Global distribution system Worldspan increasingly is reliant on a handful of Internet travel agencies, according to the company's annual report issued yesterday, reflecting both its strength in the online market and its exposure to potential changes in the travel distribution sector. Meanwhile, Worldspan said inducements paid to travel agencies rose more than 20 percent in 2004, though its executives and others throughout the industry said such payments should begin to wane as GDSs, agencies and travel suppliers develop new economic models
(BTN, March 21).
Worldspan posted a fourth-quarter net loss of $5.6 million, narrower than a year earlier, while full-year 2004 net income tripled to $41.9 million. Full-year revenue grew 5 percent to $944.2 million, driven by a 5 percent jump in total global transactions, increasing online processing volumes and "higher average fees per transaction," according to the global distribution system provider's annual report. The other three primary GDS operators--Amadeus, Cendant and Sabre--also reported stronger results for 2004
(BTNonline, Feb. 10).
On a global aggregate basis, Worldspan's 2004 air transactions grew 5 percent and non-air transactions grew 8 percent. Geographically, total North America transactions grew 4 percent, while those in the rest of the world increased 8 percent. Specifically in the United States, Worldspan said it remained second in traditional travel agency market share by processing 32 percent of the total.
Worldspan also noted particular growth in electronic travel distribution revenue and transactions. In fact, online transactions grew 14 percent, surpassed 100 million for the year and represented a larger proportion than traditional transactions, which decreased 3 percent during the year and 6 percent in the fourth quarter. Worldspan claimed to process more online transactions than any other GDS, having handled 64 percent of all such global air transactions during 2004 and 67 percent in the United States.
Illustrating the GDS operator's dependence on specific online agencies, Worldspan said Expedia represented 28 percent of total 2004 transactions and Orbitz represented 10 percent. Priceline and Hotwire combined accounted for another 10 percent of total transactions.
Though Expedia last spring announced Sabre as another processing partner
(BTN, May 10, 2004), Worldspan said no Expedia transactions had yet shifted between the two GDS competitors. Worldspan also reiterated that its current agreement with Orbitz--scheduled to run to 2011--had not changed despite Cendant Corp.'s announced acquisition of Orbitz last autumn
(BTN, Oct. 4, 2004).
"Although we currently continue to operate under these agreements, it is uncertain as to whether or not these and our other major online travel agencies will not attempt to terminate their respective agreements with us or otherwise move business to another GDS in the future," Worldspan cautioned as part of its regular discussion of risk factors.
Meanwhile, Worldspan said inducements paid to travel agencies rose nearly 23 percent last year, driven by higher overall transaction volumes and a higher percentage of bookings through online agencies, "which tend to have higher inducement costs than traditional travel agency transactions," the company said.
"Accordingly, as we continue to experience significant channel shift, we expect our inducements cost to continue to grow and direct costs related to supporting traditional travel agencies to continue to decline," Worldspan added. Like other GDS operators, Worldspan also suggested inducements to traditional travel agencies may move higher if competitive market forces warrant such tactics as a means to retain travel agency business.
"If the airlines want to set up a direct connect mechanism in the marketplace and get travel agencies to use our technology, forgo inducements and pick up additional costs to make the booking, we are more than happy to do that," Worldspan chairman and CEO Rakesh Gangwal said today during a conference call with investors and analysts. "But we are not able to go out a tell a travel agency that it has to forgo inducements completely because an airline wants it. We are not in the middle of that game. Having said that, we are very empathetic to the airline issue. They absolutely need to bring their costs down."
Sabre Holdings chairman and CEO Sam Gilliland echoed those sentiments during
BTN's Corporate Travel World conference last week in New York. "If you look at some of the new pricing models like United Airlines' new approach
(BTN, Feb. 7)--and we are not really sure how all these pricing models will really work--there is acknowledgement from larger corporate travel management companies that incentives will go south before they go north," he said.
Looking ahead, Worldspan expects to secure additional traditional travel agency market share in the United States as well as deeper global penetration by offering low-cost products, securing additional fare content agreements with airlines, "focusing on a limited number of opportunities to convert business currently supported by our competitors" and engaging the corporate market.
For example, the company said it plans to "launch sales and marketing initiatives aimed at addressing the market for corporate travel departments which use traditional travel agencies" and to capitalize on a growing number of corporate travel bookings processed online.
Worldspan also expects higher online transaction volumes in the hospitality and destination services markets--including car, hotel, tour, cruise and rail--as suppliers in those areas "increasingly recognize the distribution potential of online travel agencies and the importance of making inventory available for distribution in and generating sales through this channel."