Expedia's Stock at 52 week high

So Expedia's stock is riding high. Should you buy in or is this the peak.

Here is our take on the current run-up. Given how bad things have been lately over there in Bellevue - we were wondering for some time how long Dara would last. But since he has the confidence of Chairman Barry he will be around for a while. Having been caught off guard by the TPG/Sabre and then Blackstone/Travelport, Expedia should be making solid progress on a wide variety of fronts in order to show it is maintaining momentum. And there has been progress. Probably more of the "not-so-bad" variety rather than than a great performance.

Expedia just might go private. The current price is too high. But if there is a significant dip in the price over the next few months I think we can see more buybacks or an offer to take it private.
The long tail wont affect Expedia for a few years yet. The critical metrics are to look at the performance of the international divisions - particularly China, Germany and UK - and the value of TripAdvisor which could probably be hived off at a premium. Especially given certain analysts hype of Travel 2.0.

The suppliers are sitting pretty. The Hotel Industry just reported another record year with profits that probably exceed the total profits ever recorded by the airline industry. As long as this is the situation - then Expedia will be constrained. If (as we expect) we see a softening of the market in 2008/9, then Expedia's yields should pick up. So now would be a good time to go private IF the prices was right.

Stay tuned folks

Cheers

DL and CO - Do you REALLY want LHR? Check this out.

For some time now this blog has ranted about the 3rd world nature of LHR and its symbiotic partner BA. Both of whom are providing a pretty piss-poor service. With Open Skies now a reality and many US carriers climbing over themselves to get slots at LHR. Here is something to make you pause and wonder.

This summer - I really do not recommend you even setting foot in the place.

Check this blog entry from Tim Hughes at THE BOOT. http://tims-boot.blogspot.com/2007/06/500-miles-of-security-queue-at-london.html

I know LHR pretty well from both the in/out as well as the changing planes there. With T5 still 10 months away this is just appalling. This is for T2 passengers. Trust me it isnt much better for T1, 3 or 4.

Cheers

BA not for sale... probably with good reason.

Service deteriorates at World's Favourite Airline

BA's Willie Walsh has put the NOT FOR SALE sign up outside Waterside. Despite his buddies over at Goldman Sachs wanting to make another packet now is probably not quite the right time. There just isn’t enough support although there are (as we have noted before) some great numbers to look at - not least of which is the free cash flow.

Now the reason for the run up in stock (for those talking it up) was the great numbers in the front cabin. well so far so good but that is not a long term thing. Having just experienced again the airline's less than stellar service I hope you will indulge my rant here.

BA's premium traffic has increased but not the staff to handle them. As a result LHR is a giant mess - both in and out bound. This week inbound traffic to Terminal 4 suffered yet another baggage meltdown due to "...Insufficient Allocation of Resources", and no I am not making this stuff up. this was the official reason given by BA over the Tannoy (they don’t use a more modern PA system trust me on this) why bags were "15 mins later than normal baggage wait times". I checked with several other passengers especially Flight BA 288 (from PHX) and BA242 (from MEX) both of whom endured waits for over 2 hours. My flight BA52 from Seattle had bags show up 90 minutes late.

Leaving on Sunday to go from Terminal 1 to Moscow I witnessed yet another example of how bad things are: the Zone R (premium travellers) area took over 40 minutes to go through to "Bag Drop". Zone R vs Qatar Airways Premium Terminal in Doha. No contest. I do hope someone from BA has actually TAKEN one of these flights.

Couple this significant fall off in service with BAA/UK government's crippled one on board bag policy and you get a recipe for meltdown's like this. But BA must shoulder the lion's share of the blame. For some time I have been hyper-critical of their baggage policy and handling at LHR. This is a management problem caused by the ill-fated decision to outsource baggage management to a thoroughly incompetent group.

BA may be taking advantage of an increase in premium traffic but it will be short lived. When the US airlines start arriving at LHR in greater numbers expect to see real competition. With significantly better service from the GCC based airlines allowing you to bypass LHR AND with easier connection services in AMS, CDG even MAD you can easily see that things are going to get a lot worse before they get better. Having flown BA's new Club Class service, I can attest to its improvement over the existing 1st generation service. But VS has nothing to fear and the plans by AA and in particular DL to offer premium C/J services will be a real fight. BA could easily lose its self adopted crown.

Are you listening Mr Walsh?

I hope so...

Cheers

Timothy
www.t2impact.com

Delta Quietly Dumps Expedia

Delta has quietly dumped its most recent hotel and car partner Expedia WWTC.
It is now directing traffic to its "friends".

Car rental for Avis and Budget go to www.carrental.com (the joint booking engine for Avis group) and Hotels go to Hiltons master reservations sites.

The search for additional revenues via the website are become more intense and the competition for traffic has once again become a hot topic.

I am sure there will be more changes. If you are not currently evaluating your options you are likely to be loosing out in this intense battle for customers.

Cheers

Timothy

Expedia has largest share by far of online hotels in South Florida

According to Travel Weekly's Travel Technology Newsletter MIAMI-DADE COUNTY QUIETLY NOTIFIED ONLINE TRAVEL COMPANIES in February that it would commence tax audits related to unremitted 6% hotel bed taxes. In March it sent them estimated tax assessments totaling almost $10 million for the past five years.

What is interesting is the market share of each of these players.

If we just use the tax numbers and assume an equal average daily rate then the share of business for hotels in South Florida is quite startling.

Expedia: 60.1%
Travelport: 14.1%
Priceline: 11.1%
Travelocity 8.3%
Others 5.8%

After 5 years activity this represents quite a significant share. However the total numbers are not that great. if we assume about $120 per ADR then it only represents a total of approx 800 rooms per night occupied and sourced by the OTAs' guests in South Florida. Just about enough to fill the Fontainbleu twice over.

So still lots of room for growth.

Now I wonder if the hotels are also feeling the heat from offering some of their stuff online.

Any clues anyone?

Cheers

Timothy

SQ Biting off more than it can chew with China Eastern?

Already the industry analysts are wagging tongues at the SQ investment into MU. One of the weakest of the big China Airline companies MU has not had a great track record since it became one of the designated major National and International carriers from China.

SQ has had a good record as a passive investor (think Tamasek) in Silk Air (its own subsidiary) and Tiger Airways. That is close to home. However its forays further afield have been somewhat of a mixed bag. It has its significant holding in Virgin Atlantic (not any of the other Virgin group airlines) which has not shown a significant impact although both parties are happy with the deal. But then we can look at the Air New Zealand episode that frankly many at SINHQ would rather forget. Much has been speculated as to what MIGHT have happened if SQ had followed through and bailed out Ansett. My wouldn't the world be a different place!

So its going to be worth following to see what role SQ management takes in the running of MU. There is clearly potential value on both sides. Similarly Air China is doing all it can to fuse some knowledge learned from CX in improving its product and bottom line. China Southern has not yet seen much out of its DL match up.

But the night as they say is yet young and we all know China plays for the long haul - and for keeps. As long time China watchers - we recommend paying attention to how this shakes out for the long game. China is determined not to allow any embarrassment occur prior to the 2008 Games. After that we see a loosening of the reins and a significant expansionist pursuit by many of the players. There is room for many victors.
Cheers

Don't worry - Be happy apart. Galileo and Worldspan to remain Seperate

Forget synergies - its all about making a buck. So what if you have 2 sets of infrastructure to support the "Full service" suites of both now isolated systems, Blackstone led Travelport has announced that it will keep the 2 GDS apart rather than go through the enormous pain and cost of a single platform.

On the one hand we applaud the rationality of the argument not to go through with the very painful exercise (Ed: I have done it twice!). However we believe that there will be a significant amount of confusion amongst the respective customer bases. we just hope that Travelport has some good integration strategies up its sleeve or else the sheer cost of supporting 2 data centers and two product lines has got to be a Controller's nightmare.

Rest assured your trusty team at ITK will be on the case watching the situation and reporting back from the field including customer reaction and some insider news.

Travelport - we wish you success. Please make it clear what you are really going to be doing. We would like to have a clear story to present to the world.

Cheers

ITK Team

Did BA put itself in play? Goldman Sachs thinks so or...

Talk about a tangled web. So follow the story if you can. BA owns about 10% of Iberia. BA used to own a sizable chunk of Qantas. TPG has failed in its bid as APA to get control of Qantas. BA joined the TPG based consortium bidding for IB. IB's advisers are Goldman Sachs. Goldman raised its ownership in BA to over 5% making it the 4th largest shareholder in BA.

Got it?

OK so if we read the tealeaves (something we love to do at T2 although personally I think hot caffeine based drinks are over-rated) then there is something going on.

BA has been the target of some speculation of a PE based bid (in the old days we used to call these LBOs). Why? its that juicy cash flow - GBP 800 million a year. (That's $1.6 Billion in greenbacks). With Private Equity cash chasing just about anything that moves - BA is a good target. However its institutional investors in the City would likely harrumph a lot at this.

But you have to think that that there is some truth in all of this to BA being really in play.

Cheers

Timothy

Virgin Oz - Splits 4 ways

Following in the footsteps of its arch rival Qantas - Virgin Blue is now the uber-brand for the Ozzie carrier. As it has slowly and relentlessly moved upmarket with its primary brand going after the corporate market - Virgin has seen its low cost roots (and routes) usurped by the upstart part of the Qantas group - Jetstar. With Tiger airways a mere few months away from starting domestic Oz routes - Virgin is not sitting still.

The company will now have 4 main brands:

Virgin Blue will be the premium branded service for Domestic routes.
Pacific Blue will be APAC regional routes including TransTasman services already in operation. The two newcomers will be the Long Haul (initially Trans Pacific) 777 service and the even sooner to be launched LCC player.
Commenting to Travel Weekly Australia at the Australia Tourism Exchange on Monday May 29th, Brett Godfrey, Virgin Blue CEO said "As we already have an Aircraft Operators Certificate (AOC), we can be up and running almost immediately". This pits Virgin Blue firmly against its rival. With some variation!

We believe that now the ownership issue is long resolved the company has been planning this expansion strategy for some time.

With Qantas itself in somewhat disarray following the recent debacle of the APA aborted tender and the subsequent resignation of 2 board members, we can see that there is life in the old dogs yet. Now why didn’t Ansett do this???? Answers on a postcard or email to me asap....

Cheers

Timothy

timothyo@t2impact.com

For Airbus - what is the compensation for the delay of the Whaleliner?

Disclaimer - this blog entry is pure speculation on our part. However we believe the numbers to be accurate for the aircraft concerned.

For some time we have been trying to assess the likely impact to Airbus customer airlines for the delays. We now believe that the offer is pretty clear. It is a 5% free off IF a further aircraft is purchased. Rather a kind of buy one get one free to the affected airlines. We know that Virgin has opted to take a delay with a small compensation. However for the major players this translates into bolstering the order book. As a result We estimate that a total of 18 aircraft will be added to the production order book as a result of this special offer. Not quite compensation for the cancellations of the Freighter version of which 20 were ordered but then cancelled by UPS and Fedex.

T2 estimates that the current order book changes (prior to the Paris Airshow) will be as follows:
EK +4 (announced), AF +2 (announced) QF +8 (of which 2 will be compensation - announced), We believe that ILFC and SQ will announce 2 additional orders each. LH will add 3 with one a piece going to KE, TG and MH. A possibility exists that QR and EY will vie to order at least one a piece. However it is wrapped up into whether the orders for A350s will be made permenant. We dont think the (at least 1) private A380 will actually be taking up the twofer deal. Total cost at book value to Airbus in these special deals will be over 2.2 Billion Euros.

Airbus is planning some blockbuster announcements for Paris. Some of those orders will be part of these deals we believe. Boeing will be low key as they have been having a lot of basking in the sun at Airbus' expense of late.

Stay tuned. This could be fun

Cheers

Timothy

Why Iberia? Can BA capitalize?

Flanking the Skyteam Alliance anchored around 2 Northern European airports (CDG and AMS) has been a goal of BA. Of late BA has been feeling the heat with the infrastructure failures at LHR which has resulted in generally a loss of connecting traffic at the world's busiest international airport. As someone who connects frequently through the major EU hubs I can assure you they are usually pretty bad. But AMS is still the champ at this. I am sure many of my fellow travellers can recite tales of horror from FRA (the furthest A gates) LHR (the staircase to heaven or the escalators to hell), or CDG (the bus rides around Northern France). The new Madrid airport terminal feels like a positive dream. BA is hoping its new T5 will be just as terrific and give them the edge against all its new competitors.

BA desperately needs another platform to retain its dominance. Wednesday's (May 23) article in the WSJ was a good overview of the motivations. But BA has been either very lucky (financially from its 2 major investments) or very unlucky (less than fulfillment of traffic potential) in its alliances. This time its hoping for success on both accounts.

BA's failures have been when it meddles in other people's markets. The US Air investment and involvement was unhappy for all concerned. But Qantas worked out just fine. Because Ayling and his successors wisely left them alone. TPG's team is not a group of hands off players. So we can be prepared for some fireworks in execution if the team wins. Right now they are the only game in town. With 35% of the shares locked up - anyone else hoping for a look in will be hard pressed. Let’s just hope there isn’t a repeat of the APA debacle.

Cheers

Is Boeing Fudging on 787 Delays?

Boeing has committed in very public pronouncements on the roll out for the 787 on july 8 07. A huge embarassemtn for them if they miss it. But they wont. Flying it will be a different matter.

The delivery of several important components are not all coming together at quite the right time. So there will be some parts that are going to be late. Specifically sources tell us - the wiring wont be ready and they will be installing this long after the actual roll out.

We wish Boeing ALL the luck with 787. Having seen and actually touched a test subject - I can assure you that it is going to be a great aircraft. However it is ground breaking and there are many aggressive new components that make up this ambitions design. Comparing sections side by side with a conventional metal based fuselage shows just how different it is. Across the airport not more than a mile or two away from where the 787 is being assembled there is a fine example of what can go wrong. Volunteers mostly from Boeing are nearing the end of their 11 year restoration of a Comet (a 4C originally delivered to Mexicana). Lets just hope that Boeing hasnt made the same mistakes that De Havilland did with the original Comet 1.

Still lets see if they make an early first flight with the 787. If there is a screw up on the dates and significant slack time is taken up - it could make for some bad press for Boeing and bad news for the current high flying stock.

Cheers

Timothy

Will Willie make a run at Iberia?

So far Willie Walsh's tenure at the head of the World's Favorite Airline has been a bit of a dud. While vowing to clean house he has been relatively low profile and not a heck of a lot seems to be going on at Waterside these days. Not quite what the Board wanted in a CEO after kicking out Ayling and having the able Rod Eddington stabilize the business.

But this is about to change. Frustrated with the pace of change and now faced with the impending loss of Bermuda II rights at LHR - BA needs to make its move on to the continent and soon.

Iberia is a perfect candidate - already a strategic investment vehicle for BA and a OneWorld member there is little overlap between the airlines. But with OpenSkies coming within the next 12 months the time to build up alliances is not something that happens overnight. For success to happen now - BA needs also to benefit from a loosening of the leash on its relationship with AA. The argument is there already. If DL and AF and their sub-partners can have a nice a tight alignment there is no longer a reason to restrain BA and AA. It will just depend on how far the US DoJ and the EU can come to terms in fairness and openness on the Transatlantic.

If BA does not push the issue then we can be pretty sure that they have received the word that such a boost in the alliance would be frowned on and result in a somewhat pyrrhic victory - with BA being forced to surrender slots at LHR. Something right now it doesn't want to do.

Interestingly this would be a coming together of Spanish and UK interests hard on the heels of last year's takeover of BAA by the Spaniards. Sir Francis Drake must be spinning in his grave.

Cheers

Timothy

Did we call it right? QF Chairwoman to resign

From our May 7th Blog entry:

"The Flying Kangeroo is somewhat therefore in limbo. The senior management find themselves in a quandry because unless APA or either partner makes a bid very soon - then at least the Chairwoman's head must roll."

From todays ATW News"
"....At the same time, Chairman Margaret Jackson, who backed APA's effort, reportedly announced her intention not to seek reelection at November's annual meeting."

Chaps get real here - the deal was dodgy at best and TPG does not have enough bandwidth to go after all of these deals at the same time when there are so many other "worthy" causes closer to home with greater value.

So the Kangeroo continues to fly solo. As it should in our humble opinion.

Cheers

Timothy

GDS 3.1 - The model evolves

The news that Southwest is going back into Galileo will probably send shockwaves around the globe. But as the smoke clears we can start to evaluate some of the realities of the situation.

GDS need new content to remain relevant. They face attack from all sides: Falling Yields, bypass, deregulation, consolidation, etc etc. Over the last 5 years according to figures from ASTA, Travel Agents in the USA have lowered their use of GDS from effectively 100% down to just over 80%. This fall is likely to accelerate as the GNEs come online and as the incentive payments dip. At the same time US agents have increasingly started to use Supplier direct websites. That Gordian knot seems to have been broken and the fragmentation trend continues.

At T2 we believe that this is a natural evolution. We believe that the fundamental forces are going to continue to drive diversity in the GDS – definitely we see that there will be less homogenization of the GDS players.

Southwest is interesting at this juncture. You may ask why did they choose Travelport/Galileo now and what was their rationale. We believe that the deal has been in the works for some time. There were some not inconsiderable technical hurdles to overcome but the writing on the wall has been there for quite some time. SHHHHH don’t say anything to anyone but Southwest is beginning to reach Saturation with the current model. For the past 6 months or so – Southwest has been sounding more and more like a network carrier. In reality it is reaching the HVC – Hybrid Value Carrier model we have been predicting for some time. With the true LCC model just about played out for Southwest – there is no where else to go but – well up. Thus they need to expand their distribution and their model. Thus Galileo fits nicely. Why? They are already available in Sabre but Galileo represents a black hole. Thus the opportunity to reach the #2 corporate agency booking system makes perfect sense. Don’t be surprised if the work does not stop here. Look for GNEs to appear soon with that capability. SWABiz has not been a massive success and the efforts behind it seem to have been somewhat half hearted. The final catalyst has probably been two key factors – both competitive in nature. Firstly the US domestic market is already showing signs of weakness. Just last week WN reported having to revisit its projections for 2008. Secondly jetBlue has shown a remarkable uptick in sales as a result of going back into the GDS. WN cannot afford to ignore these facts.

But why not Amadeus? Simple – Amadeus in the USA is a Leisure system- that is well handled by the direct website. However herein lies a message for the other Hybrid Value Carriers. In other markets HVCs are now eyeing the situation of saturation or at least parity with network carriers and looking for ways to be fully competitive. I think the floodgates could open when Easyjet and Air Berlin look back at being in the GDS. But here is some hope for Amadeus North America – since it has none of the “evil” OTAs on its system here – it may just be OK for Southwest. And Worldspan? By the time the system is ready WSP will be owned by Travelport so the issue is somewhat moot – at least commercially.

Cheers

Timothy

Airlines - The Ides of September are coming

In the boom to bust cycle of airlines - the tradition has always been buy at the top and sell at the bottom... not exactly what even your local stock broker would tell you was a smart thing. If you are a student of history you know that Airlines are highly cyclical. Yet many forget that in times of boom. But will this cycle be any different?

Many would argue that this is the top of the cycle and we are approaching the peak of the airlines' net earning capability. Barring a catastrophe - of either an economic or socio-political variety, the airlines as a group should be very profitable this year. But the dynamics are very different this time around. Why?At T2Impact we believe that we are headed for a long term fundamental shift in the structure of the airline system.

Here are some pointers to monitor.

1. We are approaching practical capacity constraints in certain key junction points within the system. For example - The US system is already crowded at peak times yet the investment in ATC infrastructure by successive Administrations has been laughable.
2. Barriers to entry are much higher than they have been - witness the number of new airlines starting in the US market has dwindled to a trickle. In Europe there is a surfeit of LCC startups. Even the robust growth markets of GCC and Asia Pacific are not experiencing a growth of new players.
3. The massive savings gained over the last 10 years in labor cost cuts, distribution cost reductions have been offset by massive increases in fuel. Frankly there are no more major cost cutting areas left.
4. Yields are at historical highs.
5. There is going to be significant labor unrest due to the afore-mentioned labor reductions. is it time for payback? AMR's AA pilots think so with an opening round request for 30% pay increases.So what are the airlines doing with the cash?Plowing it into service improvementsStill off-loading unprofitable marginal routes to affiliate partners.Buying new planes.Etc.

What worries us is that there is no fundamental effort to address the core issues. Neither is there a regulatory mechanism for addressing the true scarcity value of the whole trip and the attendant resources consumed.We believe that a future airline sin tax regime will be introduced. If for no other reason than the usual sin tax revenues on cigarettes (for example) are starting to wane.

Our belief is that the Government bodies - both national and pan-national - and the Industry should be working on improving the efficiency of the system. A fair user fee basis of regulatory payments needs to replace the outmoded and clearly now unworkable 1944 Chicago Convention.

Finally - how about a rainy day fund?In the coming months we will explore different ways that the airlines should be responding to the future. With our new partner InTheKno (http://www.inthekno.com/) we will be examining business models for airlines and the impact on the whole of the Travel and Tourism sector. For airlines – the sky is quite sunny at the moment. But we see storm clouds a-coming.

The Domestic USA market growth is slowing and already we are seeing indicators of a softening of traffic in other markets too. Those high fares are beginning to bite. Once we get past September and we see winter sales coming in at low fares – we will see a pull back and competition for the consumer will again emerge. Round about September 15th.

You have been warned!

Cheers

Timothy

The Passing of the Torch at jetBlue

Entrepeneurs are seldom good at knowing when to kick themselves out or upstairs. The airline industry is littered with egos of people who have never learned when. (Ed Beauvais, Michael Conway amongst others). Also there are many stories of people who stayed on too long in almost any industry.

I encourage the reader to check out Robert J Serling's Aviation History Series which is a pretty good chronicle of greed and chutzpah: http://www.amazon.com/exec/obidos/search-handle-url/102-8178272-0316913?%5Fencoding=UTF8&search-type=ss&index=books&field-author=Robert%20J.%20Serling

So it is with some sadness and hope that we see David Neeleman being kicked upstairs. There is no sub-plot. The airline was caught wrong footed twice this winter. Its customer service strategy was simply inadequate and the operations manual was - well just plain wrong. It has been fixed (we are led to believe) but the damage is done. So the Founder takes the fall and is kicked upstairs.

However there is a footnote to this which I believe is important to consider. jetBlue decided to use the strategy of low cost carrier, (LCC like Southwest) but full product. The differentiation being that unlike Southwest - B6 would treat its customers to a better experience and charge a premium over true low costs carriers. Thus boosting the bottom line with a higher margin than either the top cost (Legacy, Full Service Network Carriers - FNCs) or the bottom player LCCs. This was a good attempt at hybridization or HVC - Hybrid Value Carriers.

There are 2 flaws to the jetBlue strategy in my opinion.

Flaw 1 - JFK. Not the best place to have a hub due to longer lead times and other endemic problems with the airport and staffers.
Flaw 2 - Competition. Assuming that the others will stay stupid for ever is a temporary strategy at best. Delta has emerged with a focus on JFK but for different reasons (International). The net is that Delta's value proposition is better than jetBlue's when the carriers are compared on a more common set of metrics.

Both these two flaws along with a failure to continue development of a "secret sauce" differentiator by jetBlue is inhibiting its growth profile. So the stock market darling of the early part of the decade is now mired in the same sets of issues and obstacles that it sought to throw rocks at. It is for this reason that jetBlue's customer service failure has more impact. Neeleman wanted this to be the big differentiator.

Wisely there is going to be a seasoned hand on the tiller. Let's all hope that the focus returns and that jetBlue can continue to give the others a run for the money. We all love the underdog. But are we willing to pay for the good feeling? Ultimately no. Its as always - price/service mix.

Cheers

Timothy

Maturing Markets - UK is now - EU is next?

We can safely assume that the internet travel market is now 11 years old. (Give or take a few months). In the last 2 years we have seen a strong maturing of the market in the US to the point where it is no longer about channel shift but more about market share. The go-go years are done and the game is over (t)here.

The UK market is closer to the US than any other. The maturity of that market is now self evident (at least to Expedia and Priceline). Both of whom have pointed to this in their latest quarterly earnings. With the sea change of the VTOs merging from 4 to 2 now assured the market dynamics are pretty much set.

This essentially gives us an interesting view that we can now say that the UK is about 2-3 years behind the USA. And here its time for me to confess a bad prediction I made 10 years ago. I claimed that the UK market would not be behind the US but rather would evolve differently and in some cases at a faster rate. Well i was partially right. The UK market did evolve differently and clearly the driver was not the OTAs but rather the the LCCs. Expedia (my alma mater) failed miserably in attracting the LCCs into its fold. That failure stunted the growth of the Onlien giant and will continue to do so for many years to come.

So what can we see for the future? Is there a model for the other Tier 1 markets? Germany and France are all on slower slope curves, which will result in both of them reaching maturity later. Adopting in Tier 2 and 3 markets are more constrained due to the physical limitations such as government regulation, expensive telecoms, lack of web accessible households etc. Thus the maturity of these markets will take longer and have less profit maximization capability as the global supply chain continues to aggregate.

We will make one prediction. with this maturity occuring, we believe that the battle for the second tier markets (such as Italy and Spain) will heat up with acquisitions being a preferable way to accelerate the market. Expedia recently launched expedia.es to compete with such local industry heavyweights as eDreams. Still they cannot seem to crack the LCC market, although the WTTC/Ryanair deal does give them a toe tip into the sector.

We can all be assured that next year the scouts for Orbitz, Travelocity and Expedia will be out in force. The battle grounds will not just stop at the top and second tier. We already see massive competitive in 2 of the BRIC countries. What about Brazil and South Africa? Its still a wild ride folks. Come along

Cheers

Timothy

For some time there has been a return to basics by the legacy carriers. Battered and bruised even before 9/11 the specter of the failed attempts by United Airlines (Allegis) and SAS to build global broad based travel businesses have scared off the majority of airlines. In recent years we have seen significant divestiture by airlines of even some seemingly core airline services for example BA selling SpeedWing and its airline IT business, Qantas the same, Even Lufthansa offloaded its 50% share in Thomas Cook to long time partner KarstadtQuelle. A recent global survey of nearly 200 carriers by Sabre Airline Solutions has found that less than half (48%) ‘believe developing new revenue streams is important to the overall airline revenue strategy’

However the LCCs continue to power ahead with their ancillary revenue streams. The ever ebullient Mr O’Leary from Ryanair has made no secret of his desire to broaden the base of his airline to a point where he will be actually paying people to fly. With significant revenue streams from its partners in the Car Rental business (Hertz) and Hotels (Formerly Travelport/Octopus and now Expedia WTTC) he is clearly showing that this can be done.

Similarly EasyJet has some proof of this trend. Ancillary revenue per seat for easyJet has increased by 18% to £3.81 during the first half of its financial year, with ‘partner revenues' from car hire and insurance, rather than hotels, driving the growth. The largest single source is from Credit Card fees. All airlines should sit up and pay attention to this. With Google Checkout offering zero fees for processing – we still cannot understand why no airline seems to be partnering with Google for this way to drop cash to the bottom line.

T2Impact is a strong believer in opportunities for non-transaction based revenue opportunities as a core part of any travel site’s gross income.

When the overall travel market goes soft we expect to see a rush hunt for new revenue. Better be prepared now rather than later.

We are here to help

Cheers
Timothy



Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness Tel (
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www.t2impact.com

Launch of InTheKno - New partner

Today we are proud to announce the launch of InTheKno - our new partner in Research. Dubbed "Insight and Analysis without the hard work" the new site and material has been in the works for the past 4 months. T2 is partnering with Travelmole in this endeavor.

Check out the new site: www.inthekno.com

Also check out the commentary blog - www.inthekno.blogspot.com Altitude with Attitude.

Cheers

Timothy