<H1> CRS Consolidation?</H1><H3> Worldspan Upstages Galileo In Merger Rumors</H3>By Cheryl Rosen
Rumors of merger talks between Galileo International and Worldspan Travel Information Services still are not being confirmed by the principals. But while Galileo is the larger of the two CRSs, Worldspan is talking-and being talked about by some-like a company with big plans of its own.
A merger between Galileo, which is owned by 11 American and European airlines (including United, its largest shareholder with 38 percent, as well as British Airways, Swissair, KLM and USAir, among others), and Worldspan (owned by Delta, Northwest and TWA) would create the largest CRS in the world. Galileo now holds the number-three spot; it trailed Sabre as the second largest CRS in 1993 and 1994, but was bumped to third place by last year's CRS mega-merger of Amadeus and System One.
Principals at both companies declined to comment on the rumors, which were fueled by a March 5 Wall Street Journal story that cited unnamed sources at United. Worldspan spokesman Greg Hammer noted that while the CRS does not comment on speculation, merger talks are a virtual everyday occurence among CRSs.
Eight months into his new post as Worldspan president, former Amex executive Mike Buckman also declined to comment on the rumors. Instead, he focused on a reorganization announced last week, following four months of consultation with the Boston Consulting Group in which he "asked what we want to be when we grow up, where we want to go and how fast we want to paddle."
The new streamlined Worldspan organization will have eight divisions, each with a vice president reporting directly to Buckman, and the company will shift to "virtual sales offices" in most cities. Buckman noted that Worldspan "was put together in stages as Northwest and TWA and Delta came together, and now we think we can do more rapid development by merging our development team into a single organization and facilitating third-party development, so that we can bring a broader range of products to market more quickly." In addition, he said, Worldspan will set up a sales and marketing team dedicated exclusively to the corporate market.
Meanwhile, most observers voiced little surprise about the possibility of a merger.
"It's part of the overall realization by the CRSs that costs are their major concern," said Washington, D.C.-based consultant John Caldwell. "The CRS industry isn't any different from other industries-they are under more challenge than ever before to deliver value, and their participants are saying that fees are too high. Look at what's going on in the banking industry-mergers often result in a reduction in staffing, but the bank ends up with a larger client base, lower fees and higher profits."
"I wouldn't be at all surprised to see the industry consolidate into two or three players," agreed Greg Conley, general manager of IBM's Travel Industry Solutions unit. "With the investment required to be a global system, consolidation will occur-and that doesn't just mean acquisitions and mergers. Some might just fail."
But independent technology developer Richard Eastman of Newport Beach, Calif.-the inventor of the Aqua quality-control software system-doubted that Worldspan and Galileo could, or should, consummate whatever courtship they have been having with a long-term commitment. In his opinion, Worldspan, although trailing the market, actually has the greater potential.
"Galileo is playing second fiddle to Amadeus and Sabre-its strength is in the United States," Eastman said, "while Worldspan is more global, given its ties to Abacus and its strength as far as growth in Europe. Galileo's ownership has a European mindset, and it continues to focus on being a distributor of airline product and not travel product. Worldspan, on the other hand, may have created a stroke of genius in its agreement with the Microsoft Network, whose front end will allow Worldspan to become a true travel product distributor."
Eastman noted that Worldspan is the first CRS "to bridge out of the airline mentality and into the consumer market. Sabre is on the threshold of creating an alternative distribution system as well, but they're still doing it with an airline mentality."
Still, consultant Bob Langsfeld of San Diego said this could be a good time for Worldspan's owners to take their money and run. "A lot of deep pockets-and a lot of big-system processing companies-are starting to get into the travel and transportation game, and automation is going to be the key," he said. "If the CRSs do not evolve significantly, their value is going to go down over the next five or 10 years; they'll need to either evolve or sell.