Travelport: Merchandising and non-air activities pinpointed as strategic areas
Exactly 12 months ago, Travelport predicted the industry would start seeing some positive numbers in its financial performance during 2013.
CEO Gordon Wilson – like most top brass in the industry – may not be widely known for his ability to gaze into and make successful predictions with a crystal ball, but in some respects the forecast does appear to be starting to play out favourably.
The company’s Q2 earnings announced this week showed a increase in revenue of 6% year-on-year to $537 million and a climb of 3% in the year-to-date to $1,085 million.
Adjusted EBITDA over the same six-month period year-on-year showed an increase of 5%, as well as up 5% for the second quarter of 2013.
The figures do not take into account the loss of the United hosting agreement, which has had an ongoing impact on the company’s performance for a year (although it will be the last quarterly earnings where top-line financial performance are skewed as such).
Wilson puts the latest figures (full report here) down to a number of factors, including an ability to maintain prices with its airline customers, considerable success (800% y/y) in its part ownership of the eNett payment business and growth in its hospitality and advertising divisions.
Performance in emerging markets such as those Africa and elsewhere, and also in Europe, have also strengthened its overall balance sheet, Wilson says, although North America is down slightly y/y.
In terms of segment volumes, Travelport says it is in line with other GDS figures globally (up 3%), but is seeing large increases in Canada (+16%) and Eastern Europe (+24%)
But it is the push (and some early results) into new initiatives where the so-called turnaround might be felt even more in years to come.
In other words: Wilson and co claim to have a sizeable plan in place.
The company’s airline Merchandising Platform (launched in April this year with a “big” but undisclosed investment, Wilson says) has 20 airlines participating, allowing airlines to showcase their fares and ancillaries on their websites as well as via travel agents and other indirect channels.
Wilson says the global merchandising marketplace is currently around $38 billion a year and is expected to more than double over the course of the next 1-2 years.
“We would expect our merchandising [division] to grow at a faster rate than that [over the same period]”, he says.
This has led to a better “quality of conversation” with its existing and prospective airline customers, Wilson believes, with network carriers “definitely getting it”, contrasting markedly (and positively, it would appear) with how some airlines had previously been critical of the GDSs with regards to their ability to sell ancillaries through intermediaries.
Wilson would probably never say so, but there appears to be the beginnings of some kind of peace in the valley, or at least a desire across some parts of the airline sector to motor ahead regardless of the controversial NDC project from IATA, a process currently moving slowly through an early testing phase and, inevitably, various committees.
Elsewhere, its efforts to work closer with airlines on merchandising, revenues coming from outside of its traditional air-based services are seen, in Wilson’s words, as an area with “massive scope for growth”.
Alongside the success of the eNett payment system partnership noted above, hospitality-focused services such as its Rooms&More platform are being signalled as strategically important parts of the business.
Wilson says the percentage of revenue coming into the business from non-air bookings have grown at about 25% in Q2 and around the same figure for the first half of 2013 compared to the same period respectively year-on-year.
“This is definitely a sustainable level of growth [for us],” he says.”We have only been scratching the surface of this area.”
Agency customers are asking for more general products that they can offer clients, such as hotel and ground services, he argues, triggering a focus on services like R&M which now has 21 providers of hotel content on the system, 1.1 million offers from 475,000 properties.
Wind back two and a half years to when Travelport sold its GTA hotel division to Kuoni for $720 million and some might ask whether the use of the money to help with easing its debt at the time was the right decision given the large focus now on hospitality products.
Wilson admits the sale provided some financial headroom for the wider business but essentially GTA wasn’t big enough for what it is now doing (GTA at the time had around 80,000 properties on the system) and was often at risk from currency fluctuations on pricing.
“What we didn’t want is to be tied to one system,” he says.
NB: Meanwhile, on the call following the earnings announcement, we asked Wilson for a mini-SWOT analysis of the Travelport business:
- Strengths – the “re-architecturing of the business” to build platforms such as the Merchandising system and Rooms & More
- Weaknesses – if the company “can’t get its act together” and fails to execute on the strategy.
- Opportunities – further “geographic growth” in new markets (such as Africa) and fast growing businesses such as eNett.
- Threats – outside impacts on the company such as terrorism and political uncertainty, alongside “government restrictions” affecting travel such as taxation and impeding the liberalisation of markets.
Kevin is senior editor and a co-founder at Tnooz. He was previously editor of UK-based magazine Travolution and web editor of Media Week UK from 2003 to 2005.
He has worked in regional newspapers (Essex Enquirer) and started his career at the Police Gazette at New Scotland Yard in London. He has a degree in criminology, a postgraduate diploma in magazine journalism and publishes his first book - a biography about Depeche Mode - in late-2016.