Worldspan chairman and CEO Rakesh Gangwal today told industry analysts that the company would not be a leader in reducing booking fees paid by airline suppliers, nor in reducing incentive payments to travel agency subscribers.
Though overall operating expenses during the third quarter were down 2 percent, incentives paid to Worldspan travel agencies were 11 percent higher, attributable in part to growth in online bookings, which Worldspan said generate higher average incentives.
"We are not keen on the idea of telling travel agencies that we will slash and burn inducements. However, we do recognize marketplace realities and we need to remain competitive," Gangwal said. "To the extent that travel agents bring inducements down with our competitor GDSs, we would then go in and say 'we would expect similar treatment.' One does get the sense in the marketplace that the pressure on inducements increasing certainly has come down dramatically, but it also sounds like inducements may be going down in the years to come. This is not going to happen overnight. It will be an evolution that is probably going to unfold."
The future of agency incentive payments in many cases likely would be tied to the specifics of new content agreements negotiated between airlines and GDS operators. Gangwal said Worldspan is "not a leader" in that area, either.
"It does not make sense to go out and slash and burn booking fees because you do not gain market share by bringing down booking fees," he explained. "Every GDS would match you and it is a zero-sum game. However, what we try to do is uniquely tailor to the individual needs exactly what a specific airline finds more relevant and important. That dialogue is continuing right now."
Worldspan and US Airways, for example, are discussing a possible deal to replace the one that technically expired Oct. 31. Citing ongoing negotiations, Gangwal did not elaborate.
Gangwal also said that AirTran Airways has informed Worldspan that it no longer will be displayed in the Worldspan GDS, effective at midnight on Nov. 10. "That is their decision and we respect that," he said. "We are still discussing with them and would like to do whatever we can to come to terms with AirTran. What we cannot do is put in place agreements that we cannot offer to the rest of the airline industry. We cannot cherry pick and tell one airline that 'since you have threatened to leave us, we are willing to do a super-duper deal for you which we won't provide to the other airlines.' That process does not work. If we can find middle ground that works for AirTran and Worldspan, we would definitely put that deal in place."
Several of Worldspan's existing content-for-discount deals in place with major airlines are not scheduled to expire until the second half of 2006. When asked specifically about American Airlines, which has hinted at possibly exiting one or more distribution channels
(BTN, Oct. 31), Gangwal said, "It is very premature for us to even think through what the solutions may be at American."
Meanwhile, in announcing third-quarter net profits of $18.1 million--up 84 percent, year-over-year--Worldspan said quarterly global transaction volumes were flat, with online agency transactions up 4 percent and traditional agency volumes down 4 percent. Total North America transactions were flat while transaction volume for the rest of the world dropped 2 percent.
Last week, Sabre Holdings reported growth in the traditional agency channel, albeit less than the growth experienced in online channels. Also unlike Worldspan, Sabre reported international transaction growth
(BTNonline, Nov. 3).
Last month, Cendant Travel Distribution Services reported traditional agency transaction growth of 2 percent while transaction growth in online channels was 26 percent for the quarter. Cendant also said U.S. transaction volume grew 5 percent while international transaction volume was up 4 percent.
Worldspan joined both Sabre and Cendant TDS in reporting third-quarter profits. Madrid-based Amadeus has not yet reported third-quarter results.
Meanwhile, Worldspan also said it signed and resigned several traditional travel agencies during the quarter, and also entered new and renewed corporate contracts with such companies as Borden Chemical, General Dynamics, Gulfstream and UPS, representing "several million segments" over the multi-year contract terms.