LOS ANGELES -- The sale of one of the four major CRSs will likely
occur this year, said a panel of Wall Street analysts who track the
travel industry's on-line and technology companies.
Galileo, which has publicly stated it is looking for a buyer, or
Worldspan are the most likely candidates, either to be merged with
another CRS or acquired by a travel company, the analysts said
during a panel discussion at the E-Commerce for Travel
conference.
"To the extent that the airlines actually do consolidate and
mergers are approved, the likelihood of a [CRS] merger increases,"
said Paul Keung, head of global travel and leisure analysis for
CIBC World Markets.
"Part of it is academic: to the extent that suppliers
consolidate, distributors have to react and consolidate."
Tom Underwood, vice president and technology analyst with Legg
Mason, said he believes there "probably" will be a CRS sold this
year, but it will not be a merger with a competitor.
"If you look at the relative valuations and the [cash] flow that
those [CRS] companies could provide in the near term and the
potential to expand their technology into other areas, there are
companies out there that would be interested in that and be willing
to pay more than the other [CRSs]."
In addition, said Underwood, there are regulatory issues that
could prevent the merger of CRSs, increasing the likelihood that a
buyer would not be another CRS.
Of the CRSs, the analysts said Sabre has established itself in
the best position, even though it struggled in 2000.
"Sabre has done a great job in bringing in new management and
addressing the issue of the Internet and new technology impacting
its business," said Underwood.
He said Sabre has addressed important areas: consumers going
direct to book themselves (through its stake in Travelocity),
consumers booking on supplier Web sites (by maintaining its core
CRS), and the emerging corporate direct and meeting and group
market (through its acquisition of GetThere).
"Sabre has addressed those points and the [investment] market is
buying into it," said Underwood. "Over the long term, Sabre will
maintain its value to its customers -- suppliers -- and not be
disintermediated."
He said Sabre's strategy "varies vastly with other competitors
which have not executed [strategies as] well."
Keung said the "fundamental" issue with the CRSs' stock value
has been concern of the future of the systems.
"The heart of the issue is that fundamentally they are working
with Internet companies that could potentially replace them in
three or seven years, or at some point in time. They have suppliers
that want to cut them out to reduce their costs -- and that's
become a difficult financial relationship with [CRSs] increasing
costs."
However, Underwood was optimistic about the future of the
CRSs.
"There is significant value in the technology they have
created," he said. "There's a lot of talk of disintermediation but
thus far no one has proven it to be economically viable. If it
were, I would think airlines would be able to go to large travel
agencies and make compelling reasons [to switch from CRSs] -- if
the technology were there and made sense. We have not seen any
efforts come to fruition."
However, there are efforts to break the triangular relationship
between suppliers, CRSs and travel agencies, he said.
"I think the [CRSs] are countering that by attempting to muscle
travel agents to break the triangle. As a result, we see GetThere
with its trip fee that to some extent would replace a commission-
or a fee-based transaction, by automating [the booking process] and
giving a greater share [of the transaction fee] to Sabre. On the
other hand, you'll probably see the agents respond by muscling the
[CRSs]" with technology that reduce their dependence on the [CRSs],
he said.
Meanwhile, the analysts said the boom in dot-com startups is
over and there is very little financing available through initial
public offerings or from venture capital firms for new travel firms
on line, however grand the business model.
"The Internet bubble burst and we're seeing investors focusing
on business models and trying to figure out which makes sense,"
Underwood said.
"One of the issues with funding is that if you are going to run
out of cash in the next 60 days you are not going to be in the
position to raise money no matter how good your idea is," said
Underwood.
Keung said there will be a consolidation of on-line travel
companies, particularly as they fail to become profitable and
obtain new financing.
"The surviving players will be better capitalized," he said.