Is the travel pie still growing? Where are the GDS companies in non-air travel planning?

Implications: The GDS industry, which earns its money primarily from the travel agency community (both online and offline) booking airline tickets, has been said to be totally commoditized and destined for decline.  In 2005 (the last year that all reported their earlings publicly), globally the GDSs processed 1.3b bookings and earned $8.7b in Gross Revenues and yielded $774.1m in EBITDA collectively. The interesting statistic behind all of this is that out of the total US Travel market, which in the same year yielded 1.4b trips, of those trips, less than 10% of them were by air.  The balance of travel was by car, motorcycle, RV, train or bus.  Yet, the GDS companies do not have a product that addresses the drive market. For 2007 the Travel Industry Association reports that US spending on travel was $733.9b.  Of that, just 35% was sold electronically (which includes travel agencies and online agents). 

Analysis: The investment community has shown a penchant for investing in travel technology companies and their online counterparts.  Over 20 large transactions have closed over the last 18 months in the industry, including the entire GDS industry being purchased by private equity players.

In August, Travelport's parent Blackstone paid $1.4b for Worldspan, merging it with rival Galileo.  In July of 2003, Citigroup had paid $745m for the company, purchasing it from founder carriers Northwest and Delta and TWA's successor American Airlines. 

In 1997, Galileo went public, raising $784m selling 32% of its stock.  It was then purchased in October of 2001 by Cendant for $2.9b.

In December of 2006, TPG and Silverlake bought Sabre for $5b.  Sabre had gone public in 1996, after American Airlines sold 18% of the company's stock for $500m.

Amadeus went public in December 1999, raising $900m.  In January of 2005, BC and Cinven bought the company for $5.7b. 

Clearly the investment community believes that there is value in the Global Distribution System business.  But is the GDS business truly a shrinking, commoditized business or is there still milk to be extracted from these cash cows?

If you analyze the size of the road trip market in the US alone (over 88% of all leisure travelers drive versus fly and 62.5% of business travelers drive), you will see that the GDS business has not even begun to scratch the surface of the potential of the travel industry.  For that matter, neither has the online travel industry.

In the spirit of full disclosure, the article cited is announcing a company in which I am the founder and an investor.  Lest this been seen as totally self-serving, it is used to make a point about the GDS and online travel market. 

Technology in our industry has been air centric for nearly 30 years.  In February Sabre and Galileo's predecessor Apollo will celebrate their 30 year anniversaries.   The GDSs and the online travel systems that spawned from them 10 years ago have primarily served the point to point air business, as well as destination centric hotel business and today still only garner a small percentage (less than 10%) of their revenues from non-air activity. 

Tools, such as the one launched today by LeisureLogix, that address the intricacies of planning and booking road trips open up the GDS and online travel pie to a new market.  They allow penetration of the 65 percent plus of all travel is still sold by phone and via walkup to hotels and attractions/ entertainment venues.  The launch of new technology into the industry can open up this previously inaccessible market and spawn growth.

I'm confident that the pie is larger than what has currently been penetrated by the GDS oligopoly and I'm equally sure that the online travel market can graduate from its focus on commodity travel planning. 

Now we wait to see what the industry will do now that tools are beginning to emerge.