The purchase of online travel site Orbitz by Cendant is the biggest play to date in the rapidly evolving distribution world. But the deal raises as many questions as it finds answers, especially for the strategic direction of the global distribution systems.
In its coming and in its going, the Orbitz online travel site has created a response that may well outweigh what it did in its brief three years of existence. When Orbitz was unveiled under the rubric T2, and subsequently launched in June 2001, it was greeted with trepidation. The website, backed by five powerful US majors, would crush competition and delude consumers, said competitors, both online and brick-and-mortar. When it was announced this autumn that Orbitz, the number three online player after Expedia and Travelocity, was to become a part of the travel distribution giant Cendant, some warned that short-sighted airlines were cashing out on a brave experiment. Others said the new technology of the web had simply failed to shake the old technology of the global distribution system (GDS).
In fact, what Orbitz did for a distribution sector that was changing at exponential rates was limited. However, it had served as a check on the power of other internet distribution sites and as a warning, albeit little heeded, to the GDSs that their hunger for fees was alarming. Its acquisition by a strategically focused Cendant may just be a first step in the creation of a new model that finally pushes the GDSs back.
For Cendant, the $1.25 billion takeover is a coup that builds out a direct connection to consumers for a company that until now has been largely a franchisor and seller of well-known brand names from Avis and Days Inn to Budget rental cars, but one that seemed a collection rather than an organised force. Cendant's GDS unit, Galileo, held a second rank to Sabre and some critics asked what the conglomerate would do with it. Despite its enormous cashflows, Cendant had said then that its acquisition days were over.
For one, the Orbitz purchase saves Cendant from having to spend the hundreds of millions of dollars it would need to build a website that could grab eyeballs in a US online market that stands at $52 billion this year and is due to reach $119 billion by 2010, according to Forrester Research. Orbitz is due to remain as a separate brand funnelling web hoppers into Cendant's realm.
As online bookings grow to more than a third of all US travel reservations by 2006, Cendant's opportunities for dynamic packaging grow. This means more than asking buyers to click around to accumulate enough segments and reservations to create their own travel packages; it means letting them customise without effort and without overloading them with tasks while maintaining some degree of proprietary opacity. The noted travel technology consultant Richard Eastman says that much of the future lies in buyer-driven dynamic travel packaging in which technology "moves out of the content- and supplier-dominated hosting environments and into the corporate or bulk travel-buyer domain". Even Cendant's critics admit that the company has the technological expertise and marketing flair to do this.
The larger questions are what will Cendant do with Galileo and indeed what will the GDSs do next. On its own Orbitz may not have been the handwriting on the wall for the GDSs, but then again warning signs of limits to their future growth have appeared pretty much everywhere.
Orbitz brings with it contractual quarterly minimum obligations with a major GDS, Worldspan, until October 2011. So unless Cendant moves to break those pacts, some breathing time remains. Forrester analyst Henry Harteveldt has suggested that Cendant will move to take Orbitz away from Worldspan. Even if it does not or cannot do so, Orbitz provides a direct link itself to airline suppliers. That means that one way or the other, shift, fight, or substitute, Cendant's next move for Galileo is of major significance, perhaps more so than its next move for Orbitz.
Eastman says that before the Orbitz takeover emerged, the field of four GDSs seemed inevitably headed toward becoming a troika. With Amadeus possibly in play, that puts the focus on Worldspan and its commitment never to enter the travel agency business and compete with its own customers.
But one or other of the GDS may have to take the next step to react to the coming technological challenge posed by new direct distribution models such as G2 Switchworks, the online alternative under development by an architect of Orbitz. It is too easy to say that the GDS is dead, just as it was far too facile to say that Orbitz could slay them. But the next big move by a GDS is going to have to be as strategic as this latest move by Cendant to buy up Orbitz.
Airline Distribution 2005
UATP, the business travel payment system, and Airline Business have teamed up to launch Airline Distribution 2005 from 19-21 April in Bangkok, which will bring together the major players in the distribution world.
For information contact pr@uatp.com
Source: Airline Business
