madeus owns Vacation.com; Sabre buys
Nexion and starts a travel agency consortium; Carnival Cruise Lines
lends a major cruise retailer, National Leisure Group, the money to
buy the cruise outlets of the British-based MyTravel.
What do these events have in common?
The economists call it "vertical integration," a fancy term for
control of supply and distribution.
In most other parts of the world, vertical integration of the
travel industry is more common. Tour operators may operate charter
airlines or, conversely, airlines may own tour firms and retail
agencies. In the U.S., vertical integration has been slow in
coming. The Amadeus acquisition of Vacation.com three years ago was
big news because it marked one of the first times a major supplier
had purchased a chunk of retail distribution.
Unlike the asset combinations found in other parts of the global
travel market, U.S.-based suppliers generally have avoided buying
distributors in favor of making favored-nation arrangements,
offering the outlets incentive payments and co-op marketing money.
In addition, many suppliers have established training programs
aimed at narrowing the number of retailers specializing in their
brands.
The U.S. does have Cendant, a company that owns a GDS and a
number of hotel and car-rental brands as well as online travel
outlets. Cendant's integration has been more horizontal than
vertical, involving the purchase of suppliers, but it has taken
baby steps into distribution and may expand in that area.
How much further will vertical integration go in the U.S.
market? Will more suppliers tire of the notion of wooing
independent retailers, and will they acquire larger pieces of
distribution?
Pundits have predicted for years that, eventually, the travel
industry would look more like other industries in which suppliers
control distribution. Think automotive where the car-makers
franchise the dealers.
If you follow that model, you may have noticed that many car
dealers now offer several noncompeting brands. One day in the
not-too-distant future, could travel distributors offer just a few
airlines, one or two noncompeting cruise lines and a handful of
noncompeting resort and tour operator brands?
We are already moving in that direction, as agents book more and
more of their business through preferred suppliers. Some agencies
are de facto distributors for a limited number of suppliers.
The recent announcement of Sabre's Jurni agency consortium is
big news because vertical integration still hasn't pervaded the
U.S. travel industry. One day in the near future, such an
announcement may be much more commonplace.