Travel agencies in the Middle East and Africa--the world's fastest-growing airline markets--are about to see a shakeup in global distribution system options as a result of new airline agreements and investments in both technology and people. Citing new exclusive distribution agreements with airlines, Amadeus and Sabre said that they're out to take business from market-leader Travelport's Galileo and Worldspan brands.
In the latest development, Sabre Holdings this month signed 10-year agreements with both Emirates and its travel distribution arm EmQuest to launch distribution services in five new African markets and--after the first of the year, when EmQuest's existing contract expires with Galileo by Travelport--into the United Arab Emirates.
Emirates also agreed to distribute content in Sabre for 10 years, which is Sabre's longest such deal. "As you know, we did some five-year deals in the United States, and with Delta we have a seven-year-deal. This is our first 10-year deal," said Sabre Travel Network and Airline Solutions president Tom Klein. "It speaks to the notion that Emirates views the world differently. If you look at their aircraft orders, service levels and the things they do--they do some pretty spectacular things with their inflight service."
Earlier this summer, Amadeus announced that it signed 10-year deals with 13 airline members of the Arab Air Carriers Organization (AACO), which had issued a request for proposals for distribution on behalf of 17 member carriers. Six of those carriers previously had a distribution agreement with Amadeus. Seven more agreed to join the deal, which AACO Secretary-General Abdul Wahab Teffaha said was the "fourth contract of its kind in the past 17 years, but by far the largest in terms of the number of AACO airlines involved and it delivers greater value for the signing carriers."
Eight of the AACO airlines have marketed Galileo to agencies in their home markets since 1991 and helped to grow Galileo's market domination in the region--to 70 percent in 2001, according to Amadeus.
The Amadeus agreement--with AACO members Afriqiyah Airways, Air Algerie, EgyptAir, Etihad Airways, Kuwait Airways, Libyan Airlines, Qatar Airways, Royal Air Maroc, Saudi Arabian Airlines, Sudan Airways, Syrian Arab Airlines, Tunis Air and Yemen Airways--becomes effective in January for a term of 10 years. Amadeus said the airlines represented more than 66 percent of the region's 100 million airline bookings for 2007. In 2008, year-over-year booking volume has grown at a rate of 8 percent, according to Amadeus.
Amadeus senior manager for the Middle East and Africa Fernando Cuesta said the contract represents a "big milestone. It's the biggest contract closed by a GDS ever, as the number of airlines is 13 and the agreement is for 10 years. It's very complex, but what it allows us to have is preferred treatment from the airlines in terms of content, functionality and other things. It will create a competitive advantage for Amadeus."
But market-leader Travelport said it has no intention of losing share in a region it has dominated for nearly two decades. "We're not making the investment of tens of millions of dollars in the region to lose market share," said Travelport president and managing director for Europe, the Middle East and Africa Bryan Conway.
As its previous distribution deal with AACO neared expiration, Conway said, "the Arabia Group disintegrated into three different groups, one with Amadeus, one with Sabre and some with us. We've known about the disintegration of the group since earlier this year. We took a view that it was the appropriate time to establish our own operations in the key regions. Our feeling is that it's the right time to move to direct" sales, service and support of both Galileo and Worldspan, which also has a presence in the United Arab Emirates and Egypt, Conway noted. Where it sees common interests, Conway said Travelport will continue to work with airline partners in the AACO. However, Travelport has increased its investment and now has more than 150 employees in the region.
Preparing for the January start of its new contracts, Amadeus this year has grown its employee base about 15 percent, to more than 400 employees in the region, and said it is likely to grow 30 percent more next year. In 2008, it has made a "3,200 man-year investment in technology in the region," Cuesta noted as Amadeus serviced 4,000 travel agency locations and 10,000 travel agency terminals. In coming weeks, Amadeus plans to open a regional headquarters in Dubai. Already growing its business in the region faster than the market, Cuesta said, "Today, we are at 35 percent market share; next year, we will be the leaders in the Middle East and Africa, thanks to the partnership with these 13 airlines in AACO."
Sabre has been in the Middle East for about 20 years, although much of that presence has been through a decade-long joint venture with Gulf Air in Bahrain. "That will continue and that venture, separate from this deal, is growing nicely," Klein added, referring to the new Emirates agreement. In prepared remarks, Klein said the joint venture recently experienced "three consecutive years of double-digit growth." Sabre has about 35 employees in the United Arab Emirates and 115 total in the region. But the new deal with Emirates "will significantly expand our footprint in the Middle East," Klein said.
In Africa, Klein noted that "a lot of our big corporate customers, whom we provide global GDS services to, have been pushing us hard to get into markets like South Africa." It's a market that Sabre and its new partner view as "underserved," he added. This week's deal also brings Sabre into Kenya, Tanzania, Uganda and Zambia.
"There's product in the market," Klein said of Africa. "It's kind of been dumped into the market, and I don't think it's well serviced. It just feels like it's a very rich opportunity for us to go into Africa with some high service and good product," Klein added.
As the airlines switch distribution partners, travel agencies and management companies in the region no doubt will face aggressive marketing by Amadeus, Sabre and Travelport's Galileo and Worldspan. "We will be actively competing against one another," Conway confirmed.
Across the Middle East and Africa, Amadeus cited its own market share at 35 percent as of July 2008, with Galileo's at 50 percent (also cited by Galileo) and Sabre's at about 10 percent. Sabre declined to provide marketshare data for itself or competitors.
Private for not quite two years, Sabre's owners have an investment strategy that Klein said aligns well with "how Emirates views the business. Like any big, long-term agreement, you look for the strategies to align, not just for a few good business reasons. You look for something deeper than that. We've both found that in this deal, I hope."
"As we look around the world, there are a few game changers out there and we think Emirates is one of them," Klein said. "First and foremost, we thought partnering with a game changer matters when you think about the long-term future of a company. This is one that has service levels that no one thought were possible in this day and age. They have an increasing footprint with a very aggressive aircraft order right behind that. They're just committed to being a high-quality, game-changing type of airline. We'd be silly not to want to partner with somebody like that."