Worldspan chairman and chief executive Rakesh Gangwal anticipates that the GDS industry will undergo "major structural changes" in order to meet the needs of a still deeply troubled airline industry.
"The airlines are hard pressed," he said during a conference call with investment analysts. "There is a rip-roaring need to change the whole model in how booking fees are established. We have to adapt to new realities, and it's not something we can do over the next three, four or five years. We've got to bring the booking fees down now."
Gangwal said that it was "obvious" to Worldspan that as the DCA-type contracts expired, airlines would look for additional discounts on top of the 15% that DCA provided.
"But another 5% to 10% discount would not resolve the overall issue," he said. "Airlines are happy with GDSs, but they're not happy at all with booking fees."
GDS companies will have to take a hard look at things they are doing "that don't add value" for the airlines, Gangwal said.
To gear up for these changes, last year Worldspan took $18 million in costs out of its operations, he said. "In the long term, we will be able to meet the needs of airlines and make fees palatable to them and still be cost competitive."
Worldspan's online bookings decline
Worldspan reported that its online transactions dropped for the first time, declining 4% in the fourth quarter of 2005.
Worldspan chief Rakesh Gangwal said that in 2005, Orbitz for the first time began to give the GDS the minimum number of bookings for which it is contractually required. Orbitz was acquired by Cendant Corp., which also owns Galileo, in late 2004.
In addition, Gangwal said, the acquisitions of Ebookers by Cendant and Lastminute.com by Sabre Holdings Corp. caused "a little bit of leakage" as those companies' bookings shifted to their new owners' GDSs.
Worldspan faces further inroads into its online business this year. Expedia has said it will finally implement a 2004 agreement to move some bookings to Sabre later this year, probably in the third quarter.
Priceline.com also signed an agreement with Sabre, and chief executive Jeffery Boyd said the implementation work was already under way.
In addition, Expedia plans to move some bookings in Europe to Amadeus and expects that technology integration to be completed by the beginning of the second quarter.
Gangwal said Priceline represents about 9% to 12% of Worldspan's business, depending on the quarter. Priceline's contract with Worldspan has a minimum booking requirement, but Gangwal said it does have the ability to move some portion of its bookings to other GDSs. He said Expedia also has a minimum requirement "but not at the same high threshold as Priceline."
Expedia, Orbitz, Priceline and Hotwire accounted for about half of Worldspan's bookings last year.
Worldspan's traditional bookings also declined, both in the fourth quarter and for the full year 2005. Gangwal has for some time stressed the need to focus more on traditional travel agencies and said the decline will "stabilize" this year. It may not be reversed, he said, but the company expects to at least "flatten it out."
Worldspan reported a net loss of $675,000 for 2005, compared to net income of $41.8 million in 2004. Revenues in 2005 were $953.7 million, up 1%.
The company reported a net loss of $3.2 million in the fourth quarter, compared to a net loss of $5.6 million in fourth quarter 2004. Revenues were $207.8 million, down 2%.