In the past week the three large GDSs — Amadeus, Sabre and Travelport — have all released their annual results. All were right on schedule after the end of Q2, so all to plan. But given all the recent discussion about direct and indirect distribution which Lufthansa's plan to impose a surcharge on GDS bookings has generated, it's probably worth looking at these results because they reveal a lot both about current business structure — and future business strategy.
GDSs started life as airline CRSs — computer reservation systems. The airlines needed a way of making it easy for agents to book their flights and so American Airlines spawned Sabre, British Airways Galileo (the forerunner of Travelport) and Air France, Lufthansa, Iberia and SAS came together to create Amadeus.
Life has moved on and all the GDS have become independent companies and been both privately and publicly owned but their objective is no longer to distribute the content of their airline owners to wholesalers, ie the intermediaries otherwise known as OTAs, TMCs, etc, but to distribute as much travel content — hotels, ground transport, rail, air — as possible to those wholesalers.
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All three have seen figures grow. ©Peter Booth/iStockThey have also moved on and expanded, in varying degrees, from being mere content aggregators to travel technology companies. For example, Amadeus is huge in airline IT — providing systems for carriers. In the first half of 2015 its IT Solutions revenue increased at twice the rate (22% v 11%) as its GDS turnover and now accounts for nearly one-third of all its turnover which was nudging the €2m mark for the first six months of 2015.
The trend is the same at Sabre. Revenue from airline and hospitality solutions (ie systems for suppliers) increased 16.1% or slightly more than double the 7% increase which its Travel Network (ie distribution) business grew.
Travelport still relies heavily on its airline distribution business. Its $554m of revenue in Q2 was heavily weighted towards distribution ($400m for Air; $122m for Beyond Air) with Technology Services providing only $32m.
Amadeus says clearly that its customers are travel providers, sellers and buyers. For Sabre and Travelport, whether explicitly or implicitly, that too is the case.
All three companies are doing well. Most carriers can only dream of Amadeus's EBITDA margin of 39.4% - down only slightly from the 40.6% which it posted in the first half of last year. And it's probably a figure that shouldn't be said aloud in range of a TMC's hearing.
But they are doing well because they are gradually changing their business models and spreading their risk among different customer groups. Their product profile is moving from being dominated by distribution to intermediaries to increasingly providing technology systems for suppliers.
All GDS customers should remind themselves of who else are the GDSs' customers.