2008 Business Travel Survey: U.S. Weakness Undermines GDSs' Performance

The major global distribution system providers this year said they are seeing softness in airline booking trends from the United States point of sale amid a weakened domestic economy.

Travelport GDS during its first-quarter earnings call last month said that segments for its global distribution system businesses, which include former competitors Galileo and Worldspan, so far this year have decreased from the same period last year as the company continues to see weakness in both the consumer and corporate travel sectors.

The exact picture of GDS segment trends has grown murky in recent years as the global distribution system providers shifted to private ownership—leaving only Travelport's Galileo and Worldspan as the only reporting providers.

Amadeus and Sabre declined to disclose figures on booking trends, but company officials confirm a softened domestic picture, even though the major distribution systems still point to a few regional bright spots for segment growth globally.

Segments booked through Travelport's Galileo GDS were down 3 percent globally for the first three months of the year, with the Americas creating the greatest drag in the business, registering a 7 percent slip from the same period in 2007. Segments through the Worldspan GDS, which the company acquired last year, recorded a 19 percent decline from the first quarter in 2007, but Travelport CEO Jeff Clarke attributed 80 percent of that to Worldspan's loss of Expedia's segments.

According to the filing last summer, Expedia said it processed "very few air segments through Worldspan." This marks a steady decline in revenues since October 2005, when Expedia notified Worldspan of plans to shift business to Sabre.

As such, Travelport's Clarke said the Galileo trends serve as a better barometer for the business. "The number I would use to test the tone of the business would be the Galileo Americas segment, which is down 7 percent in the most recent quarter, and it's trending in a similar fashion in the first half of Q2," Clarke said. "April was a little stronger than May: We got a nice little early April shift but that dissipated in the first week or week and a half in May. It's very difficult to project these things. We're not seeing a market weakness in consumer versus corporate, we're seeing weakness in the Americas in both. We see this as a softness."

Adding color to the global distribution system segment decline, Clarke noted the barrage of bad news slamming domestic airlines, saying "a lot has been thrown at the market: We've had bankruptcies, unusual groundings, we've had consumer confidence at record lows, business logically pulling back and tightening their belt, particularly in the financial sectors."

With its pickup of the Expedia business, it's not surprising that Sabre Travel Network senior vice president of North America Chris Kroeger said online segments are growing. Though he said U.S. segments are not recessive so far this year, Kroeger said "there's no doubt that the economic slowdown has—we wouldn't characterize it as a pullback in segments—but it's forced everyone to get smart about how they travel."

Amadeus too said softness prevails in the United States. "Year to date, the GDS industry is down a bit," said Amadeus executive vice president of commercial David Jones.

The rest of the world is proving a mixed bag for airline segment trends this year, with the GDS providers concurring on healthy growth in the Middle East region, as well as a few other markets.

"We truly are in a global world," Sabre's Kroeger said. "While there's certainly pressure in North America, where there is an economic slowdown, when you look at a global basis there are other parts of the world that are growing significantly, so as a global company you have to see how things balance themselves out. From our perspective, when you do that, we've got parts of the world that are growing." Kroeger pointed to healthy Middle East growth and a better-than-expected performance in Europe.

Though segments outside of the United States are slipping in total this year for Travelport, Clarke during the company's first-quarter earnings call noted steady growth in the Middle East and Asia.

With the exception of the soft United States market, Amadeus' Jones said, "Elsewhere in the world, we're above water. Some areas continue to grow strongly, like Eastern Europe and the Middle East. Asia is above water, but is much softer than it has been in recent years. It's all positive, but a lot less than it was several years ago. We're seeing some deterioration as the months evolve. It's quite difficult to tell, particularly, when you have Easter in March one year and Easter in April the next, and then in Europe in particular you have a multitude of holidays, which are changing around. Even so, it looks as if we are seeing some deterioration as the year evolves. It is a concern."

Jones said there are two possible explanations for the slowdown: "the state of the economy or disintermediation," as airlines continue to gain ground in pushing direct-booking business. "We think it's overwhelmingly the state of the economy. Not saying that disintermediation has stopped, but it has slowed down, as logically it should do at some point," Jones said.