<B> Galileo, ITN To Partner</B>
<I>Pact Brings Corp. Booking Product To CRS, Global Clout To ITN</I>
By Cheryl Rosen
Galileo International late last week signed a letter of intent to form a strategic alliance with Internet Travel Network to help develop and integrate ITN's corporate booking system with the Galileo and Apollo computer reservation systems.
The deal will add clout to ITN, a venture-capital-based travel technology upstart that saw the potential of using the Internet to book corporate travel and quickly jumped into the market. But while the ITN system had the advantage of independence from suppliers--and such major corporate customers as Texas Instruments and the World Bank--some also have questioned its ability to survive against the financial reserves of huge competitors now coming into the market, including products from American Airlines sister company The Sabre Group and an American Express/Microsoft partnership.
To Galileo, late to enter the rapidly emerging online market, the pact brings a corporate booking product with name recognition and signed customers.
And the alliance--arguably the most successful ever to come out of the Apollo Partners Program--will give ITN access to cutting-edge technologies like structured data and TCP/IP, and entreé to Galileo's 37,000 travel agent subscribers and their corporate customers worldwide.
Galileo, one of the three largest CRSs in the world--owned by a consortium of airlines that includes United Airlines, US Airways, British Airways and Air Canada--has annual revenues of more than $1 billion (<I>BTN</I>, May 26, 1997). It in turn owns Apollo, its U.S. national distribution company.
In the U.S. domestic market, Galileo's major competitor always has been the Sabre Group, owned by American Airlines parent AMR Corp., which beat it to market early on as the first CRS in the industry, and more recently as the first to jump into cyberspace with a corporate travel booking system. While Sabre developed and beta-tested Business Travel Solutions and signed up every mega-agency but American Express (which is partnering with Microsoft on the competing AXI system) to market it, Galileo hugged the fence about developing a product some of its travel-agency distributors might see as a bypass of the traditional distribution system.
But even without a direct booking product of their own, Galileo and Apollo as CRSs were drawn inexorably into the Internet booking arena, and already are "probably processing more Internet bookings than anybody else," claimed Galileo's senior vice president of subscriber marketing David Near. While he declined to cite an exact figure for Galileo's online sales, he agreed that the number is in line with the 1 percent figure most travel suppliers are quoting for online sales in 1997.
For Galileo, 1 percent of its 3 billion air segments a year would translate into 3 million segments worth of online business.
"How hard would I work for 3 million new segments? Pretty hard," said Near.
But he also noted that Galileo's interest in online media does not come at the expense of travel agencies. "It is in Galileo's self-interest to continue to support its travel agency customers, and the opportunity to exploit technology and make our services available to individual travelers does not change that," said Near. "We have a mutually beneficial relationship with our travel agency customers--when they win customers and grow, we win customers and grow."
To that end, Galileo is building "a suite of corporate and agency products," Near said. "The corporate and consumer markets are very segmented, and one product does not fit all." Galileo has a disk-based system called TravelPoint; Travelpoint.com, for the "unmanaged or lightly managed" traveler (<I>BTN</I>, Nov. 10, 1997); and the ITN product for managed business travelers.
While the agreement with ITN "does not codify exclusivity, we do have a mutual commitment," Near said, and Galileo has "no plans to develop its own system."
As far as an Apollo link to Sabre BTS, which many corporate travel managers have been asking for, Galileo "doesn't have any plans to facilitate that, and with today's announcement, I'd see even less reason than before to do that," Near said.
Travel industry insiders called Galileo's entry into the online market overdue but welcome. Technology developer Richard Eastman, who chairs the Travel Technology Association, said that for Apollo and Galileo, this "is basically an attempt to buy a catch-up solution because they are so far behind in the recognition of the Internet and alternative distribution solutions."
As far as allowing ITN to access its structured data, though, Eastman said that while the technology is not unique to Galileo, "what is unique is that they have elected to allow ITN to use it. This is the first time I've heard of Galileo allowing anybody other than a Galileo entity to do that."
Indeed, Eastman suggested, the alliance as a whole "clearly reflects the assumption of Apollo by the new Galileo management. They are taking action to respond to the different strategic paths taken by Sabre, Worldspan and Amadeus."
Meanwhile, on Wall Street--where the stocks of both Galileo and Sabre now are publicly traded--the news got a warm reception. Said Richard Park, a San Francisco-based analyst with Merrill Lynch & Co., "Galileo's strategy has always been to be a 'cautious follower.' Bottom line, it doesn't want to cause conflicts with its existing network by branding its name on a direct booking product, but this is a market that's going to emerge in the next few years, and Galileo needs a strategy for addressing it. The beauty of this relationship is that it allows Galileo to get into this emerging market without threatening its existing relationship with travel agencies."
Park rated Galileo stock--which hit the market at 24-1/2 and last week was trading at about 38--as a "buy" and called it "undervalued."
"Basically, it's a cheap stock. Our near-term pricing target for the next 12-18 months is around $45," he said.
Most industry tech gurus agreed that the Galileo-ITN alliance is positive for both parties. At Maritz Travel in Fenton, Mo., for example, information technology vice president Richard Spradling said the agency "believes that ITN is a good solution for Apollo clients, and we have recommended it to our Apollo customers. Most direct booking products are oriented toward Sabre, and ITN was one of the first to offer an Apollo link."
Apollo itself, however, "never demonstrated a corporate booking product to us," though it is becoming increasingly clear that "this is the way the corporate market is going, and none of the GDSs can really abandon it," Spradling noted. "From a competitive perspective, this is something Apollo needed to do."
But former Apollo president and CEO Paul Blackney, now chairman of independent travel technology vendor Xtra Online in Dallas, said that in hitching its wagon to Galileo, ITN might well have given up an important element of its success.
"I'm a little surprised that ITN would team up with a CRS," he said. "Clearly one of the things that's important to travel managers is independence from a particular agency and a particular form of fulfillment. The reason Xtra Online appealed to me was that it allows a degree of independence in a time when there are a million question marks out there and not many answers."
From the customer perspective, though, ITN seems to have come out of the trade-off ahead. At longtime ITN customer Texas Instruments, travel systems manager Richard Wooten said "the biggest improvement I would have asked for from ITN was in its global reach," and called the Galileo partnership "a good first step" to that end. And he applauded any technology alliance that impacts the speed of the booking system, as the access to Galileo's structured data should.
"We chose ITN because of its technology and its vision of the use of the Internet for travel booking, and we've been very satisfied," Wooten said. "But it needs some good partnerships to move it forward. I definitely think having the strength of Apollo and Galileo behind it will help."
While Wooten didn't mention the loss of CRS independence as an issue, though, it may well become one for Texas Instruments. The company--which now has 6,000 employees booking travel on ITN in the United States, Mexico and Canada--is about to begin rolling out the system to its European travelers (see story, page 14). As it does, it will need ITN to work with Sabre in the United Kingdom, Amadeus in Germany and France, and Galileo in Italy and Holland.
At Sabre BTS, marketing and sales vice president Scott Smith called Galileo's entry in the market "marvelous." Sabre "has been climbing this hill for some time, and we do get some pleasure out of seeing them say this is a viable business model," he said.