Travelport expects growth in "financial
assistance" in the form of agency incentives to moderate and even flatten
in the "medium term" as the firm explores new economic relationships
with travel management companies.
"We are increasingly adding technology to the mix that
we expect to be able to pay for either in new transaction fees from
subscribers, or shared commissions on things like ancillary services, or in
lower financial assistance as we continue to innovate in the GDS—with Universal
Desktop, Universal API, new types of content and so forth," said
Travelport president and CEO Jeff Clarke during a conference call this week.
"We do see a medium-term moderating of this financial
assistance," Clarke added. "That would be outside of this year. For
this year, a lot of financial assistance that you will see in upcoming quarters
has been negotiated already. Over time, we see the rate of financial assistance
flattening because of the new innovation we bring to subscribers."
Travelport reported that during the March quarter it paid 9
percent more, or $20 million, than the prior year in commissions to travel
agencies and national distribution companies, "due to an increase in the
average rate of agency commissions," according to a financial
presentation.
"When we renew these relatively long-term agreements,
we typically are giving commissions that are higher than existing
contracts," Clarke said. "We do continue to see more headwind on
financial assistance as we compete for renewals and compete for segments."
Clarke said it would take some time for any revenues from
new products to materially impact the company's finances. "They are
trickling in on certain cases now," he said. "This is a multiyear
approach."
One key product that Travelport expects agencies to pay for
is the Universal Desktop, which Clarke said is "on schedule" despite
the company's original release date of year-end 2010. A company exec last
September said the product would be released during the first half of 2011, and
Clarke on Tuesday said, "We'll update you more midyear on country rollouts
and additional customers."
Flight Centre is the launch user and Clarke said he expects
other large subscribers to be the first to use Universal Desktop, which he
added "will be somewhat customized by each subscriber."
"For the first couple years, our focus will be to get
the volumes that the large subscribers have and to bring value to large
subscribers that need material productivity, functionality and flexibility in
their business," said Clarke. "It will be in multiple languages and
multiple countries, and then we'll eventually go into smaller
subscribers."
Despite anecdotal reports that Travelport has lost some
share in the United States, the company in the Americas region year-to-date
through Sunday was "just above flat in market share," Clarke said.
Overall GDS transactions during May are up 4 percent
compared with a year earlier, following a 7 percent decline in April. "On
a quarterly basis, we're still down about 4 percent, but we're feeling pretty
good about May," he said, noting the earlier impact of several world
events. Overall, 2011 transactions are down 1 percent.
Corporate travel transactions during the March quarter rose
13 percent versus a year earlier for Travelport, which incurred a $24 million
loss in the quarter, slightly wider than the $21 million loss posted for the
first three months of 2010. Net revenue of $531 million represented a $5
million decrease from the prior year, largely due to a 1 percent reduction in
revenue per segment with flat volumes. Revenue per segment rose in all regions
but the Americas.
Source: The Beat