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The Role and Value of the Global Distribution Systems in Travel Distribution

February 8, 2010

Presenters:D l Q i b

Moderator:A t S kl Douglas Quinby

Senior Director, Research, PhoCusWright

B b Off tt

Art SacklerExecutive Director, Interactive Travel Services Association

Bob OffuttSenior Technology Analyst and Editorial Director, Innovation Edition, PhoCusWright

© 2010 PhoCusWright Inc. All Rights Reserved. 1

The Role and Value of the Global Di t ib ti S t i T l Di t ib tiDistribution Systems in Travel Distribution

February 8, 2010

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The Interactive Travel Services Association (ITSA), whose membership comprises Global Distribution Systems and Online Travel Companies, promotes consumer choice, access, p pconfidence, protection and information in the rapidly growing world of online travel. ITSA seeks to develop consensus among industry, consumer organizations and policy makers on issues

l t d t f th I t t t t th i drelated to consumer use of the Internet to meet their needs.www.interactivetravel.org

PhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect.how travelers, suppliers and intermediaries connect.www.phocuswright.com


The Role and Value of the Global Distribution Systems in Travel Distribution

A complimentary white paper from PhoCusWright and the Interaction Travel Services Association

Download the report at:

www.interactivetravel.org

www phocuswright comwww.phocuswright.com


Agenda• Introduction to the Global Distribution Systems

• GDS Role by Region & Segment− Region: U.S. and Europe− Segment: air and hotel

• GDS Role by Channel & Sector:− Channel: online and traditional travel agencies− Sector: leisure and corporate travel

• Key Trends Shaping Travel Distribution: Focus on Merchandizingey e ds S ap g a e st but o ocus o e c a d g

• GDS Outlook and Q&A


The Role and Value of the Global Distribution Systems yin Travel DistributionMethodology

• PhoCusWright’s U.S. Online Travel Overview, Eighth Edition

• PhoCusWright’s European Online Travel Overview, Fourth Edition

• Analysis of proprietary GDS data provided by Amadeus, Sabre and Travelport:

– U S and European point of sale (original EU 15 plus Norway Switzerland)– U.S. and European point of sale (original EU 15 plus Norway, Switzerland)– Transactions (segments) and retail value ($/€)– 2006-2008– Air hotel and car rental (tour cruise other excluded)Air, hotel and car rental (tour, cruise, other excluded)


Introduction to the Global Distribution

SystemsSystems


What Do Travelers See When They Shop?y p$137B in U.S.

in 2008Retail Travel

Intermediaries

Suppliers: Thousands

??

Possible Products: Billions


Source: The Role and Value of the GDSs in Travel Distribution, January 2010; PhoCusWright Inc.

The Travel Distribution Chain’s Quiet Giant: The Global Distribution Systems (GDSs)

Providing retail access to pricing, availability and reservations across thousands of suppliers



Just How Many Suppliers, Retailers and Just How Many Suppliers, Retailers and Reservations?

Supply

Airlines: 550+

Retail Distribution

GDSsHotels: 90,000+

Car Rental Locations: 30 000+

Travel Agencies: 163,000 worldwide

Agent End Users: 490,000Locations: 30,000+

Possible Product Offers: Billions

g ,

More than 1.1 billion transactions in 2008;$268 billion in global supplier revenue



GDS Role by Region & Segment


GDSs Process More Than One-Third and One-Fifth of All Travel Sold in the U.S. and Europe, RespectivelyU.S. 1 and European2 Total Travel Markets (Gross Bookings) & GDS Share 2006-2008(Gross Bookings) & GDS Share, 2006-2008

300

GDS Total U.S. Travel Market300

GDS Total Europe Total Europe$B €B

259.2 272.5 278.7

150

200

250

224 237 246

150

200

250

93.6 98.2 98.750

100

150

36% 36% 35%

56 55 5350

100

150

25% 23% 21%

1. Total U.S. travel market = relevant revenues from U.S. airlines, hotels, car rental companies, tour operators, cruise lines and rail.

02006 2007 2008

02006 2007 2008


, , p , p ,2. European travel market includes the EU15 plus Norway and Switzerland


GDSs Process Nearly Two-Thirds of Air Travel in the U.S. and Just Under Half in EuropeU.S. and European Total Air 1 Markets (Gross Bookings) & GDS Share 2006-2008

120

GDS Air Europe Total Air Europe

(Gross Bookings) & GDS Share, 2006-2008

$B €B140

GDS Total U.S. Airline Market

94100 104

80

100

120

78 80 81

116123 127

80

100

120

65% 64%67%

53 51 49

20

40

60 56% 51% 47%78 80 81

20

40

60

02006 2007 2008

02006 2007 2008


1. Airline passenger revenues


GDSs Play a Much Smaller Role in LodgingGDSs Play a Much Smaller Role in Lodging

U.S. and European Total Hotel Room Revenue & GDS Share 2006-2008& GDS Share, 2006-2008

$B €B120

GDS All Hotel Room Revenue

80

GDS Hotel Europe Total Hotel Europe

99.6 106.7 108.2

60

80

100 71.976.9 78.8

40

50

60

70

11 1 13 1 12 7

20

40

60

11% 12% 12%10

20

30

40

4%3% 4%11.1 13.1 12.7 0

2006 2007 2008 2.4 2.9 3.0 02006 2007 2008

4%3% 4%



GDS Role by Channel & Sector


What Do Travelers Want When They Shop?y p

• More information and optionsMore information and options• Cross-supplier shopping and comparison

• Lower prices

• And more travelers usually shop via intermediaries

28%

33%Lodging

OnlineTravel Agency

Question: Please indicate which method you USUALLY use to purchase each type of travel component?

34%

38%Air Travel

Supplier Web Site


Question: Please indicate which method you USUALLY use to purchase each type of travel component? Base: U.S. travelers (n=1,990)Source: PhoCusWright’s Consumer Travel Report Part One: Behavioral Trends, April 2009; PhoCusWright Inc.

Travel Agencies – Online and Traditional – Represent Half of All Travel Sales U.S. Travel Market Gross Bookings and Share by OTAs Travel Agencies and Supplier Direct 2006-2008OTAs, Travel Agencies and Supplier Direct, 2006-2008

300

Travel Agency Online Travel Agency Total Direct

123133 142

200

250

104 104 100

33 36 37100

150US$B

53% 51% 49%

0

50

2006 2007 2008



Total U.S. and European Travel Markets1 and Retail Value of GDS Transactions, 2008Total Travel Gross Bookings and GDS Share by OTAs, Travel Agencies and All Intermediaries in the U S Travel Agencies and All Intermediaries in the U.S. Travel Market, 2008

160

GDS Share Gross Bookings

100.3

136.9

100

120

140

160

72%

75.5

98.7

36.540

60

80US$B 75%

23.3 0

20

OTA Travel Agency All Intermediaries

64%



Average Travel Agency Transaction Value g g ySignificantly Higher than Average OTA TransactionAverage Airfare and Hotel/Car Transaction* Value for OTA d T l A i i th U S (2008)OTAs and Travel Agencies in the U.S., (2008)

$684

OTA Travel Agency

$

$684

$321$363

$172

$286$114

* Combined average value of hotel and/or rental car transactions, where a transaction equals a hotel or car rental booking

Air Hotel/Car


g q gregardless of the number of room nights, days or guests/passengers.


Intermediaries – Online and Offline – Rely on GDSs for yTravel Product Rates, Availability and BookingOnline Travel Agency & Traditional Travel Agency Sales & GDS Share 2008 (US$B)Sales & GDS Share, 2008 (US$B)

GDS Share Gross Bookings

75 5

100.3

75%

23 3

75.5

36.5

64%Leisure Corporate23.3

OTA Travel Agency

(mostly)Corporate(mostly)



K T d Sh iKey Trends Shaping Travel Distribution:Travel Distribution:

Focus on M h di iMerchandizing


The Role and Value of the Global Distribution Systems

Key Issues Shaping Travel Distribution

yin Travel Distribution examines

1. Supplier direct sales growth

2. Content fragmentation and the GDS goal of full content

Key Issues Shaping Travel Distribution

2. Content fragmentation and the GDS goal of full content

3. Evolving economic models and “pay-for-content”

4. Optional services / ancillary fees: the future impact on pricing transparency


Air Content Distribution System


Airlines want to move from this:

To this


P t ti l V l t th Ai li Potential Value to the Airlines (Just checked bags)


Source: IdeaWorks Press Release, January 20, 2010

Can the Distribution System Keep Up with the New Airline Content?


What are Alternatives for the Distribution

• Ignore the new content… but

Channel?

g− Share shift to airlines as points of sale could go direct for access

• Provision the new ContentFinancial incenti e ( ho pa s?)− Financial incentive (who pays?)

− Issue: can the distribution channel keep up with the airlines?

• Point of Sale (PoS) flexibility− Good news: GDS supplied PoSs can be centrally modified− Issue: other PoSs, Including OTAs need to redesign their shopping path. Financial

incentive?I b k ffi t d t b bl t h dl th t t− Issue: back office systems need to be able to handle the new content


The Challenge for Airlines?

• Transforming from seat-sellers to product marketers

• Engaging the customer through continuous marketing

g

• Engaging the customer through continuous marketing− The bowtie effect dictates willingness to shop/buy for different products at different

times. May require a mobile strategy.

• Rewriting internal systems to handle the new content

• Establishing procedures to deliver prepaid items


K T d Sh iKey Trends Shaping Travel Distribution:Travel Distribution:

Focus on M h di iMerchandizing


Summary: The GDSs

• more than 1.1 billion transactions, $268 billion in global supplier revenue in 2008

• half a million travel agents worldwide

• one-third of the total U.S. travel market in 2008

• one-fifth of the total European travel market in 2008

• nearly three-quarters of all travel intermediary sales in U.S. in 2008y q y


Outlook: The GDSs

• Positives− Recessionary environment favors online travel agencies

− Corporate travel management trend toward bringing more spend under management, within policy

• RisksRisks− Airline optional services

− Supplier-stimulated channel conflict: withholding content, pay for content

− Direct / alternative connectivity

• ChallengesT h l i ti− Technology innovation

− Commercial adaptation


Q&ADouglas [email protected]

QTwitter: Douglas_Quinby

Bob [email protected]: BobOffutt


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