The percentage of U.S. travel bookings handled through the GDS channel is set to rebound slightly, as bargain-hunting leisure travelers flock to online travel agencies and corporations boost their reliance on agents to control travel costs, according to a report released by travel research firm PhoCusWright.
But the 36-page report, which was sponsored by the trade group Interactive Travel Services Association, also warned that the GDS channel, while a robust part of the distribution system, could be challenged by supplier practices that could raise costs or restrict the flow of information.
GDSs are "beset by a range of challenges, from the continued rise of supplier direct bookings to constant changes in airline products and distribution pricing models," the report said.
As it is, GDSs, whose combined global revenue exceeded $9.6 billion in 2008, accounted for $88.5 billion of the $248 billion in U.S. travel revenue from air, hotel, car rental, cruise and tour suppliers last year, or 35.7% of U.S. bookings. That was up from 35.1% in 2007 and 35.4% in 2008. PhoCusWright projected a 36.3% market share for 2010. (Click on chart for larger image.)
Such a rebound in GDS market share bodes well for GDS owners such as Travelport, Sabre Holdings and Amadeus, and would encourage what might be a first-quarter initial public offering by U.K.-based Travelport. Last month, Bloomberg News reported that Travelport majority owner Blackstone Group is preparing a $3.2 billion IPO.
Neither Travelport nor Blackstone has commented on the report.
GDS market share had been pulled down both domestically and abroad as low-cost carriers such as Southwest and JetBlue (and Ryanair in Europe) outperform the legacy carriers while emphasizing direct sales to customers.
GDSs accounted for 63.8% of U.S. air bookings in 2008, down from 67.2% two years earlier. About 12% of U.S. hotel room reservations and 28% of rental car reservations are booked using global distribution systems, according to PhoCusWright.
The report also confirmed the oft-noted tendency of traditional agents in the GDS channel to handle higher-value business.
The report said the average 2008 airline ticket booked by traditional travel agencies came to $684, or 88% more than the average fare booked through an OTA, which is primarily the domain of leisure travelers.
"The GDSs continue to represent a pretty significant share of distribution of air and, in particular, for some key markets for suppliers," Douglas Quinby, senior director of research at PhoCusWright, said during a conference call with reporters last week. "We had such a dramatic drop-off in corporate travel. As it returns in 2010, that’s going to benefit the GDSs."
Such GDS market share gains are fragile, though, given the challenge of publishing a widening range of a la carte services from airlines as well as the possible "pay-for-content" practices already instituted by Lufthansa, under which GDS must pay a premium for full content.
Another ill-wind for the GDSs is the prospect that airlines would impose access fees on GDS users, which would ultimately have to be passed on to customers. A $3.50 segment fee, for example, "would represent $530 million in costs to be shouldered by OTAs, travel agencies and ultimately, consumers," the report said.
"The fact that we saw in 2009 a pretty significant bump in OTA transactions when they removed booking fees, that were $5 to $7 per ticket, shows how sensitive those leisure travelers are," Quinby said on the conference call.
But such airline fees might be necessary as carriers struggle with an economic downturn that has hit corporate travel demand hard.
Additionally, airlines are looking to gain ancillary revenue by charging for a la carte services such as checked baggage, lounge passes and preferred seating. Such practices pose additional challenges for GDSs charged with providing OTAs and traditional travel agencies accurate and up-to-date information.
The report said this will require the cooperation of airlines and GDSs to develop “uniform technical standards” for the display of these unbundled products and services.
"It’s going to be a very interesting dynamic over the next couple of years as airlines introduce these new services," Quinby said. "I don’t think it’s a clear path. There will have to be a role for intermediaries within this airline product landscape."