GigaOM doesn't like the Orbitz IPO

Web, Tech and VC uber blog GigaOM has a scathing prediction for the Orbitz IPO, nominating it as the "Worst IPO of 2007" months before the actual float.

Concerns highlighted are:

• highly complex financial (caused by constant structural changes and acquisitions);
• the company will likely be making a loss at the time of the IPO;
  
• no voting rights; and
• the proceeds being used to pay down debt at Travelport rather than for capital, growth and investment.
  

Here is the full article from Kevin Kelleher at GigOM - worth a read.

The question raised by GigaOM is not "is Orbitz a great company?". We all agree that Orbitz it is (even Kevin agrees). It has a great business in the US and a hotel powerhouse in Flairview. The question instead is whether or not this is the right circumstance, structure and timing to float the company.

Thanks to fellow Travelport refugee Edd McArdle of Inside C who first sent me the link.

UPDATE - here is Valleywag's equally tough commentary

EU Phase 2 look should cost Travelport money but not a deal

The EU is planning a Phase 2 investigation of the Travelport (Galileo) and Worldspan merger (here is the Travelmole article. This does not mean that the merger will be blocked as it is really just the equivalent of the Competition Commission saying "hmm...let me think about it". It does however create a headache for Travelport as the cost of submissions and approvals just went up - somewhere in Brussels there is a partner in the EU practice of a big law firm rubbing his/her hands with glee. It also delays synergies and strategic plans causing more costs and pain.

I would be surprised if the Commission ultimately decides to reject the deal. While their initial analysis is right that this would give the combined organisation a powerful number two status in the European GDS wars but that does not mean what it used to mean 10 years ago. There is so much inventory now being booked off GDS such as through low cost and full service airlines direct online, hotels online through extranet based intermediaries (just look at the killer results coming out of Priceline in Europe) and even the interactive tools that the wholesalers are using. Being dominant or strong in GDS should not be the concern for competition that an siilar analysis in 1995 would determine. If the European Commission can clear the MyTravel and Thomas Cook merger then would be strange to make a stand here.

This should make it almost a certainty however that the Commission will want to have a phase 2 look at the Pegaus/Wizom deal. More joy for regulatory lawyers.

Pegasus, Wizcom and the attempted rise of GDS New Entrants (GNEs)

You don't need me to tell you that Pegasus bought Wizcom. If you do, here is BTOnline's report and here is the Internet Travel News Report. You also don't need me to tell you that this means that a supposedly fiercely competitive two horse race is now a co-operative ride in the country. Where there was once two mechanisms for a hotel connecting to the GDS' without going direct. There is now only one. I have been thinking about the angle to put on this. My natural (and historic) angle is to focus on the Travelport elements. To link all of this to my commentary around Cendant becoming Travelport becoming Blackstone and being sold off (see this index).

Instead I see it as a good opportunity to talk about the GNE vs GDS debate. Again you probably don't need me to say that GNE stands for GDS New Entrant. For years it was thought that it was not possible to replicate the infrastructure of the big GDS' - most of which was borne from years of tech investment in airline rez systems. GDS' are some of the biggest and most complicated computers on the planet making the tech side extra-ordinarily expensive. On the revenue side, the business model and therefore the "rivers of gold" like profits is under threat. So (the thinking went) surely there this no way to build a new in GDS or GDS like product in a profitable/sustainable way.

In the last year or so, the GNE's have emerged - led by G2 Switchworks and ITA Software - trying use different forms of connectivity (APIs, xml and other web forms) to provide the same/similar connectivity services of the GDS without the huge infrastructure cost. As they are starting from scratch they are trying different (read cheaper and less complicated) business models than the "I charge you, then give lots to the agent" model of the GDS.

Let's assume that this new model gets traction. Combine this with the enormous power of other non-GDS channels to agents for hotel access and bookings such as wholesaler web platforms, meta-search and plain old Internet sites with xml connections everywhere and in-house dynamic packaging and it could mean that the effect of Pegaus having the main key to the GDS door will be lessened over time.

This is a big assumption to make for now as the GNE model's success is by no means guaranteed. There is not even certainty yet whether they will be able to grow out of the North American market. I have more to learn about it to comment further. If you have some inside knowledge about the GNE market please post a comment. If you work in the sector send me an email and we can organise an interview. For a little more background their is an interesting piece (video and pdf) here with reps from Worldspan, Accenture and G2.

The Kraken and Singapore airlines

Singapore airlines ancillary services online services have been (for a long time) seen as one of the great last frontiers of online travel. Here you have the top airline of Asia with natural online traffic out of the US, Europe, Asia and Australia but with nothing for sale online other than air. Everyone turned up to see them with offers for white label car, hotel, destination services and packaging technology. But Singapore held strong - "we can do it all ourselves". Now finally - more than half a dozen years after the low cost carriers bit the good time bug of hotel commissions, Singapore Airlines has signed for some white label goodness with Octopustravel (according to Internet Travel News). Jokes aside this is a big move for Singaporeair. Unless I'm mistaken this is their first foray into non-air or air services online and they are going outside of their traditional suppliers of ground product. It could show a huge shift in their approach to online direct revenue.

However I am not sure that it will prove to be a huge money maker for Travelport/GTA. As big a brand as Singapore airlines is, the traffic online to air suppliers is still based around short haul, point to point, web discounted fares - not long haul. That said - congrats team Octopus for closing the unclosable deal.

Gordon - King of the GDS

Congrats to Gordon Wilson. No surprises that he was named CEO of the combined Galileo/Worldspan GDS businesses. Plenty of talk for years about the death of the GDS but there is not a technology around that makes interline bookings and complicate combinations easier than a GDS. Sure point to point is easy without the GDS but then there are back office systems, agencies, PNR combinations and more. GDS' makes that possible. Plenty of reasons to criticise a model that that has airlines paying x dollars to a GDS for a GDS to pay more and more of those dollars to an agent. Clearly an inefficient flow of money. But I see the value in the business and know that Gordon is smart enough to reinvent the business. With the combined volumes, technology and e-commerce spread of Worldspan and Galileo, it is clear that Dallas (Sabre) and Nice (Amadeus) are going to be looking over their shoulder.

UPDATE - As an Amadeus reader quite rightly pointed out in an email to me the true HQ for Amadeus is Madrid with the main development centre being in Nice (also have a data-centre just outside Munich)

eBookers new site delayed/on hold

Report in Travolution that rumours are flying that the planned April relaunch of eBookers based on an international version of the Orbtiz engine - also called Project Austin - is on hold due to the impending IPO plans of Orbitz World Wide. Read more at Travolution.

"Expedia's Dead" Michael O'Leary

UPDATE 15 October 2008 - looks like the deal (described below) is dead

Back in November you will recall the announcement that needahotel and Ryanair had terminated their long standing hotel sales relationship under which needahotel powered Ryanair Hotels. I found this strange as even though Ryanair are renowned for being a hard and demanding client, the volumes were so significant that everyone wanted that account. It was especially strange given that Cendant's whole pre-Travelport days reason for buying needahotel was to gain this business. Needahotel itself was basically a reseller of Octopustravel. The greatest part of the story was that despite Ryanair's whole business and brand being based on being the cheapest there is, the needahotel/Ryanair Hotel prices were normally 6% plus more expensive than the rates on Octopus to enable three players to be fed from the commission available on a hotel booking.

That said Jeff Clarke of Travelport described the Ryanair relationship as an "under-performing affiliate" in the Q3 earnings call, so I assume that in the post-Cendant world the huge commission cheques to Ryanair could not longer be justified.

Not surprisingly there was a queue of suppliers lined up outside Dublin airport clamouring to take over the business - with Expedia's WWTE emerging as victorious. The question that arises from this is whether or not Expedia had to "drop their pants" for Ryanair. The struggle that most competitors had in trying to steal the business from the needahotel/Octopustravel combo was the huge commission that Octopus is able provide given its operator margin inventory. On a raw dollar for dollar basis Expedia does not have the margin to offer the same to Ryanair unless it effectively makes a loss. My interest is definitely piqued as to whether or not it was Expedia taking loss here to gain the volume or Ryanair took a hit and finally realised that the needahotel margins were unsustainable for all.

I am also reminded of a panel that I found myself on with Michael O'Leary (Ryanair CEO) back in boom time 1999 when I was working for Expedia. I spoke before Michael and in his opening moment he said words to the effect of

"There is no place in the world any more for travel agents....Expedia's Dead" (in a fantastic Irish accent)

I assume the Dead pay cash....

RIP Cendant - Here are some more of them

A belated update on a very old post called "RIP Cendant - where are they now". Former Cendant / Travelport execs and colleagues Andy Hermo, George Roukas and Ed Silver have (according to the US version of TravelWeekly) teamed up with Tom Christopoul (ex-Cendant's Financial Services unit) and former Cendant TDS Hospitality & Leisure uber boss Mike McCormick to form Hudson Crossing. Aim of the group is (according to the website)

"[to help] business owners raise the financial performance of their travel, tourism and hospitality assets. Through the execution of bold ideas.."

Not exactly sure what that means - sounds like a mix of consulting services, capital raising/corporate advisory work and corporate planning. More details here. It is great to see that team back together and will keep an eye on the PR wires as their client list developments.

Orbitz float plans confirmed

If you are keeping up to date on the news wires you don't need me to tell you that Travelport has confirmed that it plans to float Orbitz Worldwide (Orbitz, eBookers and FlairviewTravel) in the third quarter of 2007. I heard the news in an email update from e-tid (though could not find a link on the site to confirm at date of publication). I first reported the rumour here.

UPDATE - here is the Red Herring article.

Travelport break-up: GTA rumour

You know my belief that 2007 will be the year that Travelport is split into three. Well the number one source of traffic to my blog over the last two days has been versions of this search phrase in each of Yahoo! and Google - "travelport may float GTA". Here's an example. Search engine traffic is by no means definitive but as the Worldspan acquisition by Travelport proved, it is more than enough to start a rumour....

UPDATE - Looks like I broke the story first - thanks to anon below who pointed to an eyefortravel article adding to the rumours and speculation. As anon comments the rumoured float valuation of GBP500mm is almost 12% less than the original amount paid by the "old" Cendant paid for Gullivers.

Very late to comment on Viator.com

Through a happy co-incidence I had a chance to talk on the phone with Viator CEO Rod Cuthbert. If you are not familiar with Viator, they are an Australian based global online destination services company. It has been remiss of me not to talk about them before today.

Founded in 1999 they were one of the first to specialise in non-decrementive destination services (by non-decrementive I mean inventory that does not necessarily related to a specific seat on a specific day to a specific event like Ticketmaster or Ticketek).

Though they have had the early lead, this market is now a much more crowded space with each of the major full service players (Expedia, Orbitz, Travelocity etc) now fully stocked with inventory, old world players like GTA making their extensive inventory available through OctopusTravel.com, the meta-search players attacking the space (eg Sidestep) and new entrants emerging every day such as the recently launched Isango.

I put it to Rod that these (especially the full service players) would present a significant challenge for Viator. I asked him about how worried he was about the advantage that the full service player might have in directing their huge flight volumes into a cross sell path involving destination services. Rod had a couple of good replies - here is what he said:

1. Search Engines: destination specific search engine traffic (ie "Las Vegas Tours", "Jet Boats in New Zealand" etc) favours the dedicated specialists rather than the full service players;
   
2. Purchase Timing: purchase patterns for destinations services are not (with online consumers) aligned with travel arrangement - customers buy destination services at a later time to air and hotel, nullifying the advantage of the full service providers; and
3. Focus: both in terms of the single product and technology focused, but also in their M&A activities including the recent purchase of Vegas based and focused LookTours.
   

On the corporate side they have some good backing with uber PE firm Carlyle and early funding from Australian VC Technology Venture Partners. Rod shared with me that projected 2007 revenues are $65mm and staff numbers are just short of 100. Naturally Viator see their future in an acquisition by one of the bigger players - but not yet. Claim they want to crack the $100mm revenue mark first - so looking for a deal in 2008 or 2009.

Well done to all at Viator (including some fellow Cendant/Travelport refugees such as great Ken Frohling) and best wishes in the battle with the full service players, meta-search and new entrants.

2007 - the year of the Travelport break up

As I have been anticipating for some time, 2007 is gearing up to be the year that the three Traveport divisions - GTA, Galileo and Orbitz - are spun off. First rumour (care of e-tid) is that UBS has been appointed to float Orbitz in London at a valuation of US$2.5-$3bil. Why London? Best reason I can think of is to avoid Sarbanes-Oxley regulation. London is liquid enough a market to provide the same capital value as New York or Nasdaq while removing the onerous/costly burden of SOX compliance.

UPDATE - in related Travelport news here is an interview with Graham Nichols (Worldspan vice president and general manager EMEA) on the merger between Worldspan and Galileo. The questions I most want to ask is "What is the future of the Worldspan brand?". Here is Graham's answer (or non-answer as the case may be)

Should the merger proceed as expected, Worldspan will become a Travelport company and will operate under its own brand, similar to how Galileo currently operates. Until we are merged we will operate as two separate companies.

"Worldspan+Travelport=Gal-World" - how a search term became a company

First it was a strange rumour. Then it was a search term here and there. Finally it became a mountain (well a small hill) of traffic to travel blogs such as yours truly, Travolution and Travel.Beat. Now it is reality - Travelport (Galileo) has acquired Worldspan.

Interesting points from the deal:

• Cendant bought Orbitz in part because of the huge revenues that Galileo would gain from migrating Orbitz from Worlspan to Gal. Presumably part of the reason behind Galileo buying Worldspan is eliminating the litigation risk and migration cost that arose from that strategy - how serendipitous;
  
• Worldspan itself has been in some financial trouble. This deal will not simply be a case of cutting costs. The Worldspan and Gal products will both have to be kept alive for some time. Reviving Worldspan will be a enormous integration task for Gal; and
• There are lots of financial machinations behind the deal - an immediate recapitalisation of Worldspan and a $125mm loan to Worldspan. The item to keep a close eye on is the comment that
  

  The initial integration focus will be on consolidating technology and administrative operations resulting in near-term cost savings of approximately $50 million

  That is - a lot more head count to go.

But my favourite part of the deal is that it confirms that Google knows everything. There is no secrecy in M&A activity any more because the answers are all in Google's logs. If I can sit he with my tiny free tracking service and see that people with Worldspan and Travelport IP addresses are furiously typing in every combination of Worldspan and Travelport you can think of, can you imagine what could be gleamed from Google, Yahoo, MSN search logs by looking for combinations of company names.

Now comes the fun part - need to pick a new name for the combined company. "Worldport", "Travelspan", "Portspan", "Worldtravel"...all too corporate and boring. We need something fresh that speaks to generation Y - which is why I propose "Gal-World"....OK, maybe not...it probably wouldn't work too well typed in a search engine.

Thanks to Ed Silver who was first to forward the PR news to me.

UPDATE - e-tid are reporting that (registration required)

Worldspan will assume the Galileo name

Record Traffic Day - thank you Worldspan and Travelport

The day is only half over and already I have had a record day for traffic to the blog. Nothing that is going to blow out the stats engines of Nielsen Netrating or Hitwise but enough to make me turn to my referral logs and try to figure out what is going on. There have been some links from fellow bloggers such as Guilliaume at HotelBlogs and Kevin at Travolution (thanks to both). However the area is which traffic is going bananas is search engine traffic around the following terms:

• worldspan + travelport
• worldspan travelport announcement
• travelport acquires worldspan
• galileo rumour
• worlspan rumour
• and so on....

Search traffic is hardly a definitive indicator of M&A activity but it sure is a useful buzz measure. I first 'felt' this traffic spike building last Thursday but today is exponentially higher.

.travel domain - I don't get it

Tralliance Corporation is the company pushing the roll-out of the ".travel" URL domain. Have scored a couple of coups in recruitment including hiring Daniela Wagner from OctopusTravel / Travelport. Daniela dragged GTA into the online era and grew Octopus to be the top hotel booking engine of airlines, so she knows a lot about online travel. She and Tralliance announced last month that they have 25,000 companies signed up to the .travel domain at $100 a pop (a cool $2.5mm in revenue).

That's a good start but I don't yet understand the compulsion for a travel company to have a .travel domain. Am sure most companies will buy the domain for their brand to stop somebody else (though a quick search shows that Webjet, Wotif and Expedia are yet to buy theirs - or at least switch on a referral). But aside from the defensive move it is not clear what the benefits area. Don't understand how having a .travel domain is better than having a .com, .co.uk, .com.au etc domain. You would never want to launch a business on the basis of having a .travel domain where someone had the same name under .com. The key for success then for Tralliance is to win support for their search product - search.travel. If this search engine gains traction then that could provide the positive reason for companies to support the .travel domain. Without it I see little benefit. Winning in search will also be hard work as Tralliance will be battling well established providers from Google at the top end through Sidestep, Kayak and Tripadvisor in the middle and Bezurk at the focused end.

Am not going to count out Daniela but am starting off very sceptical.

UPDATE - 16 July 2007 TravelWeekly are carrying the story that Ron Andruff the President of Tralliance and Cherian Mathai the COO will leave the company "pending finalization of certain agreements.". Which is later clarified to mean that their severance packages are still being formulated. The announcement has comments from Triallance parent company (theglobe.com) boss Michael Egan using very positive language about transition, growth plans and other improvements however as the annual report shows (and TravelWeekly quote).

According to theglobe.com's annual report, 25,200 domain names had been sold as of March. The company collects $100 a year for a dot-travel domain name.

That does not sound like a lot and fuels my continued scepticism in this business. To put this in perspective, Godaddy.com one of the world's largest domain name registrar services has more than 20 million URLs under management.

UPDATE 2 - here are HotelMarketing.com's comments.

Travelport still trying to shake a (now 2) billion dollar hang-over

Travelport's Q3 06 results are out. Net revenue is at $631mm - down from last quarter's $693mm. B2C net revenue was $193, well down on Q2 of $221mm - in fact on par with Q2 2005 results of $195. But that is not the story. The story is that there was a "Net loss of $1.2 billion which included a pretax non-cash impairment charge of approximately $1.2 billion".

Two big questions from this line.

Firstly - how are they still being laboured with the hang over of turning $7b into $4.3b? I thought it clear that his monkey was off the back last quarter?

Secondly - a non-cash impairment of $1.2 bil means that there is a net loss of $1.2bil means a zero EBITDA (actually -$1.3mm).

The answer in the first one is buried deep in the Q3 press release where they say

"the Company recorded a total impairment charge of $2.4 billion (which includes the estimate of $1.2 billion taken in the June quarter), representing the difference in the carrying value of goodwill of the Company’s B2C and B2B reporting units and the implied fair value of goodwill of those reporting units"

In other words - I called the "monkey off the back" too early. I went back to the Q2 results and listened to Q3 call to see if I missed it. I did not. In the Q2 results they estimated the impairment of $1bil but through the period of Q2 realised that it was double that. Ouch!

The second - appears to be legitimately put down to continued restructuring and business challenges. They say on the conference call that B2C (Oribit, HotelClub/RatesToGo, Cheaptickets and eBookers) are at break even. Presumably held back mainly by eBookers (see also the delay in role out of their new Orbitz backed platform).

Hopefully finally we can call Travelport free.

Fairfax announces big play with few details

Travel weekly are running a story with big talk from Fairfax (huge Australian media company) on their plans for online travel. Fairfax made a very tentative step into travel when they acquired independent accom provider Stayz in December last year for AU$12mm. I always thought this a strange first move into travel. While I think the potential for the independent accom sector is great, Stayz did not have a particularly strong brand at the time and its technology is nothing special. There has been great interest in what Fairfax would do next. Now we know - well we have a bit more of an idea - well we have a little bit of a hint of a possibility.

According to Travelweekly, Fairfax will launch four sites in the next six months. The first is Hotelz. The quote from the article is that Fairfax and Zuji have entered into a "content deal". Unclear what that means but from the look of the hotelz beta site it involves a white-label booking engine. The site is in beta so can't be too critical yet but if they want to challenge Wotif, Lastminute, RatesToGo etc then it is going to need a better search functionality. Typing Sydney into the Hotelz search box and choosing Australia it still asks me for clarification - if I have chosen Sydney Australia, how could I possibly be thinking about Nova Scotia?

The engine url has regular references to travelpn.com - not heard of them before though judging by Alexa they provide white-label solutions for a number of airlines and Zuji. Could be an offshoot of Travelocity.

I like the Chutzpah and drive of Fairfax Digital travel boss James Cassidy claiming that "within 18 months it [Fairfax] will become a major force in online travel, even rivalling Wotif". However the basis for his claim does not stand up to scrutiny. He says “Wotif offers bookings within one month and only 30 per cent of the market book in that window,”. It will be a fatal error for Fairfax to chase the other 70% (assuming this number is true) as all of the money to date in online travel is in a booking window within one month. The sectors that are booking beyond that date are the least likely to book online.

I also caution them on relying too much on white-labels. Controlling product and inventory is critical to success in online travel. Telstra' s Sensis jumped into online travel through GoStay - a white-label of AOT's needitnow - and it has gone nowhere. My earlier comments on that are here. Rumours are Travelport is also remembering that lesson and unwinding its efforts to combine offline and online hotel contracting.

Not another Travelport post

I am not going to say anything as I am over my former job and determined not to post so here is a cut and paste of parts of the latest story

"Travelport CEO Jeff Clarke has provided more details about the $75m-worth of cost savings first mentioned during last month’s Q2 earnings call with US analysts.....

...they relate to service contract renegotiations and identified headcount reductions

By category, Travelport expects to realise savings of $15m from telecoms, $45m from information technology and $15m of other general and administrative.

In terms of the headcount reductions, Travelport is ‘re-aligning staffing levels in IT application, development and maintenance’"

Changing faces good, changing prices bad...

Online retail - particularly in a market like travel - is a tough balance between finding a global marketing and product approach to ensure consistency in experience and local targeting to ensure you do the best for (and make the most out of) customers in each local market. In the hotel world I have often ranted against different prices for different markets as customers find out too easily and turn against you. However there is a layout and promotions role that has to be different for each market. Expedia/Hotels.com has often taken the lead in this. Was looking today at the differences in the Hotels.com AU site, UK site and US site. Very different layouts, promotions, sort order and targeting but (I think) the same pricing and inventory.

I also like the HotelClub and RatesToGo approach of global layout with specials, language and currency options providing the targeting but (mainly) with single market pricing. I do not think their sister site Octopustravel.com's approach of asking you at the beginning where you are from and change their pricing accordingly works. The analogy I have heard defending different pricing for different markets it is like McDonalds or 7-11 where you have the same general theme but different products and pricing to reflect that different lunch time tastes and economic conditions in each market. However while I cannot go to a McDonalds in Tokyo or San Fran for lunch I can go to a Japanese based or US based online hotel property or intermediary and obtain a room.

101 Not Out

Have now completed more than 100 posts in this blog and am enjoying myself - hope you are too. Being part of a smaller team focused on more than the travel biz I was missing having people to rant at. Nothing beats coming out of your office and ranting (in)coherently at people who have to look like they're interested because you are their boss..but this comes close.

Lots has happened in a hundred posts

• Wotif floated, did its first major online marketing deal and hinted at acquisions
• Webjet (eventually) put together its hotel strategy, came out with some big results (and charges) and is working on some creative marketing plans
• I ranted about Qantas and the the airline gods paid me back by sending me to Brisbane and denying me a chance to walk around Tokyo and charging me a fortune for free tickets
  
• Expedia went live in Australia, raised a shed load of money for as yet unknown reasons and (presumably) fired their auditors for being idiots
• Travelocity branding spread to Asia and the CEO was so excited about the product that he ...well...quitely mentioned it to a few friends
• The boom came back because RedHerring said so and meta-search is attracting millions
• Oh...and a few things happended at Cendant/Travelport but I wasn't really paying attention....

Hope you have enjoyed the story so far