Information Systems

©2009 PhoCusWright Inc. All Rights Reserved.

A PhoCusWright WHITEPAPER

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

Researched and Written by Douglas Quinby, Senior Director, Research with Ralph Merten, Market Analyst, Europe

Edited by Colie Hoffman

Sponsored by:

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

©2009 PhoCusWright Inc. All Rights Reserved.

This whitepaper was sponsored by:

The Interactive Travel Services Association whose membership comprises Global Distribution Systems and Online Travel Companies, promotes consumer choice, access, confidence, 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 related to consumer use of the Internet to meet their needs.

PhoCusWright wishes to thank the following companies for their assistance in the research for The Role and Value of the Global Distribution Systems in

Travel Distribution:

Amadeus Expedia

ITA Software OAG Sabre

Travelport

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

©2009 PhoCusWright Inc. All Rights Reserved.

About PhoCusWright PhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, PhoCusWright fosters smart strategic planning and tactical decision-making.

PhoCusWright delivers qualitative and quantitative research on the evolving dynamics that influence travel, tourism and hospitality distribution. Our marketplace intelligence is the industry standard for segmentation, sizing, forecasting, trends, analysis and consumer travel planning behavior. Every day around the world, senior executives, marketers, strategists and research professionals from all segments of the industry value chain use PhoCusWright research for competitive advantage.

To complement its primary research in North and Latin America, Europe and Asia, PhoCusWright produces several high-profile conferences and trade shows in the U.S. and Germany, and partners with conferences in Canada, China and Singapore. Industry leaders and company analysts bring this intelligence to life by debating issues, sharing ideas and defining the ever-evolving reality of travel commerce.

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The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

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

Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Study Purpose & Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Introduction: The Founding Fathers of Travel E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Origins of Travel Automation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The GDSs Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Study Purpose & Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key Terms & Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Role of the GDSs in the Global Travel Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

GDS Share of Total Travel Sales by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

GDS Share of Total Travel Sales by Product Category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The Role of the GDSs in Travel Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The Heart of the Travel Intermediary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Leisure Impact: Travelers & Travel Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Corporate Impact: Corporations & TMCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Travel Supplier Impact: Business & Leisure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

The Future of the GDSs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

The Surge in Supplier Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Content Fragmentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Pay for Distribution, or Pay for Content? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

GDS Outlook 2009-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Summary Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

List of Figures Figure 1 Overview of the Major GDS Companies in 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Select Aggregated Statistics of the GDS Companies in 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3 The Travel Distribution Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 4 GDS-Owned Online Travel Services for Leisure and Corporate Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 5 U.S. Total Travel Market (Gross Bookings) & GDS Share, 2006-2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 6 Europe Total Travel Market (Gross Bookings) & GDS Share, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 7 U.S. Airline Gross Sales & GDS Share, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

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Figure 8 European Airline Gross Sales & GDS Share, 2006-2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 9 U.S. Hotel Room Revenue & GDS Share, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 10 U.S. Car Rental Revenue & GDS Share, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 11 European Hotel Room Revenue & GDS Share, 2006-2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 12 European Car Rental Revenue & GDS Share, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 13 U.S. Travel Market Gross Bookings and Share by Travel Intermediaries (OTAs and Travel Agencies) and

Consumer Direct, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Figure 14 Germany Total Travel Market Gross Bookings and Share by OTAs, Travel Agencies and Consumer Direct, 2008 (€B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Figure 15 Intermediaries’ Share of U.S. Air, Tour and Cruise Revenue, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 16 Total Travel Gross Bookings and GDS Share by OTAs, Travel Agencies and All Intermediaries in

the U.S. Travel Market, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Figure 17 U.S. Traveler Motivations for Using a Particular Web Site When Shopping for Travel . . . . . . . . . . . . . . . . . . . . 12 Figure 18 OTAs vs. Suppliers: Typical Purchase Channel for Lodging and Air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 19 Typical Air Purchase Channel by Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 20 European Traveler Motivations for Using a Particular Web Site When Purchasing Travel . . . . . . . . . . . . . . . . 13 Figure 21 OTA Airfare Search Results Matrix Display and Itinerary Review with Interline and Single-Carrier

Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Figure 22 OTA Airfare Search Results Display with Interline and Comparative Lowest Fares via the Same Airline Web Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Figure 23 U.S. Corporate Travel Market Gross Sales for Air, Hotel and Car Rental; Share by Direct and Intermediaries (Travel Agencies and TMCs), 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figure 24 Percentage of Corporate Travel Agents for Whom GDS Is the Usual Booking Channel for Air, Rental Car and Hotel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figure 25 Average Airfares Booked via OTAs and Travel Agencies and Fare Difference in the U.S., 2007-2008. . . . . . 19 Figure 26 Average Differences in Airfares Booked via OTAs and Travel Agencies: France, Germany and U.K.,

2007-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 27 Average Hotel/Car Transaction* Value Booked via OTAs and Travel Agencies and Difference in the U.S., 2007-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Figure 28 U.S. Airline, Hotel and Car Rental Web Site Share of All Category Revenue, 1999-2008 . . . . . . . . . . . . . . . . . . 21 Figure 29 Supplier Web Site Share of All Gross Travel Bookings by Country, 2006-2008. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 30 European Traditional Airline, Low-Cost Carrier, Hotel and Car Rental Web Site Share of All Category

Revenue, 2006-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 31 2Q09 Sales Performance by Travel Industry Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 32 U.S. Total Travel Revenue and GDS Share, 2006-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

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The e-commerce revolution of the 1990s brought about a breakthrough in business and a deep and lasting transformation in the way consumers research, shop and buy. From music to mortgages, discount toys to high-end electronics, just about anything and everything is available for purchase online.

Most people associate the birth of electronic travel distribution with the advent of the Internet and the explo- sion in e-commerce in the late 1990s. But in fact, electronic commerce in travel pre-dates the “dot-com” boom by some three decades and had be- come quite commonplace by the mid-1980s. The technology systems powering electronic travel commerce were then referred to as CRSs, or com- puterized reservation systems. They were the predecessors of today’s global distribution systems, or GDSs.

The GDSs have traveled far in the past four-plus decades. The three major GDS companies today power the critical reservations and technology infrastructure of over 163,000 travel agency locations and enable bookings by nearly half a million travel agents around the globe. The GDSs generated more than $9.6 billion in revenue and more than 1.1 billion transactions in 2008. That equates to just over 2,100 transactions per minute.

The GDSs are most often thought of as a distribution environment for airlines; more than 550 airlines and the overwhelming majority of com- mercial airline fares and inventory are accessible via the GDSs. However,

they also deliver an ever-expanding array of content to online travel agen- cies and traditional brick-and-mortar travel agencies. More than 90,000 hotel properties, the world’s largest car rental companies, hundreds of tour operators and the major cruise lines distribute their products to travel agencies via the GDSs.

STuDy PuRPoSE & METHoDoloGy

The Interactive Travel Services As- sociation (ITSA) commissioned PhoCusWright to study the role and influence of the GDSs in travel distri- bution and the global travel economy. This paper examines the following:

The share of U.S. and European travel that is distributed through the GDSs

The role played by the GDSs across various segments of the travel industry, such as air, online, leisure and corpo- rate travel.

The impact of the GDSs on con- sumer choice and competition.

This study derives market data from PhoCusWright’s Online Travel Overview Eighth Edition Update: 2009-2010, PhoCusWright’s European Online Travel Overview Fourth Edi- tion and other research. Amadeus, Sabre and Travelport also provided to PhoCusWright transaction and trans- action value data from 2006 to 2008 for air, hotel and car rental bookings. All data presented in this paper regard- ing GDS channel size reflects the ag- gregation of this proprietary data from all three major GDS companies.

KEy FInDInGS

The transactions processed by the • GDS represent a significant share of the global travel industry:

The GDSs processed more than – 1.1 billion transactions in 2008, representing over $268 billion in global travel sales. In the U.S., GDS transaction – value represented more than one-third of all travel supplier revenue in 2008; GDS air trans- actions accounted for nearly two two-thirds of all airline passenger revenue in 2008. GDS transaction value in Europe – represented more than one-fifth of all traveler supplier revenue in 2008; GDS air transactions ac- counted for nearly half of all air- line passenger revenue in 2008.

The GDSs play a central role in the • online travel agency and traditional agency business model. These travel intermediaries account for nearly half of all travel industry sales in U.S., and a substantial portion of all travel sold in Europe, which varies widely by country.

More U.S. and European trav- – elers cite intermediaries as their usual channel for travel shopping and purchasing. The GDSs provide essential and – efficient business infrastructure for 163,000 travel agencies, which employ or contract nearly half a million travel agents worldwide. OTAs have played a major role – in improving the travel shopping experience and convenience for

Executive Summary

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

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consumers as well as increasing pricing transparency. The GDSs In the U.S., the GDSs processed – $98.7 billion in travel agency and OTA bookings in 2008, repre- senting 72% of the nearly $137 billion in travel booked through intermediaries. GDS share of tra- ditional travel agencies is higher at 75%.

The GDSs account for a significant • share of the nearly $78 billion in U.S. corporate travel booked via intermediaries, which represents a much higher average yield per transaction for travel suppliers.

The average fare booked via a – traditional travel agency is sig- nificantly higher than the aver- age fare booked via online travel agencies. GDSs are the preferred book- – ing method of corporate travel

agents, who require not only ac- cess to travel content for booking but also a range of technologies and services to ensure efficient management of corporate travel programs.

The GDSs have adapted to the chal-• lenge of content fragmentation by introducing new financial models for airlines and travel agencies and investing in new technology to sup- port airline merchandising and sales of optional services. Should penetration of the pay-for-• content model spread, whereby air- lines will compel OTAs and travel agencies to pay for access to some or all of their content via the GDS, the risk is high that this could lead to significant downstream distri- bution costs for intermediaries and consumers.

GDS share of the total travel mar-• ket is projected to increase slightly in 2009 and 2010 because of two main trends: OTAs’ countercycli- cal lift amid the recession and the growing trend by corporate travel buyers and TMCs to drive more travel spend under management and via the GDS. The GDSs today play a major role • in both leisure and corporate travel distribution, but they are also beset by a range of challenges – from the rise on supplier direct bookings to changes in airline products (option- al services) and distribution pric- ing models. But if they continue to innovate and adapt to meet the evolving needs of travel suppliers, distributors, and ultimately travel- ers themselves, they will continue to shape travel distribution for years to come.

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

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Introduction: The Founding Fathers of Travel E-Commerce

The Internet is no longer an emerging channel, but a major – and in many cases, primary – channel in any travel company’s sales and marketing strategy. More than nine in 10 U.S. travelers used the Internet at some point in the travel planning process in 2008.3

Most link the birth of “e-travel” with the advent of the Internet, but in fact travel e-commerce pre-dates the “dot-com” boom by some three decades.

Most people associate the birth of electronic travel distribution with the advent of the Internet and the explo- sion in e-commerce in the late 1990s. But in fact, electronic commerce in travel pre-dates the “dot-com” boom by some three decades and had be- come quite commonplace by the mid-1980s. The technology systems powering electronic travel commerce were then referred to as CRSs, or com- puterized reservation systems. They were the predecessors of today’s global distribution systems, or GDSs.

THE oRIGInS oF TRAVEl AuToMATIon

The first electronic travel booking did not take place on Expedia, Travelocity, or the Web site of any major airline or hotel company. No travel companies had Web sites, nor had anyone con- ceived of an interactive travel agency, when the Semi-Automated Business Research Environment (SABRE) first came “online” in 1964.4

3 PhoCusWright’s Consumer Travel Report 4 Michele McDonald, “Selling Seats,” Air

Transport World (May 1, 2004).

The joint creation of American Airlines and IBM, SABRE was the first of many airline-owned and -op- erated CRSs. At first, these systems were created for use at the airlines’ internal reservations centers. But car- riers quickly realized the opportunity for deploying their systems in travel agencies. Delivering accurate sched- ules, fares, availability and booking capability instantly at the point-of-sale would extend the efficiencies gained internally to the travel agency distribu- tion channel. Airlines that had more control over the travel agent’s desktop were in a far stronger position to influ- ence flight selection and move market share. By 1985, U.S. travel agency sales had risen to $54 billion. More than nine in 10 agencies with sales greater than $1 million had a CRS (versus just 6% not even a decade earlier). Agency revenue had surged 400% over the same period, while agency employ- ment increased by only 20%.5

In less than a decade, CRSs enabled the travel agency industry to grow revenue 400% while growing employment by only 20%.

By the late 1990s, CRSs had evolved into four large companies known as global distribution systems. They served as a critical nexus of distribu- tion, bringing together hundreds of thousands of travel agents and other distributors with thousands of travel suppliers. The GDSs provided access

5 Chicke Fitzgerald, Global Distribution Sys- tems: Outlook for the 21st Century (Garrett Communications Inc., MTech Strategies Inc., 2000).

The e-commerce revolution of the 1990s brought about a breakthrough in business and a deep and lasting transformation in the way consumers research, shop and buy. From music to mortgages, discount toys to high- end electronics, just about anything and everything became available for purchase online.

Travel is quite possibly the perfect product for online distribution. Un- like purchasing in most industries, the travel transaction involves the exchange not of physical inventory, but of information. The traveler must choose from hundreds or thousands (or theoretically, billions) of potential products, services and prices that may vary with the slightest adjustment of any number of parameters. Consider, for example, a simple, one-way air- plane ticket. That same ticket, for the very same seat on an identical aircraft, could be significantly more or less ex- pensive should the consumer choose to take delivery of the product (i.e., a departure date or time) just a few hours earlier or later. The price for the very same product could also change if the traveler were to make the purchase a day earlier or later.

The unique dynamics of travel shop- ping and buying are ideally suited to the Internet, and the impact of this relatively new medium has been nothing less than spectacular. Online sales of leisure and unmanaged business travel in the U.S. surged from just $6.5 billion in 19991 to more than $95 billion in 2008.2

1 PhoCusWright’s The Online Travel Market- place 2001-2003 2 PhoCusWright’s U.S. Online Travel Over- view Eighth Edition Update: 2009-2010

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to not only content from their found- ing airlines, but from nearly all major airlines and other travel categories as well, such as hotels, car rentals, pack- age tours and cruises. They served as both the major distribution outlet for airlines and the primary booking me- dium for travel agencies:

Amadeus was formed through a • consortium of major European air- lines and System One, the original CRS of Eastern Airlines. Galileo evolved from the merger of • the Apollo CRS (created by Unit- ed Airlines) and the Galileo CRS (founded by a competing consor- tium of European airlines); it is now a part of Travelport. Sabre emerged from the original • SABRE CRS and other technol- ogy divisions within American Air- lines. Worldspan resulted from the merg-• er of the TWA PARS CRS and the Delta Air Lines DATAS II system; it is now a part of Travelport.

THE GDSs ToDAy

The GDSs have traveled far in the past four-plus decades, going through a va- riety of mergers, acquisitions and own- ership structures. From the late 1990s through the early 2000s, three of the four GDS companies were publicly held (Worldspan was the exception). As of 2009, there are six major global distribution systems and three GDS companies, each owned by private eq- uity investors (see Figure 1).

The global marketplace for travel distribution and electronic reservation processing services is huge, and the GDSs reflect this. Together, the three major GDS companies power the critical reservations and technology infrastructure of over 163,000 travel agency locations and enable bookings by nearly half a million travel agents6

6 The term “travel agents” throughout this paper refers to professional travel agents who sell and book travel, and does not include travel agency staff that do not directly sell travel or use a GDS (e.g., administrative staff).

around the world (see Figure 2). The GDSs generated more than $9.6 bil- lion in revenue and more than 1.1 bil- lion transactions7 in 2008 – just over 2,100 transactions per minute (and the infrastructure of each GDS can support volumes far greater).

The GDSs are most often thought of as a distribution environment for airlines; more than 550 airlines and the overwhelming majority of commercial airline fares and inventory are acces- sible via the GDSs. However, they also deliver an ever-expanding array of con- tent to travel agencies through their agency software solutions. More than 90,000 hotel properties, the world’s largest car rental companies, hundreds of tour operators and the major cruise lines also distribute their products to travel agencies via the GDSs (see Fig- ures 2 and 3). The GDS companies

7 Total global transactions of 1,103,918,338 for 2008 refer only to air, hotel and car rental segments, and do not include tour, cruise, rail and other transactions.

FIGuRe 1 Overview of the Major GDS Companies in 2009*

Amadeus Sabre Travelport

Owned & Operated GDSs

Amadeus Sabre (ownership stake in Abacus, GDS in Asia)

Apollo Galileo Worldspan

Net Revenue 2008 (millions)**

€2,861 $2,881 $2,527

Employees (approx.)** 8,750 9,000 5,500

Ownership WAM Acquisition (shareholders: BC Partners, Cinven, Air France, Iberia and Lufthansa)

Silver Lake, Texas Pacific Group

Blackstone Group, One Equity Partners, Technology Crossover Ventures and Travelport management

* Information sourced from company Web sites and public financial filings. There are other, regional GDSs, including Axess, Infini, Topas and TravelSky, which operate principally in Asia and the Middle East. Since this paper is primarily concerned with the U.S. and Western European regions, it does not address the regional GDS companies. ** Figures for the three GDS companies include revenues and head counts for all business units and not just the GDS business.

Source: PhoCusWright Inc.

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

©2009 PhoCusWright Inc. All Rights Reserved. Page 3

continue to add to their Long Tail8 content: Today, GDS-connected travel agencies can also shop and book rail, travel insurance, in-destination activi- ties and events, vacation and apart- ment rentals and much more.

While airline distribution services remain central to GDS business, each of the GDS companies has expanded well beyond its original mission and is now integral to travel distribution, reservations processing and technol- ogy services for the global travel in- dustry. Many travel agencies today use their GDS vendors not just for shopping and booking travel services, but also for mid- and back-office tools (i.e., quality control procedures and accounting), customer management and marketing software, online book- ing engines for leisure and corporate travel, and other functions.

The GDSs are also critical to online travel. They have provided shopping, pricing, booking and ticketing services to the online travel agencies since the OTAs’ founding in the mid-1990s. Worldspan and Expedia jointly de- veloped an air shopping and faring tool that has long been vital to the Expedia.com air shopping path; it is now known as Travelport e-Pricing™. Sabre established Travelocity in 1996, now one of the four largest global OTAs. Today, each of the three GDS companies owns one or more OTAs (see Figure 4), provides one or more online booking tools to the corporate

8 The Long Tail principle debunks the 80/20 rule, where 80% of a company’s revenue comes from 20% of products. In the Long Tail, embracing niches wins because the niches cumulatively outnumber or outweigh higher-frequency plays. See Philip Wolf ’s “The Long Tail and Travel”: http://www. phocuswright.com/the_phocuswright_con- ference_2007_the_long_tail#philipwolf

FIGuRe 2 Select Aggregated Statistics of the GDS Companies in 20081

Transactions2 1,104M

Revenue3 $9,624B

Travel Agency Locations4 c. 163,000

Users5 c. 490,000

Airlines More than 550

Hotel Properties More than 90,000

Car Rental Locations More than 30,000

1 Includes air, hotel and car rental transactions only 2 Air, hotel and car rental transactions only: data provided by Amadeus, Sabre and Travelport 3 Amadeus revenue converted to US$ at an average exchange rate of 1.47 (Source: OANDA) 4 Assumes reduction of 7% for locations that use more than one GDS 5 Assumes approximately three agents per location

Source: PhoCusWright Inc.

FIGuRe 3 The Travel Distribution Chain

Supply Airlines

Hotels

Car Rental

Cruise

Rail

Other

Online Travel Agencies

Travel Agencies

TMCs

Connectivity Retail Market

Leisure Travelers

Business Travelers

Source: PhoCusWright Inc.

FIGuRe 4 GDS-Owned Online Travel Services for Leisure and Corporate Travel

GDS Leisure Market Corporate Market

Amadeus Opodo Amadeus e-Travel Management

Sabre Travelocity, which includes: lastminute• World Choice Travel• Zuji•

GetThere Travelocity Business

Travelport Travelport holds a majority stake in Orbitz, which includes:

CheapTickets• ebookers• HotelClub• RatesToGo•

Traversa Orbitz for Business

Source: PhoCusWright Inc.

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

Page 4 ©2009 PhoCusWright Inc. All Rights Reserved.

travel market and offers a range of e- commerce services (from booking en- gines to fulfillment processes) to travel intermediaries and suppliers alike.

STuDy PuRPoSE & METHoDoloGy

The Interactive Travel Services As- sociation (ITSA) commissioned PhoCusWright to study the role and influence of the GDSs in travel distri- bution and the global travel economy. This paper examines the following:

The share of U.S. and European • travel that is distributed through the GDSs The role played by the GDSs across • various segments of the travel in- dustry. For example:

Air – Hotel – Car rental – Online travel – Leisure travel – Corporate travel –

The impact of the GDSs on con-• sumer choice and competition

This study derives market size9 data from PhoCusWright’s U.S. Online Travel Overview Eighth Edition Up- date: 2009-2010, PhoCusWright’s Eu- ropean Online Travel Overview Fourth Edition and PhoCusWright’s Corporate Travel Distribution Fourth Edition. Readers interested in a full discussion of market sizing methodology should consult these reports.

9 “The Role and Value of the Global Distri- bution Systems in Travel Distribution” does not use term “market size” in any specific technical or legal sense, but rather as a general reference to all sales in a particular sector or industry.

In brief, PhoCusWright sizes the travel industry by aggregating relevant supplier revenues across the air, lodging, car rental, tour, cruise and rail indus- tries. Non-travel related revenues such as airline cargo, hotel retail and food and beverage, and cruise line onboard revenues are excluded. Data is sourced through public filings of individual travel suppliers and extensive executive interviews. PhoCusWright also consults a wide range of leading third-party re- search and data sources to inform and corroborate its own findings.

To size the GDS channel within the U.S., European and global travel industries, Amadeus, Sabre and Trav- elport provided to PhoCusWright transaction and transaction value data from 2006 to 2008 for air, hotel and car rental bookings. All data pre- sented in this paper regarding GDS channel size reflects the aggregation of this proprietary data from these three companies.

Readers of this report and PhoCus- Wright’s U.S. Online Travel Overview Eighth Edition Update: 2009-2010 will observe some differences in travel market size data. The discrepancy is international air: PhoCusWright’s U.S. Online Travel Overview Eighth Edition Update: 2009-2010 methodology sizes the air market by counting passenger revenue of airlines based in the U.S. and does not count sales by interna- tional carriers through a U.S. point- of-sale (e.g., when a consumer or travel agent books with Lufthansa or Cathay Pacific). The market sizing for air in this paper includes all airline book- ings made via the GDS through a U.S. point-of-sale. This increases the size of the air and total travel markets.

Discussion of Europe includes the following countries: Austria, Belgium,

Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. These countries were included to maintain consis- tency with the methodology of Pho- CusWright’s European Online Travel Overview Fourth Edition.

KEy TERMS & DEFInITIonS

Computerized reservation sys-• tem (CRS): A computerized system originally developed for airlines to manage reservations and inventory and later adapted for use by travel agencies. CRSs are the precursors of GDSs and became widely adopted by hotels, car rental firms and other travel companies.

Global distribution systems • (GDSs): Electronic travel distribu- tion networks that facilitate con- nectivity, shopping and booking among thousands of travel suppli- ers and more than 163,000 travel agencies around the world.

Managed business travel (corpo-• rate travel): Managed or corporate travel refers to all air, car and hotel expenses made by corporations where purchases are governed by a formal travel policy. A travel policy can refer to a preferred travel man- agement company, supplier, online booking tool, negotiated rates and/ or booking channel. Managed travel also includes rogue, or out-of- policy, purchases that are captured as part of a company’s corporate travel budget.

Online corporate booking tool:• Also referred to as a self-booking tool, SBT or CBT, corporate self- booking tools are online reserva-

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

©2009 PhoCusWright Inc. All Rights Reserved. Page 5

tion tools that automate the book- ing of corporate travel reservations for travelers and traveler assistants within a managed travel program.

Online travel agency (OTA):• An entity whose branding is oriented online and that principally conducts business online. There are several hundred online travel agencies in the U.S. and Europe (defined as a travel agency for whom at least 50% of sales are derived online). Howev- er, the four largest OTAs – Expedia, Orbitz Worldwide, Priceline, Trav- elocity and their affiliated sites – represented some 96% of all online travel agency sales in 2008.10

Segment:• The base component of a booked transaction as measured by a GDS, a segment represents a flight from point A to point B for a single passenger. For example, a roundtrip plane ticket where each leg of the flight was nonstop would consist of two segments if only one passen- ger was included in the itinerary; a roundtrip ticket for one passenger whose flight legs each included one stop would have four segments. The GDSs charge suppliers a “segment fee” for each segment booked.

Supplier (or travel supplier):• An owner/operator of a travel service, such as an airline, hotel, car rental company or cruise line (as opposed to an intermediary or retailer, such as a travel agency, that resells sup- pliers’ products).

Travel agency:• A retail storefront or office-based travel agency business. PhoCusWright uses this term to the exclusion of online travel agencies.

10 PhoCusWright’s U.S. Online Travel Over- view Eighth Edition

Travel management company • (TMC): A type of travel agency that provides management and consulting services for corporate travel programs, which may include contract management and procure- ment, expense reporting, and pro- gram development and oversight, as well as more conventional travel agency services, such as booking and fulfillment of travel.

Unmanaged business travel:• All air, car and hotel expenses associated with business travel in firms that do not have a travel policy dictating the channel, type of travel, supplier or fare/rate used. For market sizing, PhoCusWright combines unmanaged business travel with leisure travel.

KEy FInDInGS

The GDSs provide essential and • efficient business infrastructure for 163,000 travel agencies, which employ nearly half a million travel agents worldwide. The GDSs pro- cessed more than 1.1 billion trans- actions in 2008, representing over $268 billion in global travel sales. U.S. and European travelers favor • intermediaries for travel shopping and purchasing. The GDSs play a primary role in facilitating the travel agency business model. OTAs have greatly contributed to • improving the travel shopping expe- rience and convenience for consum- ers and have also increased pricing transparency. In the U.S., the GDSs processed • $98.7 billion in travel agency and OTA bookings in 2008, represent- ing 72% of the nearly $137 billion in travel booked through interme- diaries. GDS share of traditional travel agencies is higher, at 75%.

The GDSs facilitate multi-carrier • itinerary shopping and the booking and fulfillment of interline tickets across more than 500 airlines for travel agencies and OTAs. The GDSs account for a significant • share of the nearly $78 billion in U.S. corporate travel booked via intermediaries. They are also the preferred booking method of cor- porate travel agents. The GDSs have adapted to the chal-• lenge of content fragmentation by introducing new financial models for airlines and travel agencies and investing in new technology to sup- port airline merchandising and sales of optional services. Should penetration of the pay-for-• content model (whereby airlines may compel OTAs and travel agencies to pay for access to some or all of their content via the GDS) spread, there would be a high risk of major downstream distribution costs for intermediaries and consumers. GDS share of the total travel mar-• ket is projected to increase slightly in 2009 and 2010 because of two main trends: OTAs’ countercycli- cal lift amid the recession and the growing trend by corporate travel buyers and TMCs to drive more travel spend under management and via the GDSs. Two developments in airline dis-• tribution – the rise of optional ser- vices and fees and the pay-for-con- tent model – hold the potential to disrupt how air tickets are bought and sold. Both could fragment con- tent and add cost to downstream intermediaries and points-of-sale, making true “all-in” and “inclusive” price comparisons more difficult for consumers.

The Role and Value of the Global Distribution Systems in Travel Distribution November 2009

Page 6 ©2009 PhoCusWright Inc. All Rights Reserved.

KEy FInDInGS

The GDSs provide essential and ef-• ficient business infrastructure for 163,000 travel agencies, which em- ploy or contract nearly half a mil- lion travel agents worldwide. The GDSs processed nearly 1.3 • billion transactions in 2008, repre- senting more than $268 billion in global travel sales. GDS transaction value in the U.S. • represented 35% of all supplier rev- enue and 64% of all airline passen- ger revenue in 2008. GDS transaction value in Europe • represented 21% of all supplier rev- enue and 47% of all airline passen- ger revenue in 2008. The GDSs are a significant enabler • of the travel agency and airline in- dustries, which represent a total economic impact of more than $1.1 trillion and 10.2 million jobs in the U.S.

GDS SHARE oF ToTAl TRAVEl SAlES by REGIon

Global View

The World Travel & Tourism Council (WTTC) projected the global travel economy at just over $4 trillion in per- sonal and business travel and tourism spend and nearly 80.1 million in direct industry employment11 in 2008. The three major GDS companies, with combined revenues approaching $10 billion and approximately 24,000 em- ployees worldwide in the same year,

11 “The 2008 Travel & Tourism Economic Research Executive Summary,” TSA Tourism Satellite Accounting, The World Travel & Tourism Council (WTTC)

may seem just a sliver of that rather large pie. But the GDSs serve as an important (and often unseen) global circulatory system for travel informa- tion and commerce.

Together, the GDSs provide valu- able technical infrastructure for the vast majority of travel shopping and booking, at more than 163,000 trav- el agencies worldwide. These travel agencies, both online and traditional, directly employ or contract roughly 490,000 individual travel agents. The GDSs processed more than 1.1 billion transactions in 2008 for these agencies, representing more than $268 billion in total travel transaction value and 7% of global personal and business travel and tourism demand.12

The u .S . Travel Market

The U.S. is the largest travel market in the world, representing nearly $280 bil- lion in direct supplier revenue (source: PhoCusWright Inc.) and nearly $1.1

12 PhoCusWright Inc. and WTTC

trillion in total personal and business travel consumption in 2008.13 The volume of U.S. travel transactions booked via GDS accounted for well over one third of total U.S. travel since 2006 (see Figure 5). The GDSs pro- cessed 449 million transactions for air- lines, hotels and car rental companies in 2008, representing $98.7 billion in total travel value. This represented 35% of the total travel market (sup- plier revenue) and 9% of all personal and business travel consumption in 2008.

The reach of the GDSs extends throughout the U.S. travel economy and well beyond a conventional eco- nomic impact assessment. Roughly 83% of travel agencies rely on a GDS for their core business infrastructure for reservations processing.14 Most travel agencies value their GDS, which

13 Travel & Tourism Economic Impact 2009: United States, WTTC 14 2008 GDS Report, American Society of Travel Agents

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