Digging into the Travelport numbers released last week, there are a few nuggets that should be evaluated.
One of which is the seemingly surprising downturn in the number of Middle East/Africa GDS segments.
This can be explained by a single event. The decision by the Arab Carriers to end their preferred relationship with Galileo.
At their 40th annual meeting 23-25 October 2007 in Damascus, the Arab Carriers as represented by AACO decided to move their GDS segments from the traditional provider of many years – Galileo – to another provider, Amadeus.
This meant that a significant proportion of Galileo based segments in the region would be moved to another provider. Indeed for the Saudi Arabian based segments this was a knife edge cut as the agents were connected to SV’s network.
Considering the resulting segment/revenue loss this should not be looked on too unkindly by analysts, it seems that Travelport did a reasonable job in retaining a number of transactions but at what cost?
This was once a nice and stable cash cow for Travelport with almost no segment fees being paid.
Now we have heard anecdotal stories that Galileo is offering its highest level of segment overrides to agents in the region to stay with Travelport. This cannot be healthy.
Travelport noted in its headline comments a worrying trend of significant upswing in agent commissions.
Two statements should be taken therefore in context. Overall in 2009 commissions fell as a result in falling GDS segments but the 4th quarter showed a significant upswing.
For the 4th quarter Travelport stated “GDS direct costs, comprising agency commissions, increased $17 million, or 10%, as a result of the increase in segments and an increase in the average rate of agency commissions.
Operating expenses for GDS, excluding agency commissions, decreased by $(3) million, or (2)%, compared to the fourth quarter of 2008.” Yet for the whole year the number decreased: “GDS direct costs, comprising agency commissions, decreased $(77) million, or (9)%, as a result of the reduction in segments.
Operating expenses for GDS, excluding agency commissions, decreased by $(72) million, or (11)%, compared to 2008 primarily as a result of the realization of cost savings and synergies.”
Thus to lose the sponsorship of all the local airlines in one swoop on December 31st 2008 should have seen a greater loss than is indicated in the numbers.
For 2009 – this was the first full year Travelport had without the sponsorship of AACO, the numbers fell 23% in total segments for the region.
Fortunately this fall was mitigated as they had the benefit of several elements. The independent distributer in the GCC market for Worldspan continued to provide additional segments to the Travelport secondary GDS.
Further the market itself also continues to grow with the region again recording double digit growth during this time of world crisis.
For the longer term – as the carriers start to exert themselves you will see that Travelport has a significant set of problems in the GCC and MENA markets. Almost none of the carriers are sponsoring them.
Many of the AACO airlines have aligned themselves with Amadeus. Emirates is pursuing a very independent distribution mantra and deploying its own system into the marketplace.
Where once should have been a shining pillar of revenue growth for the company – they are seeing significant share loss and increased marketing (aka agent segment commissions) costs.
This trend illustrates the overall problem that Travelport has greater than its peers, namely it does not have the opportunity of falling back in increased Airline IT revenues.
Thus it sees its costs rising. In the 4th quarter its GDS segments rose by 5% but its adjusted GDS revenues actually fell 2%.
Given the focus on new accounts that are just coming on stream and new contracts that Travelport signed since the middle of last year – this represents a worrying trend for their long term profitability.
Here is a message for the airline community – the GDSs WILL raise their fees but not via the segment fee.
As I have noted many times – the unbundling of the GDS segment fee is well under way and it will raise the overall costs to the airlines. You have been warned.
Digging into the Travelport numbers released last week, there are a few nuggets that should be evaluated.
One of which is the seemingly surprising downturn in the number of Middle East/Africa GDS segments.
This can be explained by a single event. The decision by the Arab Carriers to end their preferred relationship with Galileo.
At their 40th annual meeting 23-25 October 2007 in Damascus, the Arab carriers as represented by AACO decided to move their GDS segments from the traditional provider of many years – Galileo – to another provider, Amadeus.
This meant that a significant proportion of Galileo based segments in the region would be moved to another provider. Indeed for the Saudi Arabian based segments this was a knife edge cut as the agents were connected to SV’s network.
Considering the resulting segment/revenue loss this should not be looked on too unkindly by analysts, it seems that Travelport did a reasonable job in retaining a number of transactions but at what cost?
This was once a nice and stable cash cow for Travelport with almost no segment fees being paid.
Now we have heard anecdotal stories that Galileo is offering its highest level of segment overrides to agents in the region to stay with Travelport. This cannot be healthy.
Travelport noted in its headline comments a worrying trend of significant upswing in agent commissions.
Two statements should be taken therefore in context. Overall in 2009 commissions fell as a result in falling GDS segments but the 4th quarter showed a significant upswing.
For the 4th quarter Travelport stated “GDS direct costs, comprising agency commissions, increased $17 million, or 10%, as a result of the increase in segments and an increase in the average rate of agency commissions.
Operating expenses for GDS, excluding agency commissions, decreased by $(3) million, or (2)%, compared to the fourth quarter of 2008.” Yet for the whole year the number decreased: “GDS direct costs, comprising agency commissions, decreased $(77) million, or (9)%, as a result of the reduction in segments.
Operating expenses for GDS, excluding agency commissions, decreased by $(72) million, or (11)%, compared to 2008 primarily as a result of the realization of cost savings and synergies.”
Thus to lose the sponsorship of all the local airlines in one swoop on December 31 2008 should have seen a greater loss than is indicated in the numbers.
For 2009 – this was the first full year Travelport had without the sponsorship of AACO, the numbers fell 23% in total segments for the region.
Fortunately this fall was mitigated as they had the benefit of several elements. The independent distributer in the GCC market for Worldspan continued to provide additional segments to the Travelport secondary GDS.
Further the market itself also continues to grow with the region again recording double digit growth during this time of world crisis.
For the longer term – as the carriers start to exert themselves you will see that Travelport has a significant set of problems in the GCC and MENA markets. Almost none of the carriers are sponsoring them.
Many of the AACO airlines have aligned themselves with Amadeus. Emirates is pursuing a very independent distribution mantra and deploying its own system into the marketplace.
Where once should have been a shining pillar of revenue growth for the company – they are seeing significant share loss and increased marketing (aka agent segment commissions) costs.
This trend illustrates the overall problem that Travelport has greater than its peers, namely it does not have the opportunity of falling back in increased Airline IT revenues.
Thus it sees its costs rising. In the 4th quarter its GDS segments rose by 5% but its adjusted GDS revenues actually fell 2%.
Given the focus on new accounts that are just coming on stream and new contracts that Travelport signed since the middle of last year – this represents a worrying trend for their long term profitability.
Here is a message for the airline community – the GDSs WILL raise their fees but not via the segment fee.
As I have noted many times – the unbundling of the GDS segment fee is well under way and it will raise the overall costs to the airlines. You have been warned.