11/02/12, 23:49:46 EST

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Travelport Acquisition Ups Reservations Ante

money.cnn.com

The travel distribution market is poised for a shake-up, and Travelport CEO Jeff Clarke is showing no reservations about the looming upheaval.

Big companies such as Travelport and Sabre Holdings that run the sprawling computer reservations systems used by airlines, hotels and other travel providers are going toe-to-toe in a battle for market share.

Clarke, who doubles as chairman of Web travel firm Orbitz Worldwide (NYSE:OWW) OWW, says Travelport upped the ante on Aug. 27 when it completed its $1.4 billion acquisition of rival Worldspan. Worldspan is the second-biggest player in the U.S. global distribution system, or GDS, for travel reservations.

Travelport, which owns the worldwide Galileo GDS system, says the buy gives the firm a much bigger footprint in the world GDS market.

Clarke says Travelport's move into new markets is being powered by the company's formidable assets in computer technology.

Travelport is owned by Blackstone Group BX, a private equity firm.

Clarke spoke with IBD about competition in the GDS business.

IBD:What has been your biggest challenge so far?

Clarke: The most challenging thing we've done is re-engineered our business. Travelport has owned the Galileo global distribution system business from the beginning. We recently closed the acquisition of Worldspan. This transformed Travelport into the largest GDS in the world based on revenues and segments. It also makes us the largest in terms of geographic breadth.

IBD: What do you mean by geographic breadth?

Clarke: In the U.S. market, the traditional leader has been Sabre Systems. Worldspan was second in the market and Galileo was third. So the combination of Worldspan and Galileo put us up at the same level as Sabre. Internationally, the European leader has been Amadeus. Travelport has been No. 1 in Asia and the Middle East.

IBD: What does the Worldspan acquisition do?

Clarke: What it means is that we are now No. 1 or No. 2 in all of the major geographic markets, where our rivals are usually strong in one geographic market.

IBD: What competitive advantage does this give you?

Clarke: This is important. First, because increasingly corporate travel companies, the large American Express (NYSE:AXP) (-size firms), they want to deal with partners who have real geographic breadth who can give you a global service. This gives us economies of scale that are stronger than our competitors'.

IBD: How has the advantage changed your bottom line?

Clarke: In our most recent quarter, we've improved our (profit) margin in the overall Travelport business up to 25% from 23%. This is making us more profitable. Our revenue in the most recent quarter grew 5%, and our profit, or EBITDA (earnings before interest, taxes, depreciation and amortization) grew 15%.

IBD: What role is technology playing in Travelport's GDS business?

Clarke: We are a technology-based company. Our primary value-added (service) is to aggregate supplier information and then, through technology, to aggregate it and do bookings for customers at great volumes. We have a run rate post-acquisition of about 400 million segments a year, or about 1.2 million a day. A segment is any time an airplane takes off or lands or any time you book a hotel reservation or rental car dispatch. So tech plays a huge factor in all of this.

IBD: What does Travelport's technology do?

Clarke: We aggregate the reservations, bookings of 425 airlines in the world, and arrange for payment credits -- it's a full global information system. We also run a significant amount of airline support services and airline technology services. We run the reservation systems of United, Delta (NYSE:DAL) and Northwest airlines (NYSE:NWA) , as well as several major Web sites for the airlines.

IBD: What about software?

Clarke: We have over 30 million lines of computer code that's been developed over the last 30 years. It's one of the most sophisticated applications of technology in any industry.

IBD: What's the biggest challenge facing your industry?

Clarke: The GDS industry, in line with all suppliers to the airlines, has had to become more efficient. I think (Travelport's) done a good job on that.

IBD: How so?

Clarke: Since August, when we announced (we would be) re-engineering our operations, we've achieved $147 million in annualized cost savings. Just to give you some perspective, last year, our entire firm earned about $550 million in EBITDA. So to achieve $147 million in cost savings, you can see that's an ability to increase your profit by about 25%.

IBD: What does that mean for your customers?

Clarke: We've done a very good job of reducing our cost structure and passing that on to our suppliers in terms of lower costs in distribution. We're also able to pay increased commissions to our travel agents to book on our systems. Our own bottom line is our EBITDA for the most recent quarter was up 15%, while our revenue grew 5%. So we're increasing our margins.

IBD: What's happening overseas with GDS?

Clarke: We're seeing solid, double-digit growth in Asia and the Middle East, where we're the No. 1 player. As you've seen, these are the fastest-growing markets for new airlines and hotel investments. So that's the best area for the GDS industry in general and our company in particular.

IBD: Do you see a slowdown coming?

Clarke: No. We're seeing continued strong growth. There's a backlog through the next decade of airlines trying to increase their capacity (by ordering more planes). This bodes well for us, because there's more opportunity for us to book flights on that additional capacity.

IBD: What other opportunities do you see for Travelport?

Clarke: We see opportunities developing around the environment. The travel industry has taken a lot of criticism for being a major contributor to global warming and particularly to creating carbon in the atmosphere. So while we don't own planes, we do facilitate travel. So we think it's important for Travelport to play an important role providing information to suppliers and customers about carbon emissions.

 Printable Version  | published Oct 09, 2007