*** t/o potential in this sector *********

July 2005 – TravelBulletin
Global giants in cyber agency power plays

The cut and thrust between Australia's cyber travel agents is taking place against a background of increasing dominance by a few global players.

Much of the action is polarizing around the two giants - Microsoft's Expedia and Sabre's Travelocity.

The most recent example of their relentless advance is Travelocity's purchase of the UK-based lastminute.com.au.

Sabre's GDS rivals have also dealt themselves into the global action with Cendant/Galileo taking over the previously airline-owned North American site, Orbitz, and Amadeus acquiring Opodo, previously owned by a consortium of European airlines.

In this part of the world, ownership of the remaining airline-owned site, Zuji, is expected to pass from a consortium of Asia-Pacific carriers, including Qantas, to Travelocity at the end of the year.

And elsewhere in this market, the tentacles of the global players extend in a tangled web.

For example, Travelocity's UK acquisition of lastminute could further extend its Australia reach.

This is because Australia's last minute operation is a joint venture is a joint venture, 75 percent owned by travel.com.au (TVL) which has the option of selling to Travelocity.

Is TVL likely to sell the Australian lastminute operation which accounts for about a third of its total transaction values and is reportedly growing faster than its travel.com.au business?

The only direct comment TVL chairman Roger Sharp will make is: "We'll do whatever is best for the shareholders."

However nothing in his general comments suggests there is any intention to relinquish lastminute.

He talks of TVL's prospects this way: "We have the keys of a car that's been idling on the side of the freeway. Right now we're doing about 20 kilometres an hour and we don't want to get out yet."

At another point in an interview with travelBulletin, he assert: "We don't think the industry has to be the exclusive domain of the giants Expedia and Travelocity. We think the local guys can have a good crack at it."

The lastminute joint venture is not the only link between TVL and the global players.

For some reason, Amadeus has held a 15 percent shareholding in TVL and has a representative on its board. (And assuming Amadeus still sees strategic value in its TVL state, it is hard to envisage its director voting to have the lastminute section of the company delivered to the Sabre-Travelocity camp.)

Meanwhile, Cendant-Galileo has a 10.5percent holding in Webjet, obtained in exchange for funding development of Webjet's "aggregator" technology.

Cendant also has the hotel wholesaling sites obtained by its takeover of Flairview Travel. This has leveraged further penetration of cyber retailing through Webjet and "clicks and mortar" agencies using white label versions of Flairview's Hotel Club.

However, despite these links to the global players, Webjet and TVL remain very much locally managed.

Webjet managing director David Clarke has no fears of greater competition from the big global operators. Rather he welcomes the prospect.

"Such an entrant would have to gain major traffic volumes from airlines or bricks and mortar agencies and the more business that moves from those entities into provider distribution on the internet, the better it is for us," he says.

"I am more than confident we would hold our own, though not necessarily in absolute volumes because they would build the market in a way that we could ever do." Zuji's Australian general manager Jo O'Brien airline ownership conferred some credibility on the operation in its initial stages which helped earn consumer confidence and trust, "but we're standing on our own two feet now."

She does not anticipate dramatic change if Zuji is taken over by Travelocity which currently has a 10 per cent stake in the company and has always operated its site on behalf of its airline owners.

Will the Zuji name be replaced by Travelocity? That is not O'Brien's call but she says: "I think there is value in the Zuji name".

She cites Australian research by A.C. Nielsen showing 50 per cent brand awareness nationally - a little higher in Sydney and Melbourne.