Amadeus Sees TMC Consolidation, U.S. Airline Contract Battles Ahead - Business Travel News

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Amadeus Sees TMC Consolidation, U.S. Airline Contract Battles Ahead

September 23, 2010 - 12:40 PM ET

By Amon Cohen

Amadeus expects a new round of consolidation among travel management companies, vice president for marketing and distribution Ian Wheeler said on Wednesday in a wide-ranging briefing at the travel technology company's data processing center in Erding, Germany.

Wheeler and colleague Denis Lacroix, vice president for product development, also predicted a renewed public battle with airlines over global distribution system fees in the United States and that self-booking tools would evolve to be much more intuitive in understanding and making booking suggestions for travelers' needs.

According to Amadeus booking figures, broken down by travel agency segment, TMC transactions fell 15 percent in 2009, yet bookings through online travel agencies grew 13 percent. "There has been a continuing shift to online agencies, and we don't expect to see that shifting back," said Wheeler. "There has not been much consolidation among TMCs over the past couple of years, but with the drive to online and airline consolidation, we can see there will be further consolidation in the next three to five years."

Wheeler added that the increased price of financing since the credit crunch has slowed the pace of mergers and acquisitions, but this brake on change is starting to be removed.

Although TMCs have lost marketshare, Amadeus believes there has been a halt to the general shift from bookings through travel agents to bookings directly with airlines. "We think it has stopped and maybe even reversed," Wheeler said. "It is not in the airlines' interest to put too much business through their direct channels." Part of the reason for the perceived reversal is the growth of long-haul travel, for which travelers are more likely to need the intervention and advice of an intermediary.

Internal estimates shown by Amadeus at the briefing indicate total bookings through all GDSs annually grew 9.5 percent in the second quarter of 2010, almost identical to Q1. Growth was significantly slower in Western Europe and North America. Amadeus estimates its U.S. marketshare to be 8 percent, compared with a global share of 37 percent.

Wheeler said that Amadeus recently completed five-year deals with all airline customers outside the United States. He predicted "a very public debate" between airlines and GDSs inside the United States, and claimed negotiations would be tougher for Sabre and Travelport, partly because their marketshare is much larger, but also because their venture capitalist owners will be looking for an exit. Amadeus refloated as a public company earlier this year.

Wheeler added that recent steps by American Airlines to offer packages of unbundled services exclusively through direct channels—making them unbookable via GDSs—look very much like an early salvo for the next round of GDS negotiations. "You have to consider that is a possibility," he said. "If you want to maximize revenue, you have to make your services available to as many points of distribution as possible. Only American is going down this path, and you will have to ask them why they are putting so much publicity behind the direct connect."

Meanwhile, Amadeus has been looking to its own future by continuing to reduce its reliance on the mainframe computers with which it launched its business in 1988. Lacroix said that the mainframe programming language TPF is now used for around half the company's airline transactions, principally to handle core passenger name record processes. All non-air transactions are handled in modern programming languages. "TPF will be completely gone in two to three years," he said.

At the other end of the evolutionary scale, Lacroix said the current high level of competition between browser providers would drive improvements in self-booking tools. He expects the developing technology to improve navigation flow, allowing travelers to make reservations on a single page instead of a step-by-step process.

Lacroix said his development team is working on making the Amadeus booking tool better at understanding travelers needs and responding by proposing the most appropriate itinerary and pricing structure. He quoted the example of a traveler who needs to attend a 9 a.m. meeting in Frankfurt but does not know when the meeting will end. Amadeus is looking for ways for the tool to assess whether an early morning flight will get the traveler to the meeting address in time or whether it will be necessary to travel the night before. It also would suggest and search for a nonrefundable fare for the outbound journey but a flexible fare for the return.

"In future, you will be able to let the tools know what your requirements are and let the computer do the work," Lacroix said. "We will add some incremental elements from next year."

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