Expedia yesterday said an agreement with Sabre Travel Network would supplement its eight-year Worldspan partnership, a boon to Sabre and a blow to Worldspan as it plans its initial public offering
(BTN, April 26). Worldspan said that although the change "will not have a material impact on our 2004 cash flow from operations," it nevertheless is "disappointed with Expedia's strategic decision." According to a statement from chairman, president and CEO Rakesh Gangwal, "We are respectful of their desire to diversify service providers," something Expedia president and CEO Erik Blachford said is driven by "Expedia's rapid growth."
The companies did not detail which portions of Expedia's business Sabre may get as part of the five-year deal, saying in the press statement that "over the term of the agreement, Sabre expects to process a meaningful portion of Expedia's GDS bookings." Speaking with
Business Travel News, Sabre Travel Network North America senior vice president Hugh Jones had no comment on the "scope or nature of discussions" with Expedia, but he did say, "There is nothing within the agreement that limits what type of booking comes our way. That said, we would not receive many hotel bookings because the lion's share processed by Expedia are merchant hotel bookings."
Expedia officials could not immediately be reached.
This is not the first time Expedia has worked with Sabre, which provides to it cruise connectivity. Sabre also has various relationships with members of Expedia's IAC Travel family, including Hotwire, Classic Custom Vacations and TravelNow. Hotwire last year had converted its airline bookings to Worldspan from Sabre, but still books rental cars with the latter.
Experts agreed that one benefit for Expedia is to diversify suppliers as it grows. It is common practice for large agencies to use multiple GDS providers, for a variety of reasons.
According to former Sabre Group CEO Kathy Misunas, now a consultant with Essential Ideas, "Expedia has been looking at alternatives for the past year or more relative to its GDS relationships," she added. "They don't want to have all of their eggs in one basket. They previously had some terms and conditions in their Worldspan contract that probably precluded them from doing things in a certain period of time, but some of those have been lifted. They probably had evaluated buying a GDS and decided that was not in their best interest."
Expedia "represented a substantial amount of our total transactions, accounting for over 10 percent of our total revenues," according to Worldspan's Securities and Exchange Commission filings. Orbitz's threat last year to leave Worldspan caused Moody's Investor Service to consider downgrading its rating on Worldspan's substantial debt. Moody's on March 31 reaffirmed the rating after the Orbitz-Worldspan dispute was resolved
(BTNonline, Jan. 29). It's unclear how losing part of the Expedia business--which for Worldspan is larger than Orbitz--will affect the financial community's view of Worldspan as it prepares to go public. Sources agreed that it will not help.