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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:

©2009 PhoCusWright Inc. All Rights Reserved.


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

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

 ©2009 PhoCusWright Inc. All Rights Reserved.


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 November 2009

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

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

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

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

Executive Summary

The e-commerce revolution of the they also deliver an ever-expanding Key Findings
1990s brought about a breakthrough array of content to online travel agen- • The transactions processed by the
in business and a deep and lasting cies and traditional brick-and-mortar GDS represent a significant share
transformation in the way consumers travel agencies. More than 90,000 of the global travel industry:
research, shop and buy. From music to hotel properties, the world’s largest –– The GDSs processed more than
mortgages, discount toys to high-end car rental companies, hundreds of 1.1 billion transactions in 2008,
electronics, just about anything and tour operators and the major cruise representing over $268 billion in
everything is available for purchase lines distribute their products to travel global travel sales.
online. agencies via the GDSs. –– In the U.S., GDS transaction
Most people associate the birth of
Study Purpose & value represented more than
electronic travel distribution with the
Methodology one-third of all travel supplier
advent of the Internet and the explo- revenue in 2008; GDS air trans-
sion in e-commerce in the late 1990s. The Interactive Travel Services As- actions accounted for nearly two
But in fact, electronic commerce in sociation (ITSA) commissioned two-thirds of all airline passenger
travel pre-dates the “dot-com” boom PhoCusWright to study the role and revenue in 2008.
by some three decades and had be- influence of the GDSs in travel distri- –– GDS transaction value in Europe
come quite commonplace by the bution and the global travel economy. represented more than one-fifth
mid-1980s. The technology systems This paper examines the following: of all traveler supplier revenue in
powering electronic travel commerce The share of U.S. and European 2008; GDS air transactions ac-
were then referred to as CRSs, or com- travel that is distributed through the counted for nearly half of all air-
puterized reservation systems. They GDSs line passenger revenue in 2008.
were the predecessors of today’s global The role played by the GDSs across • The GDSs play a central role in the
distribution systems, or GDSs. various segments of the travel industry, online travel agency and traditional
The GDSs have traveled far in the such as air, online, leisure and corpo- agency business model. These travel
past four-plus decades. The three major rate travel. intermediaries account for nearly
GDS companies today power the The impact of the GDSs on con- half of all travel industry sales in
critical reservations and technology sumer choice and competition. U.S., and a substantial portion of all
infrastructure of over 163,000 travel This study derives market data travel sold in Europe, which varies
agency locations and enable bookings from PhoCusWright’s Online Travel widely by country.
by nearly half a million travel agents Overview Eighth Edition Update: –– More U.S. and European trav-
around the globe. The GDSs generated 2009-2010, PhoCusWright’s European elers cite intermediaries as their
more than $9.6 billion in revenue and Online Travel Overview Fourth Edi- usual channel for travel shopping
more than 1.1 billion transactions in tion and other research. Amadeus, and purchasing.
2008. That equates to just over 2,100 Sabre and Travelport also provided to –– The GDSs provide essential and
transactions per minute. PhoCusWright transaction and trans- efficient business infrastructure
The GDSs are most often thought action value data from 2006 to 2008 for 163,000 travel agencies, which
of as a distribution environment for for air, hotel and car rental bookings. employ or contract nearly half a
airlines; more than 550 airlines and All data presented in this paper regard- million travel agents worldwide.
the overwhelming majority of com- ing GDS channel size reflects the ag- –– OTAs have played a major role
mercial airline fares and inventory are gregation of this proprietary data from in improving the travel shopping
accessible via the GDSs. However, all three major GDS companies. experience and convenience for

©2009 PhoCusWright Inc. All Rights Reserved. Page vii


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

consumers as well as increasing agents, who require not only ac- • GDS share of the total travel mar-
pricing transparency. The GDSs cess to travel content for booking ket is projected to increase slightly
–– In the U.S., the GDSs processed but also a range of technologies in 2009 and 2010 because of two
$98.7 billion in travel agency and and services to ensure efficient main trends: OTAs’ countercycli-
OTA bookings in 2008, repre- management of corporate travel cal lift amid the recession and the
senting 72% of the nearly $137 programs. growing trend by corporate travel
billion in travel booked through • The GDSs have adapted to the chal- buyers and TMCs to drive more
intermediaries. GDS share of tra- lenge of content fragmentation by travel spend under management
ditional travel agencies is higher introducing new financial models and via the GDS.
at 75%. for airlines and travel agencies and • The GDSs today play a major role
• The GDSs account for a significant investing in new technology to sup- in both leisure and corporate travel
share of the nearly $78 billion in port airline merchandising and sales distribution, but they are also beset
U.S. corporate travel booked via of optional services. by a range of challenges – from the
intermediaries, which represents • Should penetration of the pay-for- rise on supplier direct bookings to
a much higher average yield per content model spread, whereby air- changes in airline products (option-
transaction for travel suppliers. lines will compel OTAs and travel al services) and distribution pric-
–– The average fare booked via a agencies to pay for access to some ing models. But if they continue
traditional travel agency is sig- or all of their content via the GDS, to innovate and adapt to meet the
nificantly higher than the aver- the risk is high that this could lead evolving needs of travel suppliers,
age fare booked via online travel to significant downstream distri- distributors, and ultimately travel-
agencies. bution costs for intermediaries and ers themselves, they will continue
–– GDSs are the preferred book- consumers. to shape travel distribution for years
ing method of corporate travel to come.

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

Introduction: The Founding Fathers of Travel E-Commerce

The e-commerce revolution of the The Internet is no longer an emerging The joint creation of American
1990s brought about a breakthrough channel, but a major – and in many Airlines and IBM, SABRE was the
in business and a deep and lasting cases, primary – channel in any travel first of many airline-owned and -op-
transformation in the way consumers company’s sales and marketing strategy. erated CRSs. At first, these systems
research, shop and buy. From music More than nine in 10 U.S. travelers used were created for use at the airlines’
to mortgages, discount toys to high- the Internet at some point in the travel internal reservations centers. But car-
end electronics, just about anything planning process in 2008.3 riers quickly realized the opportunity
and everything became available for for deploying their systems in travel
purchase online. Most link the birth of “e-travel” with agencies. Delivering accurate sched-
Travel is quite possibly the perfect the advent of the Internet, but in ules, fares, availability and booking
product for online distribution. Un- fact travel e-commerce pre-dates capability instantly at the point-of-sale
like purchasing in most industries, the “dot-com” boom by some three would extend the efficiencies gained
the travel transaction involves the decades. internally to the travel agency distribu-
exchange not of physical inventory, tion channel. Airlines that had more
but of information. The traveler must Most people associate the birth of control over the travel agent’s desktop
choose from hundreds or thousands electronic travel distribution with the were in a far stronger position to influ-
(or theoretically, billions) of potential advent of the Internet and the explo- ence flight selection and move market
products, services and prices that may sion in e-commerce in the late 1990s. share. By 1985, U.S. travel agency sales
vary with the slightest adjustment of But in fact, electronic commerce in had risen to $54 billion. More than
any number of parameters. Consider, travel pre-dates the “dot-com” boom nine in 10 agencies with sales greater
for example, a simple, one-way air- by some three decades and had be- than $1 million had a CRS (versus just
plane ticket. That same ticket, for the come quite commonplace by the 6% not even a decade earlier). Agency
very same seat on an identical aircraft, mid-1980s. The technology systems revenue had surged 400% over the
could be significantly more or less ex- powering electronic travel commerce same period, while agency employ-
pensive should the consumer choose were then referred to as CRSs, or com- ment increased by only 20%.5
to take delivery of the product (i.e., puterized reservation systems. They
a departure date or time) just a few were the predecessors of today’s global In less than a decade, CRSs enabled
hours earlier or later. The price for the distribution systems, or GDSs. the travel agency industry to grow
very same product could also change if revenue 400% while growing
the traveler were to make the purchase The Origins of Travel employment by only 20%.
Automation
a day earlier or later.
The unique dynamics of travel shop- The first electronic travel booking did By the late 1990s, CRSs had evolved
ping and buying are ideally suited to the not take place on Expedia, Travelocity, into four large companies known
Internet, and the impact of this relatively or the Web site of any major airline or as global distribution systems. They
new medium has been nothing less than hotel company. No travel companies served as a critical nexus of distribu-
spectacular. Online sales of leisure and had Web sites, nor had anyone con- tion, bringing together hundreds of
unmanaged business travel in the U.S. ceived of an interactive travel agency, thousands of travel agents and other
surged from just $6.5 billion in 19991 when the Semi-Automated Business distributors with thousands of travel
to more than $95 billion in 2008.2 Research Environment (SABRE) first suppliers. The GDSs provided access
came “online” in 1964.4
1 PhoCusWright’s The Online Travel Market- 5 Chicke Fitzgerald, Global Distribution Sys-
place 2001-2003 3 PhoCusWright’s Consumer Travel Report tems: Outlook for the 21st Century (Garrett
2 PhoCusWright’s U.S. Online Travel Over- 4 Michele McDonald, “Selling Seats,” Air Communications Inc., MTech Strategies
view Eighth Edition Update: 2009-2010 Transport World (May 1, 2004). Inc., 2000).

©2009 PhoCusWright Inc. All Rights Reserved. Page 1


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

Figure 1  Overview of the Major GDS Companies in 2009*

Amadeus Sabre Travelport


Owned & Operated Amadeus Sabre Apollo
GDSs (ownership stake in Galileo
Abacus, GDS in Asia) Worldspan
Net Revenue 2008 €2,861 $2,881 $2,527
(millions)**
Employees (approx.)** 8,750 9,000 5,500
Ownership WAM Acquisition (shareholders: Silver Lake, Blackstone Group, One Equity
BC Partners, Cinven, Air France, Texas Pacific Group Partners, Technology Crossover
Iberia and Lufthansa) 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.

to not only content from their found- The GDSs Today around the world (see Figure 2). The
ing airlines, but from nearly all major The GDSs have traveled far in the past GDSs generated more than $9.6 bil-
airlines and other travel categories as four-plus decades, going through a va- lion in revenue and more than 1.1 bil-
well, such as hotels, car rentals, pack- riety of mergers, acquisitions and own- lion transactions7 in 2008 – just over
age tours and cruises. They served as ership structures. From the late 1990s 2,100 transactions per minute (and
both the major distribution outlet for through the early 2000s, three of the the infrastructure of each GDS can
airlines and the primary booking me- four GDS companies were publicly support volumes far greater).
dium for travel agencies: held (Worldspan was the exception). The GDSs are most often thought
As of 2009, there are six major global of as a distribution environment for
• Amadeus was formed through a airlines; more than 550 airlines and the
distribution systems and three GDS
consortium of major European air- overwhelming majority of commercial
companies, each owned by private eq-
lines and System One, the original airline fares and inventory are acces-
uity investors (see Figure 1).
CRS of Eastern Airlines. sible via the GDSs. However, they also
The global marketplace for travel
• Galileo evolved from the merger of deliver an ever-expanding array of con-
distribution and electronic reservation
the Apollo CRS (created by Unit- tent to travel agencies through their
processing services is huge, and the
ed Airlines) and the Galileo CRS agency software solutions. More than
GDSs reflect this. Together, the three
(founded by a competing consor- 90,000 hotel properties, the world’s
major GDS companies power the
tium of European airlines); it is now largest car rental companies, hundreds
critical reservations and technology
a part of Travelport. of tour operators and the major cruise
infrastructure of over 163,000 travel
• Sabre emerged from the original lines also distribute their products to
agency locations and enable bookings
SABRE CRS and other technol- travel agencies via the GDSs (see Fig-
by nearly half a million travel agents6
ogy divisions within American Air- ures 2 and 3). The GDS companies
lines.
• Worldspan resulted from the merg- 6 The term “travel agents” throughout this
paper refers to professional travel agents who
er of the TWA PARS CRS and the
sell and book travel, and does not include 7 Total global transactions of 1,103,918,338
Delta Air Lines DATAS II system; travel agency staff that do not directly sell for 2008 refer only to air, hotel and car rental
it is now a part of Travelport. travel or use a GDS (e.g., administrative segments, and do not include tour, cruise, rail
staff). and other transactions.

Page 2 ©2009 PhoCusWright Inc. All Rights Reserved.


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

continue to add to their Long Tail8 Figure 2  Select Aggregated Statistics of the GDS Companies in 20081
content: Today, GDS-connected travel
Transactions2 1,104M
agencies can also shop and book rail,
travel insurance, in-destination activi- Revenue3 $9,624B
ties and events, vacation and apart- Travel Agency Locations4 c. 163,000
ment rentals and much more.
While airline distribution services Users5 c. 490,000
remain central to GDS business, each Airlines More than 550
of the GDS companies has expanded
Hotel Properties More than 90,000
well beyond its original mission and
is now integral to travel distribution, Car Rental Locations More than 30,000
reservations processing and technol- 1
Includes air, hotel and car rental transactions only
ogy services for the global travel in- 2
Air, hotel and car rental transactions only: data provided by Amadeus, Sabre and
dustry. Many travel agencies today Travelport
use their GDS vendors not just for 3
Amadeus revenue converted to US$ at an average exchange rate of 1.47 (Source: OANDA)
shopping and booking travel services, 4
Assumes reduction of 7% for locations that use more than one GDS
but also for mid- and back-office tools 5
Assumes approximately three agents per location
(i.e., quality control procedures and Source: PhoCusWright Inc.
accounting), customer management
and marketing software, online book- Figure 3  The Travel Distribution Chain
ing engines for leisure and corporate
travel, and other functions. Supply Connectivity Retail Market
Airlines
The GDSs are also critical to online Online Travel Leisure
Hotels Agencies Travelers
travel. They have provided shopping,
Car Rental
pricing, booking and ticketing services Travel
Cruise Agencies Business
to the online travel agencies since the
Rail Travelers
OTAs’ founding in the mid-1990s. TMCs
Other
Worldspan and Expedia jointly de-
veloped an air shopping and faring Source: PhoCusWright Inc.
tool that has long been vital to the
Expedia.com air shopping path; it is Figure 4  GDS-Owned Online Travel Services for Leisure and Corporate Travel
now known as Travelport e-Pricing™.
Sabre established Travelocity in 1996, GDS Leisure Market Corporate Market
now one of the four largest global Amadeus Opodo Amadeus e-Travel Management
OTAs. Today, each of the three GDS
companies owns one or more OTAs Sabre Travelocity, which includes: GetThere
(see Figure 4), provides one or more • lastminute Travelocity Business
online booking tools to the corporate • World Choice Travel
• Zuji
8 The Long Tail principle debunks the 80/20
rule, where 80% of a company’s revenue Travelport Travelport holds a majority Traversa
stake in Orbitz, which includes: Orbitz for Business
comes from 20% of products. In the Long
Tail, embracing niches wins because the • CheapTickets
niches cumulatively outnumber or outweigh • ebookers
higher-frequency plays. See Philip Wolf ’s • HotelClub
“The Long Tail and Travel”: http://www.
• RatesToGo
phocuswright.com/the_phocuswright_con-
ference_2007_the_long_tail#philipwolf Source: PhoCusWright Inc.

©2009 PhoCusWright Inc. All Rights Reserved. Page 3


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

travel market and offers a range of e- In brief, PhoCusWright sizes the Denmark, Finland, France, Germany,
commerce services (from booking en- travel industry by aggregating relevant Greece, Ireland, Italy, Luxembourg,
gines to fulfillment processes) to travel supplier revenues across the air, lodging, the Netherlands, Norway, Portugal,
intermediaries and suppliers alike. car rental, tour, cruise and rail indus- Spain, Sweden, Switzerland and the
tries. Non-travel related revenues such United Kingdom. These countries
Study Purpose & as airline cargo, hotel retail and food were included to maintain consis-
Methodology
and beverage, and cruise line onboard tency with the methodology of Pho-
The Interactive Travel Services As- revenues are excluded. Data is sourced CusWright’s European Online Travel
sociation (ITSA) commissioned through public filings of individual Overview Fourth Edition.
PhoCusWright to study the role and travel suppliers and extensive executive
influence of the GDSs in travel distri- interviews. PhoCusWright also consults Key Terms & Definitions
bution and the global travel economy. a wide range of leading third-party re- • Computerized reservation sys-
This paper examines the following: search and data sources to inform and tem (CRS): A computerized system
corroborate its own findings. originally developed for airlines to
• The share of U.S. and European To size the GDS channel within manage reservations and inventory
travel that is distributed through the U.S., European and global travel and later adapted for use by travel
the GDSs industries, Amadeus, Sabre and Trav- agencies. CRSs are the precursors of
• The role played by the GDSs across elport provided to PhoCusWright GDSs and became widely adopted
various segments of the travel in- transaction and transaction value by hotels, car rental firms and other
dustry. For example: data from 2006 to 2008 for air, hotel travel companies.
–– Air and car rental bookings. All data pre-
–– Hotel • Global distribution systems
sented in this paper regarding GDS
–– Car rental (GDSs): Electronic travel distribu-
channel size reflects the aggregation of
–– Online travel tion networks that facilitate con-
this proprietary data from these three
–– Leisure travel nectivity, shopping and booking
companies.
–– Corporate travel among thousands of travel suppli-
Readers of this report and PhoCus-
• The impact of the GDSs on con- Wright’s U.S. Online Travel Overview ers and more than 163,000 travel
sumer choice and competition agencies around the world.
Eighth Edition Update: 2009-2010
will observe some differences in travel • Managed business travel (corpo-
This study derives market size9 data market size data. The discrepancy is rate travel): Managed or corporate
from PhoCusWright’s U.S. Online international air: PhoCusWright’s U.S. travel refers to all air, car and hotel
Travel Overview Eighth Edition Up- Online Travel Overview Eighth Edition expenses made by corporations
date: 2009-2010, PhoCusWright’s Eu- Update: 2009-2010 methodology sizes where purchases are governed by a
ropean Online Travel Overview Fourth the air market by counting passenger formal travel policy. A travel policy
Edition and PhoCusWright’s Corporate revenue of airlines based in the U.S. can refer to a preferred travel man-
Travel Distribution Fourth Edition. and does not count sales by interna- agement company, supplier, online
Readers interested in a full discussion tional carriers through a U.S. point- booking tool, negotiated rates and/
of market sizing methodology should of-sale (e.g., when a consumer or travel or booking channel. Managed
consult these reports. agent books with Lufthansa or Cathay travel also includes rogue, or out-of-
Pacific). The market sizing for air in policy, purchases that are captured
this paper includes all airline book- as part of a company’s corporate
9 “The Role and Value of the Global Distri-
ings made via the GDS through a U.S. travel budget.
bution Systems in Travel Distribution” does point-of-sale. This increases the size of • Online corporate booking tool:
not use term “market size” in any specific the air and total travel markets. Also referred to as a self-booking
technical or legal sense, but rather as a general Discussion of Europe includes the
reference to all sales in a particular sector or following countries: Austria, Belgium,
tool, SBT or CBT, corporate self-
industry. booking tools are online reserva-

Page 4 ©2009 PhoCusWright Inc. All Rights Reserved.


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

tion tools that automate the book- • Travel management company • The GDSs facilitate multi-carrier
ing of corporate travel reservations (TMC): A type of travel agency itinerary shopping and the booking
for travelers and traveler assistants that provides management and and fulfillment of interline tickets
within a managed travel program. consulting services for corporate across more than 500 airlines for
travel programs, which may include travel agencies and OTAs.
• Online travel agency (OTA): An
contract management and procure- • The GDSs account for a significant
entity whose branding is oriented
ment, expense reporting, and pro- share of the nearly $78 billion in
online and that principally conducts
gram development and oversight, U.S. corporate travel booked via
business online. There are several
as well as more conventional travel intermediaries. They are also the
hundred online travel agencies in
agency services, such as booking preferred booking method of cor-
the U.S. and Europe (defined as a
and fulfillment of travel. porate travel agents.
travel agency for whom at least 50%
• The GDSs have adapted to the chal-
of sales are derived online). Howev- • Unmanaged business travel: All
lenge of content fragmentation by
er, the four largest OTAs – Expedia, air, car and hotel expenses associated
introducing new financial models
Orbitz Worldwide, Priceline, Trav- with business travel in firms that do
for airlines and travel agencies and
elocity and their affiliated sites – not have a travel policy dictating the
investing in new technology to sup-
represented some 96% of all online channel, type of travel, supplier or
port airline merchandising and sales
travel agency sales in 2008.10 fare/rate used. For market sizing,
of optional services.
PhoCusWright combines unmanaged
• Segment: The base component of a • Should penetration of the pay-for-
business travel with leisure travel.
booked transaction as measured by content model (whereby airlines may
a GDS, a segment represents a flight Key Findings compel OTAs and travel agencies
from point A to point B for a single to pay for access to some or all of
passenger. For example, a roundtrip • The GDSs provide essential and their content via the GDS) spread,
plane ticket where each leg of the efficient business infrastructure there would be a high risk of major
flight was nonstop would consist for 163,000 travel agencies, which downstream distribution costs for
of two segments if only one passen- employ nearly half a million travel intermediaries and consumers.
ger was included in the itinerary; a agents worldwide. The GDSs pro- • GDS share of the total travel mar-
roundtrip ticket for one passenger cessed more than 1.1 billion trans- ket is projected to increase slightly
whose flight legs each included one actions in 2008, representing over in 2009 and 2010 because of two
stop would have four segments. The $268 billion in global travel sales. main trends: OTAs’ countercycli-
GDSs charge suppliers a “segment • U.S. and European travelers favor cal lift amid the recession and the
fee” for each segment booked. intermediaries for travel shopping growing trend by corporate travel
and purchasing. The GDSs play buyers and TMCs to drive more
• Supplier (or travel supplier): An a primary role in facilitating the
owner/operator of a travel service, travel spend under management
travel agency business model.
such as an airline, hotel, car rental • OTAs have greatly contributed to and via the GDSs.
company or cruise line (as opposed • Two developments in airline dis-
improving the travel shopping expe-
to an intermediary or retailer, such tribution – the rise of optional ser-
rience and convenience for consum-
as a travel agency, that resells sup- vices and fees and the pay-for-con-
ers and have also increased pricing
pliers’ products). tent model – hold the potential to
transparency. disrupt how air tickets are bought
• Travel agency: A retail storefront or • In the U.S., the GDSs processed and sold. Both could fragment con-
office-based travel agency business. $98.7 billion in travel agency and tent and add cost to downstream
PhoCusWright uses this term to the OTA bookings in 2008, represent- intermediaries and points-of-sale,
exclusion of online travel agencies. ing 72% of the nearly $137 billion making true “all-in” and “inclusive”
in travel booked through interme- price comparisons more difficult for
10 PhoCusWright’s U.S. Online Travel Over- diaries. GDS share of traditional consumers.
view Eighth Edition travel agencies is higher, at 75%.

©2009 PhoCusWright Inc. All Rights Reserved. Page 5


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

The Role of the GDSs in the Global Travel Industry

Key Findings Figure 5  U.S. Total Travel Market (Gross Bookings) & GDS Share, 2006-2008*
300
• The GDSs provide essential and ef-
ficient business infrastructure for 250
259.2
272.5 278.7
163,000 travel agencies, which em- 200
ploy or contract nearly half a mil-
lion travel agents worldwide. US$B 150
36% 36% 35%
• The GDSs processed nearly 1.3 100
billion transactions in 2008, repre- 93.6 98.2 98.7
50
senting more than $268 billion in
global travel sales. 0
• GDS transaction value in the U.S. 2006 2007 2008
represented 35% of all supplier rev- GDS Total U.S. Travel Market
enue and 64% of all airline passen- *This figure slightly undersizes GDS share of sales because it does not include cruise, tour
ger revenue in 2008. and rail transactions handled by GDSs, while the total travel market size does include gross
bookings from tour operators, cruise lines and rail.
• GDS transaction value in Europe Source: PhoCusWright Inc.
represented 21% of all supplier rev-
enue and 47% of all airline passen- may seem just a sliver of that rather trillion in total personal and business
ger revenue in 2008. large pie. But the GDSs serve as an travel consumption in 2008.13 The
• The GDSs are a significant enabler important (and often unseen) global volume of U.S. travel transactions
of the travel agency and airline in- circulatory system for travel informa- booked via GDS accounted for well
dustries, which represent a total tion and commerce. over one third of total U.S. travel since
economic impact of more than $1.1 Together, the GDSs provide valu- 2006 (see Figure 5). The GDSs pro-
trillion and 10.2 million jobs in the able technical infrastructure for the cessed 449 million transactions for air-
U.S. vast majority of travel shopping and lines, hotels and car rental companies
GDS Share of Total Travel booking, at more than 163,000 trav- in 2008, representing $98.7 billion
Sales by Region el agencies worldwide. These travel in total travel value. This represented
agencies, both online and traditional, 35% of the total travel market (sup-
Global View
directly employ or contract roughly plier revenue) and 9% of all personal
The World Travel & Tourism Council 490,000 individual travel agents. The and business travel consumption in
(WTTC) projected the global travel GDSs processed more than 1.1 billion 2008.
economy at just over $4 trillion in per- transactions in 2008 for these agencies, The reach of the GDSs extends
sonal and business travel and tourism representing more than $268 billion in throughout the U.S. travel economy
spend and nearly 80.1 million in direct total travel transaction value and 7% and well beyond a conventional eco-
industry employment11 in 2008. The of global personal and business travel nomic impact assessment. Roughly
three major GDS companies, with and tourism demand.12 83% of travel agencies rely on a GDS
combined revenues approaching $10 for their core business infrastructure
billion and approximately 24,000 em- The U.S. Travel Market for reservations processing.14 Most
ployees worldwide in the same year, The U.S. is the largest travel market in travel agencies value their GDS, which
the world, representing nearly $280 bil-
11 “The 2008 Travel & Tourism Economic
lion in direct supplier revenue (source: 13 Travel & Tourism Economic Impact 2009:
Research Executive Summary,” TSA Tourism PhoCusWright Inc.) and nearly $1.1 United States, WTTC
Satellite Accounting, The World Travel & 14 2008 GDS Report, American Society of
Tourism Council (WTTC) 12 PhoCusWright Inc. and WTTC Travel Agents

Page 6 ©2009 PhoCusWright Inc. All Rights Reserved.


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

gives them the ability to shop and Figure 6  Europe Total Travel Market (Gross Bookings) & GDS Share, 2006-2008
book across thousands of suppliers in 300
real time, handle payment processing
250
and other fulfillment services on be- 246
237
half of clients and suppliers, perform 200 224
customer service functions such as €B 150
changes, cancellations and re-issues,
and efficiently manage all of this busi- 100
25% 23% 21%
ness activity through direct data feeds 50
56 55 53
from the GDS to the agency mid- and 0
back-office systems. That a single GDS 2006 2007 2008
can provide so many services to an GDS Total Europe Total Europe
agency increases its efficiency.
Source: PhoCusWright Inc.
Travel agencies provided employ-
ment to 86,420 people in the U.S. as
of May 2008, representing an aggre-
gate annual payroll in excess of $2.8 The European Market beyond air, hotel and car rental res-
billion.15 While these employment and
payroll statistics have almost certainly The European travel market is the ervation processing. The TOMA and
declined since the onset of the eco- world’s largest regional travel market Merlin tour booking interfaces from
nomic recession in the U.S. in 2008, in gross bookings. It expanded from Amadeus and Sabre, respectively, rep-
travel agencies still play a major part €237 billion in 2007 to €246 billion in resent a substantial portion of all tour
in travel distribution. 2008 (see Figure 6). GDS companies operator package bookings made by
Another key area of broad and processed nearly 292 million air, hotel travel agents in Germany. Data from
far-reaching economic impact is, of and car rental transactions in 2008, the European Travel Agents’ & Tour
course, the airline industry. A 2008 representing more than one fifth of the Operators’ Associations indicates that
study by the Federal Aviation Admin- total European travel market (€53 bil- in Austria, France, Germany, Italy,
istration projected the 2006 airline in- lion in gross bookings). Travel booked Spain and the U.K., there are nearly
dustry impact on the U.S. economy at via a GDS represented 6% of the €857 41,000 travel agencies and tour opera-
$1.1 trillion in economic output and billion in total personal and business tors employing some 335,000 people.
10.2 million jobs.16 The GDSs make a travel consumption in 2008, accord- GDS Share of Total Travel
large proportion of these airline trans- ing to the WTTC.17 Sales by Product Category
actions possible. GDS air transactions GDSs are just as critical in the Eu-
had a market value of $78 billion in ropean travel economy as they are in Airline
2006 (see Figure 7), representing two the U.S. Travel agencies represent a
major point-of-sale for both leisure and Despite the rise in consumer book-
thirds of all airline passenger revenues.
business travel sales across Europe – a ings via airline Web sites over the past
The GDSs enable tens of thousands
of points-of-sale and drive traveler de- point-of-sale equally enabled by the decade, the GDSs continue to repre-
mand, which cannot help but affect GDSs. In some markets such as Ger- sent the majority of air travel. They
the airlines. many, where travel agencies accounted processed more than 376 million air
for 47% of the total travel sales in 2008 transactions in the U.S. in 2008, rep-
(see Figure 14), the impact of the GDS resenting nearly two thirds, or 64%,
15 “Occupational Employment and Wages,
in travel agency bookings extends far of all airline passenger revenue (see
41-3041 Travel Agents,” U.S. Bureau of Labor Figure 7).
Statistics, May 2008
16 The Economic Impact of Civil Aviation on 17 Travel & Tourism Economic Impact 2009:
The GDSs command a smaller
the U.S. Economy, FAA Air Traffic Organiza- European Union; WTTC; PhoCusWright Inc; but still substantial share of total air-
tion, October 2008 US$ > EUR conversation at 0.683 for 2008 line sales in Europe. They processed

©2009 PhoCusWright Inc. All Rights Reserved. Page 7


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

Figure 7  U.S. Airline Gross Sales & GDS Share, Figure 8  European Airline Gross Sales & GDS Share,
2006-2008 2006-2008
140 120
120 123 127 100
116 100 104
100 94
65% 64% 80
67%
80
US$B 78 80 81 €B 60 56% 51% 47%
60
53 51
40 49
40
20 20

0 0
2006 2007 2008 2006 2007 2008
GDS Total U.S. Airline Market GDS Air Europe Total Air Europe
Source: PhoCusWright Inc. Source: PhoCusWright Inc.

Figure 9  U.S. Hotel Room Revenue & GDS Share, Figure 10  U.S. Car Rental Revenue & GDS Share,
2006-2008 2006-2008
120 20
18
100 106.7 108.2 16 17.7 17.6
99.6 16.9
80 14
12
US$B 60 US$B 10
8
40 6 28% 29% 29%
20 12% 12% 4 4.8 5.1 5.0
11%
2
11.1 13.1 12.7
0 0
2006 2007 2008 2006 2007 2008
GDS All Hotel Room Revenue GDS All Car Rental Revenue
Source: PhoCusWright Inc. Source: PhoCusWright Inc.

Page 8 ©2009 PhoCusWright Inc. All Rights Reserved.


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

Figure 11  European Hotel Room Revenue & GDS Share, Figure 12  European Car Rental Revenue & GDS Share,
2006-2008 2006-2008
80 12
76.9 78.8
70 10.1 10.4
71.9 10 9.9
60
8
50
€B 40 €B 6
30
4
20
2
10 3% 4% 4% 6% 7% 7%
2.4 2.9 3.0 0.7 0.7 0.7
0 0
2006 2007 2008 2006 2007 2008
GDS Hotel Europe Total Hotel Europe GDS Car Europe Total Car Europe
Source: PhoCusWright Inc. Source: PhoCusWright Inc.

more than 276 million air transac- rental distribution – segments of the In Europe, the hotel market is much
tions in 2008, representing €49 bil- travel industry in which the major- more fragmented than in the U.S.,
lion and 47% of total air sales (see ity of bookings are handled over the and the majority of hotels are inde-
Figure 8). GDS share of sales declined phone or in person, usually directly pendent, small properties unaffiliated
more quickly in Europe following the with the local hotel property or car with larger hotel brands (and central-
surge in growth among low-cost car- rental location. The GDSs processed ized branding and distribution servic-
riers (and some tour operator charter 39.3 million hotel transactions and es). GDS penetration of the European
airlines), which have largely pursued a nearly 33 million car rental transac- hotel market was just 4% in 2008. In
consumer-direct distribution model. tions in the U.S. in 2008, representing the car rental sector, GDSs accounted
12% and 29% of those travel sectors, for only 7% of all transactions. Com-
Hotel & Car Rental
respectively (see Figures 9 and 10). bined, GDSs processed €3.7 billion
The GDSs play a far smaller but still Cumulative non-air product sales via in hotel and car rental transactions in
considerable role in hotel and car GDS reached nearly $18 billion. Europe in 2008.

©2009 PhoCusWright Inc. All Rights Reserved. Page 9


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

The Role of the GDSs in Travel Distribution

Key Findings and accounts for an estimated sale for the leisure and corporate travel
one fifth of air tickets sold via markets.
• Online and traditional travel agen-
OTAs in the U.S. Intermediaries have long been
cies accounted for nearly half of
• The GDSs are critical to corporate central to travel distribution. The
all U.S. travel supplier revenue in
travel distribution, which is handled travel industry is comprised of many
2008.
principally through national and thousands of travel suppliers across
• U.S. and European travelers favor
international TMCs. air, lodging, ground transportation,
intermediaries for travel shopping
• The GDSs process transactions cruise, in-destination activities and
and purchasing.
for the vast majority of corporate other services. This adds up to an im-
–– Although Web sites of travel sup-
travel. measurable volume of travel products
pliers (airlines, hotels, car rental
• They provide valuable support for and options, and intermediaries have
companies) account for more
the complex reservation require- provided a critical service by enabling
sales, online travel agencies are
ments of corporate travelers and and guiding consumers to shop, se-
the most popular types of travel
corporations throughout the res- lect and purchase in such a large and
sites among U.S. travelers for
ervation life cycle, enabling cost dynamic marketplace. By aggregating
shopping.
containment and driving efficien- content and information from this in-
–– More than two thirds of Euro-
cies in managed corporate travel calculable universe of supply, interme-
pean online travelers cite inter-
programs. diaries empower consumer selection,
mediaries as their usual method
–– The GDS connect airlines with allowing would-be travelers to shop
of shopping and buying travel.
the much higher-yield business thousands of suppliers in a single and
–– Access to lower prices and com-
travel segment, whose average efficient experience.
prehensive product information
transaction value is nearly twice Although travel suppliers have in-
drives channel selection.
that of a comparable online lei- creased their sales directly to consum-
• OTAs have greatly improved the
sure transaction. ers over the past decade, traditional
travel shopping experience and con-
• The GDSs enable suppliers to make travel agents and OTAs continue to
venience for consumers and have
their products available to consum- represent a major share (just under
increased pricing transparency.
ers globally through travel agencies half) of all travel sales in the U.S. in
• GDSs enable the retail travel agency
in markets where they might not 2008 (see Figure 13).
and OTA business models.
otherwise be able to achieve efficient PhoCusWright estimates that the
–– GDS technology allows for travel
market penetration through direct total intermediary share of all travel
shopping, booking and fulfill-
marketing efforts. sold is higher in Europe, although
ment for consumers across thou-
• Corporate travel agents favor the there is great variation in both the
sands of suppliers and products
GDSs as a usual booking method use of the Internet and travel agen-
in a single display that provides
for air, hotel and rental car. cies by country. PhoCusWright’s Euro-
access to comprehensive infor-
pean Consumer Travel Trends Survey
mation and drives competition The Heart of the Travel revealed that 72% of European online
among suppliers. Intermediary
travelers18 usually shop for travel via an
–– The GDSs processed nearly three
This section examines the role of the
quarters of all intermediary (trav-
GDS in the shopping and purchas-
el agency and OTA) sales in the 18 PhoCusWright’s European Consumer Trav-
ing processes of travelers and travel
U.S. in 2008. el Trends Survey surveyed adults in Britain,
agencies, and analyzes GDSs’ impact France, Germany and Spain who traveled
–– The GDSs help provide interline
on both online and offline points-of- by air or rail, stayed in a hotel in the past
ticketing, which makes lower-
year and used the Internet within the past
fare options available to travelers month.

Page 10 ©2009 PhoCusWright Inc. All Rights Reserved.


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

intermediary (either online or offline) Figure 13  U.S. Travel Market Gross Bookings and Share by Travel Intermediaries
and 69% usually book through one. In (OTAs and Travel Agencies) and Consumer Direct, 2006-2008
contrast, 19% shop suppliers and 21% 300
book directly. In Germany, which rep- 133 142
250 123
resents the third-largest travel market
in Europe (though it is almost identi- 200
cal in size to number two France),19
OTAs and travel agencies combined US$B 150
33 36 37
account for 56% of the total travel 100
market (see Figure 14). 104 53% 104 51% 100 49%
Intermediaries play an even larger 50
role in travel’s more complex segments,
0
where either the nature of the product 2006 2007 2008
itself or the consumer selection process
Travel Agency Online Travel Agency Total Direct
presents more demand for the infor-
Source: PhoCusWright Inc.
mational and consultative services they
offer. Travel agencies (both online and
Figure 14  Germany Total Travel Market Gross Bookings and Share by OTAs, Travel
traditional) account for a significant
Agencies and Consumer Direct, 2008 (€B)
majority of the air, tour and cruise
revenue in the U.S. (see Figure 15). 50 46.5
45
In the case of cruise and tour – 44%
40
products typically associated with
35
vacation travel and larger per-trip ex- Direct
30
penditure – travel agencies play an im- €B 25 OTAs
9%
portant, consultative role in the prod- 20 Travel Agencies
uct selection decision for travelers. For 47%
15
example, the multiple steps of a cruise 10
purchase – especially for the first-time 5
cruiser – can be daunting. They can 0
include not only the itinerary, schedule 2008
and price, but also considerations such Source: PhoCusWright Inc. and fvw, June 2009
as the cruise line, the ship, cabin type,
dinner seating, shore excursions, on- Figure 15  Intermediaries’ Share of U.S. Air, Tour and Cruise Revenue, 2008
board activities and services and pre-
36% 31% 26%
and post-cruise transportation. OTAs
have indicated that a substantial por-
74%
tion of their cruise sales are actually 69%
64%
completed over the phone.
When compared to the decisions
a traveler must make for a more ex-
pensive, multi-component vacation
package or cruise, shopping and book-
ing flights seems relatively simple and Air Tour Cruise
certainly more commonplace. The Intermediatry Direct
Source: PhoCusWright Inc.
19 PhoCusWright’s European Online Travel
Overview Fourth Edition

©2009 PhoCusWright Inc. All Rights Reserved. Page 11


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

Figure 16  Total Travel Gross Bookings and GDS Share by OTAs, Travel Agencies and retail agencies – with valuable access
All Intermediaries in the U.S. Travel Market, 2008 to comprehensive schedule, fare and
160 availability information, plus the abil-
140 136.9 ity to shop, book, process and fulfill
120 travel for their customers. The GDSs
100.3 72% processed $98.7 billion in travel
100
98.7 agency and OTA bookings in 2008,
US$B 80 75%
representing 72% of the nearly $137
75.5
60 billion in travel booked through inter-
40 36.5 mediaries (see Figure 16). GDS share
64% of traditional travel agencies is higher
20
23.3 at 75%.
0
OTA Travel All Leisure Impact: Travelers &
Agency Intermediaries
Travel Agents
GDS Share Gross Bookings
The sheer volume of air travel sup-
Source: PhoCusWright Inc.
ply (flights and fares) and demand
Figure 17  U.S. Traveler Motivations for Using a Particular Web Site When Shopping (passenger traffic) generates a large,
for Travel complex and fast-changing buffet of
choice in which price, information and
It has the best prices/offers 60% user experience are the most influen-
I have had good experience
tial elements in the consumer selection
58% process. In the leisure travel market –
with this Web site before
It offers the widest selection
and especially in the recessionary eco-
40% nomic climate of 2009 – price trumps
of travel options
all other considerations. While six in
I am most familiar with this brand 39% 10 U.S. travelers say price drives their
It provides the most information
choice of Web sites when shopping for
and photography 35% travel, previous positive experience and
wide selection of product options and
Question: What motivates you to use this/these Web site(s) when comparing and choosing information are also important to 58%
leisure travel products? Select all that apply. Base: Online shoppers (n=1,365)
and 40% of travelers, respectively (see
Source: PhoCusWright’s Consumer Travel Report
Figure 17).
It is not surprising, then, that online
airline product (a seat) is more or less with multiple fare classes and fares travel agencies are the most popular
a commodity, and travelers usually that can change several times a day. resource for leisure travelers. More
make their selection based on price One GDS calculates that, at any one U.S. travelers cite OTAs (38%) as
and schedule. But from the supplier time, there are some 4.3 billion shop- their usual purchase channel for air
or retailer perspective, air shopping pable fares in its system. than any other channel, including
and booking is in fact dizzyingly com- As travel intermediaries play a key airline Web sites, according to Pho-
plex. Although innovation in GDS role in travel distribution, GDSs play CusWright’s Consumer Travel Report
and online technology has made these an important role for the intermedi- (see Figure 18). This may appear to
processes increasingly easy and trans- ary. By aggregating inventory and rates conflict with Figure 13, which indi-
parent for both consumers and travel across thousands of suppliers, GDSs cates that booking directly with sup-
agents, there are more than 500 air- provide travel agencies – both OTAs pliers accounts for 51% of all travel
lines, millions of possible flights each and traditional leisure and corporate sales in 2008. Supplier Web sites did

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

account for a larger share of all online Figure 18  OTAs vs. Suppliers: Typical Purchase Channel for Lodging and Air
travel sales in the U.S. in 2008 (61%
of online gross bookings).20 However, 33%
supplier Web sites and OTAs appeal Lodging
to different segments of the traveler 28%
population: OTAs are most popular
with infrequent leisure travelers, who
38%
also tend to be younger and more Air Travel
budget-conscious. Supplier sites are Online Travel Agency
34%
preferred by more frequent, loyal, Supplier Web Site
and older travelers, who also tend to Base: U.S. travelers (n=1,990)
spend more per trip (see Figure 19). So Source: PhoCusWright’s Consumer Travel Report Part One: Behavioral Trends
while OTAs have more traveler share,
supplier Web sites have more trip and Figure 19  Typical Air Purchase Channel by Age
wallet share.
PhoCusWright’s European Consumer 18–24 52% 24%
Travel Trends Survey revealed very sim-
ilar findings about European travelers. 25–34 48% 31%
While the survey methodology of this 35–44 38% 39%
study differs from PhoCusWright’s Con-
sumer Travel Report (which covers U.S. 45–54 33% 37%
travelers) and the data in Figures 17
55–64 27% 40%
and 20 cannot be compared directly,
Online Travel Agency
the results are clear: European online 55–64 29% 34% Supplier Web Site
travelers also choose their purchase
channels based on price and access to Base: U.S. travelers (n=1,990)
comprehensive information. Source: PhoCusWright’s Consumer Travel Report Part One: Behavioral Trends
While many factors drive the popu-
larity of OTAs, a central component of Figure 20  European Traveler Motivations for Using a Particular Web Site When
their customer proposition is offering Purchasing Travel
a user experience that enables travel-
ers to efficiently shop and compare Lower prices 40%
products, schedules and prices across
many suppliers. Price-sensitive leisure Broader selection 24%
shoppers can conveniently consider
schedules and pricing in a single on- Brand name I trust 13%
line retail session, and the OTAs have
continued to introduce innovations to Best customer service 13%
improve this experience. Some of the
most important innovations include Loyalty rewards 3%
the following:
Base: Online travelers who have taken at least one holiday or vacation trip
• Matrix display: First introduced Source: PhoCusWright’s European Consumer Travel Trends Survey
by Orbitz (based upon technology

20 PhoCusWright’s U.S. Online Travel Over-


view Eighth Edition Update: 2009-2010

©2009 PhoCusWright Inc. All Rights Reserved. Page 13


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

from ITA Software) and now stan- deals on particular O&D (origin sumer can log on to the Internet and,
dard throughout online travel, the and destination) pairs. at the push of a button, review choices
matrix display allows consumers to • Hotel search, results display and available across a wide variety of car-
click on any cell within the matrix riers.
sorting: OTAs have made signifi-
to sort airfare search results by price, cant contributions to hotel search Over the last several years, online
airline and number of stops. result displays and sorting options travel sites have developed advanced
• Opaque fares: Initially made fa- to make it easier for travelers to search functions such as flexible-date
mous by Priceline’s Name Your compare options from hundreds of airfare searching and route-specific
Own Price airfare bidding model, possible results. Compelling addi- e-mail fare alerts. Furthermore, [they]
opaque fares allow travelers to get tions include: provide their advanced pricing infor-
deeply discounted plane tickets. mation and functionality to custom-
–– Searching and sorting by prox-
In return, the airline and exact de- ers free of charge.
imity to a specific address or
parture times are hidden until the landmark In sum, customers have become far
flight is purchased, and travelers do –– Map-based search results dis- more sophisticated at comparing the
not receive loyalty credits. play offerings of competing carriers, and
• Dynamic packaging: Debuted by –– Traveler reviews integrated with airline consumers have more tools at
Expedia and now standard through- the results their disposal than do consumers in
out online travel, this “book togeth- –– Multiple sorting options, in- the vast majority of industries in the
er and save” option allowes travelers cluding price, star rating, brand, United States.
to shop for multiple components guest rating and amenities
in a single search, such as “Flight + To serve the market demand for
Hotel.” This feature generally pro- The OTAs have contributed sig- comprehensive product information,
vides a lower overall price than if nificantly to traveler shopping con- online (and traditional) travel agen-
the two components are purchased venience and pricing transparency cies must have access to comprehensive
independently. It also allows sup- within the airline industry and for travel product information, including
pliers, particularly hotels, to hide travel overall. Even suppliers that schedules, pricing and availability, as
their discounted rates within pack- compete for for these same transac- well as the ability to book, take pay-
ages to avoid alienating premium tions by attempting to drive travelers ment, fulfill the reservation (ticket the
customer segments, such as business to book directly on their Web sites reservation, generate customer docu-
travelers. have acknowledged OTAs’ role. The mentation, and settle payment with
following is an excerpt from a state- the supplier) and handle post-booking
• Flexible and alternative date ment made by Douglas M. Steenland, customer care, such as changes and
search: This feature allows travel- CEO of Northwest Airlines, before cancellations. The GDSs are critical
ers to compare flight options across the Senate Judiciary Committee Sub- to the retail travel business model and
multiple departure and return dates committee on Antitrust, Competition automate many different processes,
to find the lowest possible fare. Policy and Consumer Rights on April which makes the operation much
• Alternative airport search: Trav- 24, 2008: more efficient:
elers can search across multiple de-
parture and arrival airports within Over the past several years, online 1. Access to comprehensive travel
an acceptable distance to find the sites such as Orbitz, Expedia, and information: The GDSs func-
lowest possible fare or most conve- Travelocity have… provided enor- tion as a central hub, aggregating
nient schedule. mous benefits to consumers and have schedules, fares, availability and
increased the price-competitiveness of booking capability for more than
• Low-fare notifications: OTAs in- the airline industry. In fact, there are 500 airlines though a single point
troduced a feature that would email few businesses in which there is as of access. This enables any travel
customers when there were specific much pricing transparency. A con- agency, OTA or other point-of-sale

Page 14 ©2009 PhoCusWright Inc. All Rights Reserved.


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

to provide comprehensive flight A 2008 study by the Aberdeen rules in the U.S. with regard to
information and selling capability Group found that a delay of just the marketing of airline services,
to its customers without having to one second can impact page views it is an indicator of the power of
build connections from its reserva- by 11% and conversions by 7% the marketplace and demand for
21
tions system to several hundred air- percent. Although many fac- comprehensive travel informa-
line inventory systems. In addition tors contribute to travel agency tion that none of the GDSs has
to creating a single access point for efficiency and Web site page load to date reinstituted screen display
content, GDSs also homogenize times, GDS response time – typi- bias: Travel agents and consum-
the content and information re- cally measured in fractions of a ers demand comprehensive pric-
ceived. This uniformity stream- second – is a main component. ing information. The Internet has
lines the internal functionalities 3. Unbiased fare displays: The GDSs exponentially increased pricing
required by most travel agencies, transparency and consumer ac-
were born of airlines, and as travel
such as international tickets and cess to information, and GDSs
agency adoption of the systems ex-
points-of-sale, interline ticketing, that would institute display bias
panded in the 1980s, airlines widely
post-booking changes and internal risk alienating travel agent clients
took advantage of the opportunities
accounting processes. and their customers as well as air-
they presented. A study by Ameri-
lines. Understandably, the latest
2. Mission-critical availabil- can Airlines in 1981 indicated that
series of airline-GDS distribution
ity and response times: In the travel agents selected a fare from
agreements, completed in 2006,
“always-on” age of the Internet, the first results screen 92% of the
made access to all airfares (“full
GDS infrastructure must support time.22 The implications were clear:
content”) a cornerstone of those
a tremendous volume of requests CRSs could (and were) biasing
commitments, and thus worth
and transactions 24 hours a day, search results in favor of their air-
the discounted distribution fees
seven days a week. Travelport line parents, significantly restricting
charged to the airlines as a result.
states that its systems in aggregate access to comprehensive flight in-
handle some 65 million price and formation and negatively affecting 4. Interline tickets (multi-carrier
availability requests daily, and the consumer choice. In 1984, the Civil itineraries): In a marketplace as
other GDSs support comparable Aeronautics Board (whose oversight complex, competitive and price-
workloads. of the GDSs eventually passed to sensitive as air travel, the GDSs
GDS response times – the time the Department of Transportation) and other technology companies
it takes the host system to serve stepped in to regulate the airline have invested heavily in innova-
up a response to a search request distribution system, prohibiting tion to improve shopping and pric-
– represent another important screen display bias by carrier and ing capability across the billions of
element of the consumer experi- compelling equal access to GDS possible flight combinations and
ence. Consumers demand effi- distribution services for non-GDS airfares. Interline tickets, where
cient service, and a marketplace owner airlines. a traveler flies on more than one
will naturally move to a product This significant regulation held airline within the same itinerary
or provider that delivers efficiency. until 2004, when the DOT elimi- (e.g., a roundtrip where the out-
Travel agents using a GDSs must nated these rules and significantly bound is on Delta and the return
not only provide efficient service deregulated the GDSs. Although is on AirTran), represent a sizable
to their customers, but must also they are restricted by no specific portion of air tickets sold.
strive to maintain their own op- Interline tickets are more or less
erational efficiencies. In the case 21 Aberdeen Group: The Performance of Web unique to online and traditional
of online travel, page load times Applications: Customers are Won or Lost in travel agencies.23 They offer a com-
are essential to Web site stickiness One Second
22 “November Line of Sale Analysis,” memo
(keeping visitors from defecting to R. E. Murray from S. D. Nason, American 23 Some airlines offer interline ticketing ca-
to other sites) and conversion. Airlines, Dec. 3, 1981 pability for consumers who book directly, but

©2009 PhoCusWright Inc. All Rights Reserved. Page 15


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

pelling competitive advantage to Figure 21  OTA Airfare Search Results Matrix Display and Itinerary Review with
consumers over booking directly Interline and Single-Carrier Options
with airlines because of the greater
number of fare and scheduling op-
tions available through multi-car-
rier itineraries. Interline tickets are
also often less expensive than sin-
gle-carrier itineraries (see Figures
21 and 22), and PhoCusWright es-
timates that these tickets comprise
18-22% of OTA tickets sold. The
GDSs help enable multi-carrier
itinerary shopping and the booking
and fulfillment of interline tickets
across more than 500 airlines for
travel agencies and OTAs.

Corporate Impact:
Corporations & TMCs
At a global expenditure of some $843
billion24 in 2008, business travel re-
mains a major contributor to the global
travel economy despite the worldwide
recession in 2009 and the consequent
downturn in corporate travel. In the
U.S., revenues to airlines, hotels and Source: Expedia.com
car rental companies from managed
corporate travel spend amounted to manager and company controller or level of service or lower out-of-
more than $100 billion –37% of the CFO place many complex demands pocket expenses while en route.
total U.S. travel market in 2008.25 on the travel agency or TMC and the Greater use of contracted fares
The market dynamics for corporate required travel shopping, purchasing also generally benefits the corpo-
travel are quite different from those and fulfillment process. The following ration over the long term because
of the leisure marketplace. While the is a list of some of the key needs of of incentives attached to achiev-
flight purchase for leisure travelers is the corporate travel market that dis- ing booking volume goals, even
driven first by price and second by tinguish it from leisure and personal if available published fares may
schedule, the corporate traveler must travel. sometimes be lower.
take other considerations into account.
Indeed, the needs of the business 1. Corporate contracts and pre- 2. Employee productivity and the
lowest logical fare: For employees
traveler, the corporate travel program ferred suppliers: Corporations
traveling on behalf of a company,
negotiate contracts with airlines
schedule is often as important – or
for volume-based discounts. Such
this is limited to the codeshare agreements
contracts may include other ele- more important – than the price
(usually less than a handful) any airline may of the ticket. Corporate travel
have. ments such as upgrade privileges,
programs have policies, usually
24 Travel & Tourism Economic Impact 2009: airport lounge access and allow-
developed with their TMCs and
Executive Summary (worldwide); WTTC able checked baggage, providing
25 PhoCusWright’s U.S. Corporate Travel Dis- configured within the booking
the business traveler with a higher
tribution Fourth Edition tool or point-of-sale, that take into

Page 16 ©2009 PhoCusWright Inc. All Rights Reserved.


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

Figure 22  OTA Airfare Search Results Display with Interline and Comparative matically apply the policies to ensure
Lowest Fares via the Same Airline Web Sites optimal use of negotiated corporate
rates, serve up the lowest logical fare
to contain cost while ensuring traveler
satisfaction, and capture the requisite
reservation data to pass into the com-
pany systems for expense reporting
and other needs.
Booking through an alternative
point of purchase, such as an airline
or hotel Web site, is not uncommon
among corporate travelers. Some sup-
pliers have introduced services such as
corporate booking portals or data feeds
that enable some degree of integration
with corporate travel programs. How-
ever, rogue channel purchasing does
increase the likelihood of travel spend
going uncaptured, reducing the effica-
Source: Orbitz, US Airways, Delta Air Lines cy of the program and adding manual
processing time and cost. It also likely
account a range of criteria such as including capturing more spend detracts from employee productivity
schedule, preferred suppliers, fare detail and integrating purchasing, (people spend more time searching for
class policies and price to deter- accounting and reporting systems. travel options on alternative channels)
mine not necessarily the cheapest In travel, the TMC and even the and may incur higher change or can-
fare, but the lowest logical fare for online self-booking tool provide cellation penalites because the airfare
that trip. For example, corporate essential reporting of their corpo- or hotel booking is not covered under
policies may exempt red-eyes or rate clients’ purchasing. Increas- the company program.
out-of-the-way connections from ingly, corporate travel systems are As corporations become more so-
consideration, or permit a higher providing data feeds directly to phisticated and strategic in their ap-
class of service for longer interna- client expense management and proach to travel and expense manage-
tional trips or higher-level execu- accounting systems, depending on ment, corporate travel agencies have
tives. the level of integration. This pro- evolved far beyond a simple point of
cess improves visibility into travel purchase for the business traveler –
3. Security and risk: An increas-
expenses, reduces the chance that they have emerged as true TMCs.26
ingly important issue in corporate
errors might occur with manual Their strategic consulting services for
travel programs is risk manage-
reporting and improves employee optimizing corporate travel programs
ment, whereby companies can
productivity. are as important as booking services,
track the locations of their em-
ployees or ensure that too many if not more so. Travel intermediar-
These elements of a successful cor- ies – principally TMCs – account
critical employees are not traveling porate travel program depend heav-
together on the same flight. for a significant majority of corporate
ily, however, on capturing the relevant travel spend in the U.S. (see Figure
4. Expense management and re- travel and spend data. When an em- 23). PhoCusWright projects TMC
porting: Companies are becom- ployee uses the sanctioned in-house share of the corporate travel market
ing more sophisticated in their online corporate booking tool or travel
expense management processes, agency, the system or agent can auto- 26 Corporate Travel Distribution: Key Mar-
kets, PhoCusWright Inc.

©2009 PhoCusWright Inc. All Rights Reserved. Page 17


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

will increase 79% by 2011 as compa- Figure 23  U.S. Corporate Travel Market Gross Sales for Air, Hotel and Car Rental;
nies strive to improve efficiencies and Share by Direct and Intermediaries (Travel Agencies and TMCs), 2008
reduce costs by bringing more travel 120
spend under management. 100.8
100
The GDSs account for the major- 23.1
ity of the nearly $78 billion in corpo- 80
rate travel booked via intermediaries. 77.7
Direct
They are also the preferred booking US$B 60
Intermediary
method of corporate travel agents (see 40
Figure 24). GDSs power most of the
air, hotel and car rental content for 20
(now widely adopted) online corpo- 0
rate self-booking tools like Amadeus’ 2008
e-Travel Management, Concur’s Cliq- Source: PhoCusWright’s U.S. Corporate Travel Distribution Fourth Edition
book, Sabre’s GetThere, TRX’s RESX
and Travelport’s Traversa, as well as Figure 24  Percentage of Corporate Travel Agents for Whom GDS Is the Usual
the corporate booking portals of the Booking Channel for Air, Rental Car and Hotel
OTAs.
But the GDSs represent far more Air 97%
than a booking mechanism for corpo-
rate travel; they perform other valuable
functions across the reservation life Rental Car 96%
cycle of most corporate travel transac-
tions and assist with the complex eco-
system of technology services among Hotel 94%
corporate agencies and corporate trav-
el departments. They integrate with
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
TMC mid- and back-office processes,
including quality control of reserva- Source: PhoCusWright’s Travel Agency Distribution Landscape: 2006-2009
tion files, automated services to check
policy compliance and availability of
better fares or seats, and accounting
and reporting. Travel Supplier Impact: in the average transaction value across
These functions help optimize travel Business & Leisure major distribution channels that in-
programs, maximize use of corporate The industry discourse surrounding dicate that GDSs and travel agencies
contracts and preferred suppliers, en- airlines and the GDSs is often pre- deliver not only a majority of total
sure policy compliance and maximize sented in an adversarial context,27 with airline industry revenue, but also a
the amount of spend under manage- airlines aggressively seeking to drive significant share of the higher-yield
ment control. Bookings that fall out- direct distribution and lower the cost fares on which many airlines depend
side the GDS have a higher likelihood of selling tickets via intermediaries. for profitability.
of going uncaptured or requiring However, not all demand is created Most striking is the difference in
manual intervention to push through equal. There are marked differences the average airfare booked through
mid- and back-office processes. This a travel agency versus an OTA. As
detracts from efficiency in the corpo- 27 “Distribution Fragmentation and the Sup- shown in Figure 25, the average air
rate travel program and adds cost to ply Chain: Bracing for 2011 Airline-GDS ticket booked through a travel agency
the TMC and the corporation. Talks, Buyers Can Help Pave A New Way,” in the U.S. was $684, almost twice that
Travel Procurement, December 2008

Page 18 ©2009 PhoCusWright Inc. All Rights Reserved.


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

of the $363 average ticket through an Figure 25  Average Airfares Booked via OTAs and Travel Agencies and Fare
OTA. This $321 difference reflects the Difference in the U.S., 2007-2008
major role travel agencies and TMCs $684
play in business travel; in the corporate $618
travel market, value and efficiency are
not judged only by ticket price, but OTA
also by the additional benefits and ser- $337 $363 Travel Agency
$321
$281
vices included in more expensive fare Difference
classes (e.g., refunds and flexibility of
travel time) and premium classes of
service. It is travel agencies and TMCs
that are more likely to sell these fare 2007 2008
classes and the airline services associ- Source: PhoCusWright Inc.
ated with them.
By comparison, OTAs attract a Figure 26  Average Differences in Airfares Booked via OTAs and Travel Agencies:
much more price-sensitive, primar- France, Germany and U.K., 2007-2008
ily leisure market. PhoCusWright re- $831
search indicates that the average fare $782
booked through an airline Web site is
much closer to the average fare booked $514 OTA
$490
through an OTA, although likely a Travel Agency
little higher because of airlines’ ability $317 Difference
$291
to lure their most loyal and frequent
travelers to their Web sites.
A very similar dynamic is at play in
the European marketplace. Although
2007 2008
the average fares booked through
OTAs and travel agencies in Europe’s Source: PhoCusWright Inc.
three largest travel markets are higher
than in the U.S., the differences are which reflects the corporate travel Web sites, airlines also acknowledge
remarkably similar. The average fare market’s demand for higher product that OTAs serve as valuable marketing
booked through a traditional travel quality, greater flexibility and better vehicles in markets where they may
agency was 59% higher in 2007 and service than the leisure market – and lack brand awareness among travelers.
62% higher in 2008, again reflecting the higher-yielding hotel and rental Airlines turn to OTAs to drive busi-
the higher fares typically booked by car rates those expectations generate ness in “spoke” markets where they
business travelers, who are more likely for suppliers. may have less market presence.
to book via travel agency or TMC (see The ability of the GDSs to deliver Furthermore, GDSs enable airlines
Figure 26). higher-value demand is not limited to (through travel agencies) to obtain
Analysis of non-air transaction data the corporate travel market. At 16% of bookings in markets that they could
from the GDSs paints a very similar all airline passenger revenue in 2008, not reach as efficiently on their own.
picture. The average combined trans- online travel agencies also represented For example, if a domestic U.S. air-
action value of hotel and rental book- a significant portion of leisure travel line would like to sell its flights across
ings via travel agencies in the U.S. demand. Although OTAs are often po- Asia, it would be forced to create a
was $114 higher than those booked sitioned as direct competitors to airline very expensive marketing infrastruc-
via OTAs in 2008 (see Figure 27). This Web sites and airlines continue to seek ture, whereas the GDS provides such
difference is up from $106 in 2007, ways to drive more bookings – espe- infrastructure for a variable cost. This
cially lower leisure fares – to their own global reach of the GDSs enables air-

©2009 PhoCusWright Inc. All Rights Reserved. Page 19


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

lines to make their products easily ac- Figure 27  Average Hotel/Car Transaction* Value Booked via OTAs and Travel
cessible for shopping and purchase by Agencies and Difference in the U.S., 2007-2008
consumers (via travel agencies, online $279 $286
and traditional), who often would be
unfamiliar with the offerings of carri- OTA Hotel/Car
$172 $172 Agency Hotel/Car
ers that have either newly entered the
market or who have less brand vis- $114 Difference
$106
ibility (e.g., a U.S. carrier in an Asian
country).
The OTAs also offer suppliers a
deep discount distribution channel 2007 2008
in the form of opaque travel sales * Combined average value of hotel and/or rental car transactions, where a transaction equals
and packaging. The former withholds a hotel or car rental booking regardless of the number of room nights, days or guests/
passengers.
some product details (such as the
Source: PhoCusWright Inc.
brand name, exact flight schedule or
hotel location) until purchase; the lat-
ter shields the discounted price of the tressed inventory without alienating able – $6 billion in 2008 – and two
product within the total package price. existing customers who may have paid major OTAs, Priceline and Hotwire,
This provides some brand protection a higher price. The volume of travel are largely focused on the opaque sell-
for suppliers who want to offload dis- sold via OTA package channels is siz- ing model.

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

The Future of the GDSs

Key Findings Figure 28: U.S. Airline, Hotel and Car Rental Web Site Share of All
Category Revenue, 1999-2008
• Airlines have aggressively grown
35%
their share of direct online distri-
bution from less than 3% of all 30%
passenger revenue in 1999 to more 25%
than 30% in 2008 in the U.S. 20%
• Full content remains the goal for 15%
travel intermediaries; several air- 10%
lines continue to withhold all or
5%
some fares from the GDSs.
0%
–– The GDSs have adapted to airline
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
direct sales growth and the risk
of content fragmentation by in- Airline Web site share of all airline revenue
troducing new financial models Hotel Web site share of all room revenue
for airlines and travel agencies, Car rental Web site share of all revenue
bringing the cost of distribution Note: Car rental revenue excludes insurance replacement business.
down for airlines since 2002. Source: PhoCusWright Inc.
• The rise in a la carte sales and
optional services among airlines • GDS share of the total travel mar- The Surge in Supplier
threatens to further fragment con- ket is projected to increase slightly Direct
tent and disadvantage downstream in 2009 and 2010 because of two
intermediaries and points-of-sale by For the past decade, airlines have been
main trends: OTAs’ countercycli-
making true “all-in and inclusive” relentless – and successfully so – in
cal lift amid the recession and the
price comparisons for consumers their pursuit of direct bookings. In
growing trend by corporate travel
more difficult. addition to featuring their Web site
buyers and TMCs to drive more
• The GDSs are implementing emerg- URLs across their advertising and
travel spend under management
ing industry standards from ARC marketing communications, airlines
and via the GDS.
and ATPCO and rolling out new have over the past 12 years deployed a
technology platforms to support The GDSs and travel agencies are range of tactics, from direct incentives
airline optional services. increasingly challenged on a number such as Web fares and reward mileage
• Another risk for consumers, in- of market fronts as airlines accelerate bonuses to negative incentives (e.g.,
termediaries and GDSs is further their direct distribution efforts and added fees for non-preferred booking
penetration of the pay-for-content seek ways to restrict content across channels). Several airlines charge fees
model, whereby airlines may compel some intermediary channels or impose for some transactions through their
OTAs and travel agencies to pay for fees on bookings through those chan- call centers; in 2004 Northwest Air-
access to some or all of their content nels. This section examines some of lines attempted to impose fees on GDS
via the GDS. This could result in the major challenges facing the GDSs bookings for U.S. domestic tickets to
significant downstream distribution and their potential impact on the travel offset the cost of segment fees, but
costs for intermediaries and con- markets in the U.S. and Europe. soon rescinded the policy.
sumers, with consumers ultimately Airlines also continue to invest heav-
picking up the tab by way of higher ily in their online capabilities, offering
all-in prices for air travel. more features and convenience for trav-
elers via their Web site to differentiate

©2009 PhoCusWright Inc. All Rights Reserved. Page 21


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

Figure 29  Supplier Web Site Share of All Gross Travel Bookings by Country, significantly. Hotel Web site revenue
2006-2008 as a percentage of all U.S. room rev-
35% enue has increased from 1% in 1999
30%
to 15% in 2008; car rental Web site
revenue has grown more dramatically
25% U.K. as a share of all rental revenue, from
20% Scandanavia 2% to 27% over the same period.
France In Europe, the GDSs have also wit-
15%
Germany nessed a shift toward booking directly
10% Italy online with travel suppliers. All sectors
Spain of the European travel market are see-
5%
ing gradual increases in the supplier
0% direct online channel, though these in-
2006 2007 2008 creases vary greatly by country. Some
Source: PhoCusWright’s European Online Travel Overview Fourth Edition markets, such as the U.K. and Scan-
dinavia, have high direct penetration
Figure 30  European Traditional Airline, Low-Cost Carrier, Hotel and Car Rental Web – approaching one third of the total
Site Share of All Category Revenue, 2006-2008 travel market – while in other markets
80% such as Italy and Spain, the proportion
70% is much lower (see Figure 29).
60%
From the earliest days of online
travel, it was the low-cost carriers, or
50% LLCs LCCs, that most aggressively sought
40% Car Rental to build their Web sites as major dis-
30% Traditional Airlines tribution channels. At Southwest Air-
20%
Hotels lines, the world’s largest LCC, 78% of
revenue came through its Web site in
10%
2008, while JetBlue, the second larg-
0% est in the U.S., reported 77%. Both
2006 2007 2008 carriers stand far from the U.S. air-
Source: PhoCusWright’s European Online Travel Overview Fourth Edition line industry average of just under a
third in 2008. There is a similar gap
from other channels. Tracking, man- is still Southwest Airline’s Ding!, an in Europe between traditional airlines
aging and redeeming air miles online off-browser desktop application that and LCCs, which have proliferated
have become standard functionality, sits in a person’s laptop system tray there over the past decade: 69% of the
as have online check-in, changes and and offers pop-ups of relevant special nearly €18 billion in air travel sold by
more. But some carriers have taken offers. Southwest has boasted several LCCs was booked via airline Web sites
interesting, innovative approaches. million downloads for Ding! since its (see Figure 30). In aggregate, one fifth
Alaska Airlines in 2008 introduced launch in early 2005. of all travel in the European market
Jenna, an online virtual assistant that These tactics have helped spur sales was booked on a supplier Web site in
allows Web site visitors to chat and ask via airline Web sites over the past de- 2008.
questions. United Airlines introduced cade, from less than 3% of all pas- Despite a sales strategy that clearly
Twares in 2009, special offers available senger revenue in 1999 to more than emphasizes driving customers directly
only to their followers on the micro- 30% in 2008 (see Figure 28). Hotels to the airline Web site, several major
blogging social network Twitter. Per- and car rental firms have also grown LCCs have made major shifts in their
haps the most successful such example their direct online sales, although less distribution models that acknowledge

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

how travel agencies and GDSs can as- TMCs and corporations. When air- Web fares, for OTAs and travel agen-
sist in reaching the higher-yield traf- line Web fares undercut contracted cies. In return, the GDSs offered dis-
fic of the corporate travel market in discount rates provided to bulk resell- counts on supplier segment fees and
both the U.S. and Europe. In 2007, ers in both the leisure and corporate reduced the incentives they in turn
Southwest, JetBlue and easyJet (the markets, intermediaries and corporate paid to travel agencies. The GDSs
U.K.-based LCC) announced new buyers found themselves faced with a and airlines reached broad consensus
participation agreements with several conundrum: again in 2006 with a series of distri-
GDSs. bution agreements (primarily in the
• Unless they were willing to book U.S. market) that led to full content in
the fare on the airline Web site, exchange for significant discounts in
Our re-entry into GDSs in 2007 has
supported our growth in the corporate travel agents and TMCs would be- the supplier segment fees (and, neces-
market, as business customers are come less competitive. This, how- sarily, a reduction in the inducements)
more likely to book through a GDS… ever, added additional indirect cost GDSs paid to travel agencies.
the average fare purchased via this and inefficiency, because bookings Although GDSs have come a long
channel is at least 17% higher, justify- outside the agency GDS would have way in closing the content gaps since
ing the increased distribution costs.
to be manually searched, booked the proliferation of Web fares, full
As a result, we now participate in all
four major GDSs and four major OTAs. and re-entered into mid- and back- content remains elusive. Several air-
Our distribution mix creates significant office systems for accounting and lines, such as Southwest, for example,
cost savings and enables us to build reconciliation. do not participate fully in all GDSs in
loyalty through increased customer • Corporations, seeking to contain all markets, either withholding certain
interaction. travel costs, wanted their employ- fares or limiting their level of partici-
– JetBlue 2008 Annual Report
ees to travel via the lowest available pation so that some GDS users do not
fares. However, by permitting the have true, real-time access to fares and
booking of Web fares, they also availability. Other airlines, most no-
Content Fragmentation
risked incurring unseen costs and tably Ryanair – one of Europe’s larg-
Although several once-stalwart airline loss of productivity. Fares booked est carriers – do not participate in the
proponents of direct selling have initi- outside their prescribed booking GDS channel at all.
ated or increased their participation channels created leakage in the As a result, even though travel
in the GDS and travel agency chan- travel management programs, re- agencies prefer the GDSs for book-
nels, access to comprehensive airline duced management visibility into ing air, most intermediaries must rely
content across all intermediary chan- corporate purchasing and reduced on the Internet as well. More than
nels remains elusive. The topic, often the benefits of negotiated contracts one in three leisure travel agents and
referred into within the travel industry with suppliers. The booking of Web one in five corporate travel agents cite
as “full content,” remains a conten- fares also detracted from employee the Internet and airline Web sites as
tious and hotly debated issue. productivity, as employees spent usual booking methods in addition to
more time searching for alternative their GDS,28 and over 90% of agencies
Web Fares & Full Content fares. use the Internet as well as their GDS
The full content debate between when sourcing airfares.29 Many travel
airlines and intermediaries has been GDS response: Recognizing the po- agencies in the corporate sector have
around for a decade – ever since sev- tential threat to intermediaries, the invested in and integrated third-party
eral airlines introduced Web fares that GDSs took steps to stem the frag- tools into their mid-office procedures
would only be made available to trav- mentation of content across multiple to conduct automated scans of travel
elers who booked directly on an air- points-of-sale. In 2002 and 2003,
line site. This created numerous chal- most airlines and GDSs reached new 28 PhoCusWright’s Travel Agency Distribution
lenges for downstream distributors, distribution agreements that provided Landscape: 2006-2009
such as travel agencies, tour operators, access to full content, which covered 29 2008 ASTA Travel Agent Usage and Price
Sensitivity Study

©2009 PhoCusWright Inc. All Rights Reserved. Page 23


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

Web sites to ensure significantly lower The complex airline distribution are all working on system enhance-
fares were not missed during the time landscape has worked so well thus ments, including the introduction of
when the reservation was originally far because of the wide adoption of new travel agent desktop applications,
booked. standards for describing products and significant changes to underlying core
their attributes across the various sup- system functionality and conforming
Optional Services: When Full Isn’t plier, intermediary and point-of-sale to emergent industry standards from
the Same
systems. The reorganization of each the Air Tariff Publishing Company
The debate around full content does airline’s products and services has the (ATPCO) and the Airline Reporting
not end with schedules and fares. Web potential to disrupt the distribution Corporation (ARC) for airline op-
site functionality and features, as well ecosystem and affect pricing transpar- tional services.30 Some initial GDS
as airline optional or a la carte services, ency and purchasing efficiency. For ex- airline merchandising products have
raise further questions about exactly ample, Northwest Airlines introduced already been released to the market-
how to define full content. The GDSs preferred seating as an up-sell, as did place, enabling travel agents to access
and travel agencies in many cases do United Airlines through its Econo- select optional services and branded
not have access to services that are now my Plus offering. Southwest and Air fares of several carriers, including Air
commonly available on airline Web Canada, by comparison, are offering Canada, Midwest Airlines, Qantas
sites, such as frequent flier mileage branded fare families; each has just a and United Airlines.
redemption, live access to seat-level few fare classes with more services or However, developing effective
availability prior to purchase and fare attributes for more expensive fares methods for selling these unbundled
much else. If a traveler cannot access (e.g., Air Canada’s lowest fare class, products through the GDSs in ways
all of the same information about a Tango, does not offer advance seat se- that meet the needs of business and
flight from a GDS-powered channel lection, while Tango Plus does). leisure travelers (and the intermediar-
that he or she could via an airline di- Implementing and managing these ies that serve them) will require adop-
rect channel, then is that truly full new forms of products and services tion of uniform technical standards
content? within their internal inventory and and, to some degree, the cooperation
Of far greater significance is the reservations systems is a significant of airlines and GDSs. Otherwise, air-
airline industry’s grand new product and complex undertaking for airlines line optional services will continue to
and revenue model: the unbundling – and enabling distribution is even be available only from each individual
of products and services, selling each tricker. But not doing so could dimin- airline, which will lead to further con-
on an a la carte basis and rebundling ish airfare transparency across airlines tent fragmentation, limit the ability of
into groups of products and services to and thus compromise consumers’ abil- intermediaries to efficiently offer these
provide a package-like shopping and ity to compare fares. If passengers are products and services to their clients,
purchasing experience. Most travelers not clearly advised of the full price of and add cost and inefficiency to cor-
have already been introduced to this all options in a convenient way, they porate travel procurement.
model in the form of fees for checked may pay more on an all-in basis than
baggage, in-flight services, and lounge they would otherwise because they Pay for Distribution, or Pay
for Content?
passes. This change in product and will overlook what the best fare is on
marketing for the airline industry a net basis. The economics of the traditional distri-
represents a fundamental shift in dis- GDS response: The travel distribu- bution model of travel – and indeed of
tribution. It will require significant tion industry has not been sitting idly most industries – has been one where
changes in the way airlines display and by. To preserve and improve air ticket the supplier pays for or subsidizes the
sell their products, and the reverbera- pricing transparency and distribution cost of distribution, either by paying
tions will be felt across the entire travel efficiency, several entities have begun the reseller a commission or allowing
distribution ecosystem as intermediar- establishing standards to enable dis-
ies and points-of-sale alike endeavor tribution of this new airline product 30 PhoCusWright: “Optional Services – the
to keep up. model to intermediaries. The GDSs Coming Sea Change in Air Travel Distribu-
tion – ATPCO and ARC”

Page 24 ©2009 PhoCusWright Inc. All Rights Reserved.


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

the reseller to mark up the product opacity into the distribution system resents at least 41% of all tickets, or
(albeit with certain restrictions). As and compels many travel agencies to nearly 154 million GDS segments.
airlines have gained more direct con- offset these added costs by charging If U.S. airlines followed the pay-for-
trol of their distribution, they have higher service fees to consumers. content model and attached a booking
reduced or eliminated travel agency Airlines are watching industry reac- fee onto these GDS segments, a signif-
commissions and put downward pres- tion to the pay-for-content model and icant amount of cost would be pushed
sure on GDS segment fees. considering a broader implementation. onto intermediaries and, ultimately,
Some airlines have taken the step of The CEOs of two of the worlds’ largest travelers. Assuming airlines attached a
shifting more or all of the cost of dis- airlines, Delta and American, specifi- $3.50 per-segment fee to all discount
tribution to intermediaries. The most cally and conspicuously speculated in economy fares booked via GDS, this
direct examples are easyJet, Lufthansa their 1Q09 earnings calls about a fu- would represent more than $530
and Southwest. ture where intermediaries were paying million in costs to be shouldered by
to access their content. OTAs, travel agencies and ultimately,
• EasyJet is available through all consumers. However, channel-based
GDSs; however, agencies must pay What If? Hypotheticals on Paying price discrimination would not nec-
fees. for Content
essarily transfer the full cost directly
• Lufthansa launched its Preferred So, if major network airlines were to onto intermediaries, but instead fuel
Fares Program in July 2008, which follow the model laid out by Lufthansa, further channel switching. The im-
imposed fees of €4.90 per ticket (ap- for example, and implement a pay-for- plications for various channels and for
proximately $7, based on exchange content model for their lowest fares, travelers would be significant:
rates) for travel agencies in Austria, how would that affect travel interme-
Germany, Lichtenstein and Switzer- diaries and their customers’ (consum- Online travel agencies: OTAs could
land that book through the GDS. ers) ability to access comprehensive be the most directly affected because
Sabre and Travelport have since travel information? PhoCusWright de- their customers are the most price-sen-
agreed to contractual arrangements veloped some scenarios to project the sitive, and discounted economy fares
with Lufthansa that avoid those fees hypothetical impact of airlines attach- represent a much higher proportion
for their agencies, while those agen- ing booking fees to their lowest fares of their total air sales. They would
cies currently using Amadeus are when booked through the GDS. likely see their market share gain over
surcharged by Lufthansa. PhoCusWright analyzed a represen- airline Web sites in 2009; they would
• Southwest is available via Travel- tative subset of GDS reservations gen- be compelled to reintroduce booking
port’s Galileo GDS for a fee. erated in the U.S. market (i.e., from fees to offset the cost, putting them
a U.S. point-of-sale) for the calendar at a pricing disadvantage versus air-
In cases where airline content is year 2008. Domestic tickets (U.S. ori- line Web sites. This has the potential
not available in the GDSs at all, travel gin and departure) represented 76% of to threaten OTAs’ role of providing
agencies are in effect subsidizing the all tickets and 52% of all airline ticket enhanced pricing transparency and a
cost of distribution by adding work- revenue. Of those domestic tickets, at better consumer shopping experience
arounds to accommodate alternative least 54% could be described as coach within the travel industry.
booking methods. While not a direct discount fares (economy class fares sold
out-of-pocket expense for the travel at a discount and with restrictions).31 TMCs: Larger travel agencies serving
agency, this method adds operating Projecting this analysis to the 376.6 the corporate market would have to
cost and cuts into overall margin when million air segments booked via the increase or introduce new fees for their
a travel agent must go outside the nor- GDS in the U.S. in 2008, this rep- corporate customers to cover the cost
mal workflow to complete a booking of booking airlines’ lowest fares.
and then manually re-enter that data 31 PhoCusWright analyzed a representative
into accounting, profiles and other sys- sample of GDS ticket data for 2008, isolating
tems. This introduces inefficiency and tickets by inventory class codes starting with
H, K, L, M, N, Q, S and V.

©2009 PhoCusWright Inc. All Rights Reserved. Page 25


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

Figure 31  2Q09 Sales Performance by Travel Industry Sector al, cruise lines, tour operators, cor-
0% porate travel, travel agencies – are
facing steep, double-digit declines
–4% in gross travel bookings through
–10%
the first half of 2009. OTAs, by
–13% comparison, are seeing single-digit
–20% –17% –17% drop-offs (see Figure 31). There are
three key drivers behind OTAs’
–25% –24% countercyclical lift:
–30%
1. Increased access to better
Agency Passenger Room Car Cruise OTA rates and availability – most
Sales Revenue Revenue Rental Revenue Bookings
significantly in the hotel in-
Source: Analyst Briefing: Travel & Finance Outlook 2009-2010, PhoCusWright Inc.
dustry – as suppliers turn to
OTAs amid the steep decline
Figure 32  U.S. Total Travel Revenue and GDS Share, 2006-2010
in demand.
300
2. The removal of booking fees on
250 272.5 278.7
259.2 248.0 flights, initiated in March by
242.8
200 Expedia and quickly matched
by Travelocity and Orbitz, and
$B 150
then reinstated by the latter
100 36% 36% 35% 36% 36% on hotels.
93.6 98.2 98.7 88.5 88.1
50 3. Shifts in traveler behavior that
0 favor OTAs: Frequent, higher-
2006 2007 2008 2009 2010 spending travelers, who tend
GDS Share Total U.S. Travel Market to book directly with suppli-
Note: GDS share reflects total travel value for air, hotel, car rental only; 2009-2010 projected
ers or offline, are pulling back
Source: PhoCusWright Inc.
on travel the most; the infre-
quent leisure traveler, who
tends to book with OTAs, is
GDS Outlook 2009-2010 ment. Consumers are traveling
still traveling (or pulling back
With the U.S. and Europe mired in less, and when they do travel, they
the least).32
a global economic recession in 2009, are spending less and increasingly
travel demand has declined dramati- hunting for deals. Suppliers, suf- The gap between OTAs and
cally and no segment of the travel in- fering from excessive distressed in- the travel industry overall wid-
dustry has gone unscathed. As central ventory amid such soft demand, ened significantly in 2Q09, when
hubs to travel distribution, the GDSs are lowering fares and rates and booking fee cuts across air tickets
have seen transaction volumes fall working more aggressively with and, to some extent, hotels and
significantly from previous years, but online intermediaries. packages, took full effect. The
PhoCusWright projects that GDSs will While still suffering overall de- moves clearly helped spur book-
gain overall share versus supplier direct clines, OTAs continue to outper- ing volume. Expedia reported a
channels for two important reasons: form – and by a significant margin 13% increase in air tickets sold
– the broader travel industry in the and a remarkable 26% jump in
1. OTAs’ recessionary bump: On- recession. According to PhoCus- hotel room nights for 2Q, while
line travel agencies are experienc- Wright’s Travel & Finance Outlook both of those sectors saw signifi-
ing a countercyclical lift during 2009-2010, all sectors of the travel
the current recessionary environ- industry – airlines, hotels, car rent- 32 PhoCusWright’s Consumer Travel Report

Page 26 ©2009 PhoCusWright Inc. All Rights Reserved.


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

cant declines in the same period. nels. This trend will mean fewer planning, metasearch) – continue
Booking volumes were also up for supplier-direct corporate bookings to grow and innovate as more
Orbitz and Priceline. Travelocity and more corporate travel transac- travelers do more of their travel
does not release quarterly financial tions via TMCs and GDSs. So, planning, shopping and booking
performance. while overall corporate travel is online.
As a key booking technology be- down significantly in 2009 and 3. The shift to online booking has
hind OTAs, the GDSs are likewise will decline further in 2010, GDS benefited consumers with sig-
benefiting as their OTA channels share of that smaller market will nificant improvements in pricing
far outperform their traditional increase. transparency, shopping conve-
travel agency customers. An at- As a result of these trends, GDS nience and relevance of content.
tempt on the part of suppliers to share of the total U.S. travel mar-
reduce the share of the OTA chan- ket spend is projected to increase 4. Innovation in Web and travel
nel in 2009 and 2010, either by slightly from 35% in 2008 to 36% technology will only advance these
adding fees on GDS bookings or in 2009 and 2010. The total value developments.
withholding content, could back- of all travel booked via a GDS will
fire in the face of OTAs’ counter- decline just 10% in 2009, while As online travel gained market
cyclical strength. the total travel market is projected traction and then began growing –
to fall by 11% (see Figure 32). quickly – in the late 1990s and the
2. Corporate travel and strategic early part of this decade, many in the
spend management: Corporate Summary Conclusion travel industry forecasted the decline
travel is suffering more than just and fall of the GDSs as more travel
about any other segment of the Since 1995, when the first bookable
booking moved online via channels
travel industry as companies rein online travel Web sites emerged, dra-
outside of the GDS. But these predic-
in employee travel and make cuts matic change has descended upon
tions have failed to materialize. While
to travel budgets. This market will travel distribution. It has been a boon
bookings on travel supplier Web sites
decline 15% in 2009, compared to to some, a death knell to others and
have indeed grown and GDSs have
a 3% decline for the online leisure a challenge for many. But with half
seen their overall share of travel sales
travel market.33 GDSs’ strong po- of all travel in the U.S. now booked
decline incrementally in some mar-
sition in corporate travel distribu-online34 and continued significant
kets, GDSs continue to account for a
tion has contributed to a signifi- upward trending in both Europe and
tremendous amount of overall travel
cant drop-off in GDS transactions Asia Pacific, some things are still cer-
volume: nearly $100 billion in the U.S.
in 2009. tain:
alone in 2008.
1. Online travel is now a mainstream
However, facing increasing – if not the mainstream – distribu- The GDSs have demonstrated their
pressure to contain costs and im- ability to adjust to these new market
tion channel for many parts of the
prove the efficacy of corporate forces. They adapted to the emergence
travel industry and many segments
travel programs, travel managers of new entrants (such as OTAs) with
of the global traveler population.
and TMCs are more focused than the introduction of new technology
ever on strategic spend manage- 2. The volume and types of travel services, and in some cases, launched
ment, a central tenet of which is Web sites – online travel agencies, their own OTAs or acquired them.
bringing as much travel expense supplier Web sites, and nontrans- They responded to the evolving fi-
under management as possible by actional sites that provide a range nancial dynamics with suppliers by
reducing rogue, out-of-policy pur- of travel content (traveler reviews, introducing new commercial models
chases and promoting (or requir- destination information, profes- that allow travel agencies continued
ing) designated booking chan- sional travel guide content, trip access to expansive travel content. But
such change has not been easy, and the
33 PhoCusWright’s U.S. Online Travel Over- 34 PhoCusWright’s U.S. Online Travel Over-
view Eighth Edition Update: 2009-2010 view Eighth Edition Update: 2009-2010

©2009 PhoCusWright Inc. All Rights Reserved. Page 27


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

change that will be demanded in the lenges – from the continued rise on But if they continue to innovate and
future will not be any more so. supplier direct bookings to constant adapt to meet the evolving needs of
The GDSs today continue to play a changes in airline products (optional their various constituencies – travel
major role in both leisure and corpo- services) and distribution pricing mod- suppliers, travel distributors, and ulti-
rate travel distribution for travel sup- els. In an industry that is changing as mately travelers themselves – they will
pliers, travel agencies and travelers, but quickly as travel, the strong position continue to shape travel distribution
they are also beset by a range of chal- of the GDSs is by no means assured. for years to come.

Page 28 ©2009 PhoCusWright Inc. All Rights Reserved.