Travelport Makes Claims That Sound Too Good To Be True

Sometimes - you see information and then you say to yourself... this can't be right. Such is the case with the Travelport numbers in their latest press release that went out this morning. So with my painstaking efforts and several hours of detective work - here is what I believe is the CORRECT information.

IF I AM WRONG - then can Travelport please correct my numbers or my calculations.

So I read with interest the Press Release from Travelport. You can read the whole release here, I draw your attention to the following section:

“Notes to Editors:
• According to Travelport estimates, only 13% of all airline passengers boarding flights in the United States purchased their tickets through Travelport's GDS travel agent subscribers. These subscribers earned an average distribution fee of (1.2%) less than 2% of the average ticket price. In comparison, the average distribution expense for a US hotel is 1.5 % of the cost of a stay.
• Over the last five years, Travelport estimates that the distribution prices paid by US airlines to Travelport have declined by 18%. On a real or inflation adjusted basis, distribution prices charged to US airlines have declined by 24% over the last five years.”

So I will challenge these statements using Travelport's own numbers:

1. The subscriber fee statement information is in my opinion misleading.

According to the US Dept. of Transportation the average domestic ticket paid in Q3 2010 (latest data from Feb 2011), the price is $340.
Using the average ticket price, the average number of segments (Per ARC Corp is 2.2 segments per ticket) at the average segment fee paid to Travelport (from Q4 2010 Travelport) of $5.71 net revenue – then the average ticket price is comprised of $12.57 or 3.7% of the ticket ON AVERAGE. However using the Travelport percentage of 1.2% then it means that 32.5% of all GDS segment fees are passed on as incentives to “subscribers”.

As an exact example for a family of 4 travelling from West Virginia to Daytona Beach it requires a connection so if the ticket was purchased through a Travelport agency – this family of four would pay (hidden in the ticket price) $91.04 in GDS segment fees.

The statement itself is misleading. Travelport is mixing apples and oranges. The distribution fee is 3.7% but the subscribers get 1.2%. Using a comparison with hotels not irrelevant as total cost to the supply owner for hotel distribution would be many times this and is not a fair comparison.

2. That the Distribution Fees have declined over the past 5 years is misleading and false. In fact the differences are significant with a rise adjusted for inflation of more than half.

Using the information in the Travelport financials – they give us some great data and it’s certifiable. This tells a very different story. Using the two reports which are currently available. Q4 2007 and Q4 2010. I can pull consolidated information from Q4 and Full year 2006 and compare it to the corresponding information for 2010. If we use the numbers correctly according to the logic outlined by Travelport then a total of $648 million in 2010 was paid by Travelport as inducements, segment incentive fees to Travel Agencies. That number, if correct, would be a very large number indeed. For the source of my information and calculations please see the following links.

2010

2006

Overall, The GDS net revenues (as defined by Travelport) actually rose 31.66% despite a significant decline in Segments that went through the Travelport GDSs (namely Apollo, Galileo and Worldspan) down 22.6%. This translates into a net revenue in absolute terms increase per segment of 70.17%. Adjusted for inflation of 8.2% (using this calculator) this means a 56.22% IE more than half increase in GDS charges from 2006 to 2010.

So is the release correct? Is it misleading? You can be the judge. I am happy to share my numbers with bona fide individuals - please email me professorsabena@gmail.com.

Cheers