Travelport during its fourth-quarter earnings call today reported global distribution segments in the last three months of 2009 increased by 5 percent from the same period in 2008. CEO Jeff Clarke called it the "first such quarterly increase in 2009," further noting that pace of recovery is holding steady in the first three months of 2010.
Clarke said he is "not calling a full recovery here," but said Travelport is "pleased to see solid, single digit growth, and we're hoping for even more improvement going forward."
Meanwhile, Travelport said it continues to push home-and-away pricing and agreements to support airline merchandizing in contracts with carriers worldwide. Noting a number of new content agreements with major airlines in the last three months of 2009—including British Airways, WestJet, JetBlue and, after a five-year full-content deal with inked this week, Etihad Airways—Clarke said, "These new long-term contracts often include agreements for our GDS to support the merchandizing efforts of our airline suppliers, thereby allowing us to enhance our revenue on unbundled services such as seat assignment and baggage charges."
Examining worldwide GDS business year to date, Clarke said segments are up 6 percent over the same period in 2009—with growth in all regions except for the Middle East, which was expected since Travelport realigned its strategy to pursue more direct relationships with travel agencies in that region
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Segments this year in the Americas and Europe are up between 6 percent and 7 percent, Clarke said, while the Asia/Pacific region is seeing segment growth "just under 20 percent."
Pricing agreements with airlines are migrating toward a home-and-away model, Clarke said, through which airlines agree to pay more for segments booked outside of home markets and less for segments booked in local markets where they already dominate.
Calling home-and-away pricing "a key part of our differentiation from other providers and well-received by our airline suppliers," Clarke said the trade-off of discounting home segments but getting higher yields on away segments so far has been in the GDS's favor. "We're now seeing more than half—up from 50 percent to 55 percent—of our booking fees coming from away segments," Clarke said. "That is the key pricing dynamic. We'll continue to have moderate or decreasing prices on home segments—home segments being segments booked by a local travel agent in the domestic market for a domicile carrier in that market—while increasing prices for away. We see the ability to do that continuing."
Clarke said Travelport is "very pleased" with home-and-away pricing agreements the company has achieved with carriers outside of the United States, but noted a different dynamic in the U.S. market, where about 80 percent of segments are booked on home carriers. For international carriers, only 40 percent of segments fall under home pricing, he said.
"The mix internationally is much more away traffic," Clarke said. "That's why our yields internationally are higher."
Though Clarke said, "I'd prefer to keep our negotiation strategies more close to our chest" as Travelport enters discussions for 2011 content agreement expirations with many U.S. legacy carriers, he said home-and-away pricing is part of a broader Travelport philosophy: "Where the GDS adds more value, we're going to price higher. Where we add less value, we're going to price lower."
The GDS adds value not just in expanding airlines' marketing reach outside of their dominant markets, Clarke said, but also in other areas, including corporate domestic business "because of the ability to show private fares."
With many U.S. legacy carriers facing expiring content agreements next year, Clarke said the parties have not hastened the pace of discussions.
"We're in dialogue every day with the airlines," he said. "We're big suppliers to them, and so we're constantly having dialogue. These things don't necessarily get 100 percent tweaked at one time. There are all sorts of changes that both sides agree to on different elements. One example is merchandizing, and there are some other elements you can negotiate before the end of the fixed contract. By the way, these are evergreen contracts. These are contracts that do get renewed. It's just a question of every four or five years you kind of go nose to nose on the price."