance, its model and the prognosis need to be microscopically examined.

It was clear that the climate for IPOs has not been great. Greece and Portugal’s troubles are making headline news in the recent weeks. Of the 62 IPOs launched since December 1 2009 globally, 32 were shelved -- 15 in the U.S., 7 in Europe and 10 in Asia.
The global market upswing that was clear from the end of the year in investment confidence has not translated a market for those mega IPO deals that were a hallmark of the early to mid 2000s. We also have to bear in mind that the market is much chastened and is still seeking real value and future growth rather than just cashing put “Venture Vultures”. But the global debt loading that went on last year to save the somewhat broken financial markets has eventually to be paid. So the climate was perhaps something a contributing factor to this failure. If the climate was overall bad then it would have affected other plays. However it wasn’t bad enough to halt everything. Indeed one of Amadeus’s two VC backers managed to get one of their IPOs away this week. Thus the market’s ability to absorb a large deal like Travelport’s IPO reputed to be one of the largest in London this year was still a viable/possible proposition.

For Blackstone in particular, there has been a certain market resentment against the huge debt mountain that they have in their portfolio. The specific failure of Blackstone in the mega PHH deal at the end of 2007 was an early harbinger of the troubles that would beset the VC market for the next 2 years. And some influential people have not forgotten that. Just ask the guys at GE. Boy were they pissed! I do believe that there is a general negativity towards deals that are straight cash outs for the Venture chaps. As one UK fund manager put it: "Investors in the quoted market are not really enthusiastic about being the buyer of last resort for these ‘used’ private equity investments." (Source Reuters). We have to call a spade a spade. Blackstone has already taken its money out so why should the markets reward them for a bad or mistimed early risk. We should remember that over the past several years the Travelport debt has been widely traded and much of that debt has been heavily discounted. In some transactions that discount over face value was a very high number. Thus there is a significant discount already in the market on that debt that Blackstone is seeking to retire. Those debt holders include many of them who are now tertiary or further removed investors. These chaps are in general bottom feeders and hedge funds. For the general market to essentially become the buyer of last resort was in my opinion the biggest single downer factor for the deal itself. The Tamasek deal also set a bar for a concessions and discounts that meant someone would still need to foot the bill. Well it became clear that the traditional money guys were not keen to cover others’ benefits.

Let’s look at the focus of the company and its risks. As I have written previously Travelport has been very aggressive in the market offering deals on both the supply and the distribution side. BTW they are not alone. Within the user community, Travelport has been offering deals of $4 per segment. Thus the market for segment overrides has been really hot from the middle of 2009 until now. Travelport has been crowing about its “Significant Recent Wins”. But on the airline side, Travelport has been offering full content and opt in arrangements that have lowered the gross revenue from segments. That my friends has the smell of something rotten. Lowered gross and raised incentives to customers for the same or falling transaction numbers has to be accounted for sooner or later. While Travelport bills itself "a strong company with an attractive financial model and great momentum, as demonstrated by recent contract wins,” these need to be put into perspective. A cynical person might have a different opinion of who was coining it if ” …The business remains on track to continue delivering outstanding value for its shareholders.” (Reuters). Further in the case of Travelport (as compared to Sabre and Amadeus) a close examination shows they don’t have the strength in the other 3 lines of business. Its investment in the online market space had to be bolstered last year with a cash infusion from TP to Orbitz (Travelport is the largest owner of Orbitz stock). Similarly last year Travelport took a big goodwill write down in their GTA part of the business that has been tanking in recent years. As we know Travelport is the smallest of the big three in the Airline IT space. Indeed in effect it has lost a major customer with the shuttering of Northwest at the end of last month. Thus its tony PARS airline reservation service now has only minor airline customers.

We cannot discount the fact that their core business has risk, clearly the institutional investors saw that and demanded significant concessions and discounts. The emergence of real alternatives to distribution on both the direct side and via new channels represented by Farelogix and Lute amongst others creates a whole series of risks that were not there when Blackstone took Travelport (aka Galileo) off the market. The emergence of Ancillary Revenue as a major importance for the airlines and the general infrastructure demands point to a requirement for significant technology investment spend in the coming years starting almost immediately. This comes at the very time when Travelport had reduced its R&D budget to a fraction of what it once was in absolute and in percentage terms. Travelport also doesn’t have the ability to point to future savings. It already has discounted and implemented those savings from the merger of Galileo and Worldspan. In fact Travelport has some significant inefficiencies as it supports many different hosts: 3 GDSs (Agency Apollo, Galileo and Worldspan) and three separate airline hosts (PARS, Deltamatic and United Apollo) in two data centers. Nor is there any fat in the Travelport organization that will result in magically creating more book value through cost cutting.

So now we know that the deal failed. In future posts I will examine what the future can hold for Travelport. I will also be looking at the impact on Amadeus and Sabre. While they (IE all GDSs) have a good cash flow and there is no immediate risk for the business, the halcyon days of high value for Travelport might just seem not to be here anymore. Happy Days are just not there in Langley, Atlanta or the Blackstone offices. The next effort (if and when it happens) will have to be substantially different. If the same deal was to arrive on desks in say 6 months it will hit the same opposition and same environment. For Tamesek and its proposed part of the package this could also create a long term issue of finding a way to meet the terms of that agreement without essentially robbing Peter to pay Paul. Jeff Clarke and his team clearly have their work cut out for them to salvage something from this wreckage.


08 February 2010

And Sabre Makes 3 . Multi-GDS Access

In no surprise to anyone - Sabre has announced that its next generation agent tool will be multi-GDS. Thus making all 3 legacy GDS companies now offering to link to each others' hosts.

This marks a full entry of the GDS players into the agent desktop market. AmadeusOne followed Galileo's as yet undeployed Universal Desktop. The new Sabre tool will ultimately replace MySabre. The new tool is described as a "merchandising platform" in a clear nod to the importance that merchandising will play in the future of travel agent tools.

There will be quite an interesting battle now emerging from the traditional players as they try to figure out how to develop hybrid functionality to access not just basic GDS host based functions but remote XML and even EDIFACT based services. In what must now be an admission that the days of host centric computing are over for the GDS world - the services are going to come from a wide array of sources. For the IPO bound GDSs the investment in technology to catch up to the rest of the world in computing capability will be significant. How this will be paid for remains an open question.

Next generation products from companies like Farelogix and LUTE Technologies are already beginning to appear in the market place.


OneWorld Breathes a Sigh of Relief

JAL Stays with OneWorld and announces AA as its "new" partner.

In what the WSJ called a "come from behind" victory for AA - it would seem the legal risks became the big issue.

Anti competitive restrictions could have been pretty intense. There were 2 challenges. AMR had already threatened a protracted legal battle if Delta teamed up with JAL. And the other issue would have been a potential anti-competitive challenge.

So OneWorld can breathe a sigh of relief. However does this make JAL better or (more correctly in y opinion) more viable? The jury will be out for a while on this one.


07 February 2010

Blackberry 9700 Not Compatible with Office 2010


Someone screwed up - or rather we are all a little too premature.

So there is a current incompatibility between the Crackberry BOLD 9700 and the latest iteration of office -Beta 2010.

It SHOULD be fixed sometime soon but in the mean time watch out for it.

For more information on the problem head over to Blackberry.com


As a temp fix here is what you can do.

1. Synchronize all of your data on your old BB device.
2. Back up everything
3. synchronize the information by backing up your calender to a iCalc or some other device.
4. Back up your local addresses to local media (like a SD card)
Restore from these places.

The fix should be in - probably in about 1 month.


The Professor - This week And A Request

This week I shall be at the TNooz tcamp2 in London on Tuesday Feb 9th.

So come along and rub shoulders with a must-attend gathering of travel tech journalists, bloggers, entrepreneurs, executives, technicians, engineers and thought leaders. I am just a hanger on but will be there anyway.

So my request?

This week I will surpass 1500 blog entries for the Professor. If you would like to share some comments or give me a suggestion for the 1500th entry - then please send away to professorsabena@gmail.com

Cheers and have a great week

BA vs FR and U2

The January Traffic numbers are in and the numbers are impressive.

Ryanair is now officially more than twice the passenger size of BA. Easyjet is nearly than 50% larger in terms of number of passengers carried. Both of the LCCs are generating better yields than the former national carrier.

So here are the comparisons in January:

Ryanair 4.44m passengers , up 9% year-on-year, Load factor 70%
easyJet, 3.14m passengers up 10.7% Load factor 79.3%,
British Airways, 2.14m passengers dropped 8. Load factor 74.2%.

No need to speculate on the financial impact of these numbers.

However this does indicate that the hybrid model is gaining traction. It will be interesting to see how well FR's numbers look this quarter in comparison to U2.