Flying on the Edge

By John McCormick  |  Posted 2003-05-01 Print this article Print

Travel reservation giant Worldspan stopped gazing skyward for opportunities. That's when it really took off.

Flying on the Edge

Sustaining that competitive edge has put Worldspan, at times, on the edge. While most of Worldspan's online customers didn't want to talk about their vendor relationships, Worldspan is straightforward about the software hurdles it has overcome working with clients.

Expedia, for example, wanted to use Worldspan's Rapid Reprice, which recalculates fares when travelers—as they often do—change their plans. Worldspan says there was a problem with the logic inside Expedia's system. Customers would set up initial itineraries. Then, before or during a trip, alter a piece of data to see how much the price of their trip would be affected if they made a change, such as eliminating a Saturday stay-over. If the customer didn't like the new price and tried to go back to the original arrangements, a program inside Expedia's system would cancel the whole itinerary.

To fix the problem, Powers says Worldspan and Expedia revised the procedure. Now Worldspan's system captures those messages and handles the changes on its end.

For Worldspan, dealing with online travel agents is well worth whatever technical headaches they cause. A rough industry estimate is that a large online travel site could book as many as 7 million tickets a year. If the GDS collects just $4 from the airlines for each booking, that's an additional $28 million in annual revenue from each online travel agency account.

Fees aren't the only way to generate revenue. Over the past couple of years, Worldspan has combined its systems and travel expertise to come up with applications that make travel agents more efficient. Rapid Reprice was one of the first ticket pricing products of its kind on the market. Without a repricing option, online shoppers likely will pick up the phone and dial the company's call center. The estimated cost of handling those types of calls is about $5 or $6 each, while there's virtually no cost when changes are made online. Another product, e-Pricing, was one of the first, powerful low-fare search engines. The e-Pricing program collects millions of travel prices and thousands of possible itineraries, giving online travel agents a vast selection of travel choices and pricing.

Worldspan—which maintains that product pricing depends on the customer—will not say how much it's making on its software, but claims its products set it apart. "We think we're really ahead of the curve," Powers says.

Sometimes Worldspan has gotten too far ahead of the curve.

Most notable are its interactive television products, which are designed to allow travel services to be sold over cable and satellite TV. Worldspan won't say how much it's spent on the initiative—Powers says it's "under a million"—but it admits the products haven't had much success in the market.

But the travel market is as volatile as they come.

Within the past 12 months, Worldspan's owners—American Airlines, Delta Air Lines, and Northwest Airlines—sold out to an equity company called Travel Transaction Processing Corp. Terms of the deal, which is pending, were not disclosed. After the deal was announced, CEO Blackney resigned, although he'll stay on as an adviser.

Other changes could be under way. The U.S. Department of Transportation (DOT) wants to revamp rules governing the computer reservations industry. At one time, all the distributors were owned by big airlines—American controlled Sabre and United owned Galileo, although carriers shed their interests years ago. To keep big airlines from using their GDSs as competitive weapons, the government in the mid-1980s enacted regulations that, among other things, made sure all airlines worked with all ticket systems. The DOT may now let airlines shop for the best distribution deals. In addition, the financially pressed airlines are fed up with paying what they see as exorbitant distribution fees—some of which are in the hundreds of millions of dollars—and are pushing their own Web sites, which bypass the systems.

Worldspan executives are aware of how sensitive business conditions are at this point. But Niel Bainton, Worldspan's vice president of strategy and new business development, says information technology has given the company a competitive advantage. He says it would take rivals a lot of time and money to match its success—particularly with online travel agents.

Still, a sale, new management and deregulation are enough to distract any company. And, with that as a backdrop, the company must plan its next steps. "What do they do for an encore?" Forrester's Harteveldt asks.

Worldspan plans to bundle key data it collects and offer reports on customer and market trends, and Harteveldt says it could move more aggressively overseas. But one thing you can't take away from Worldspan is its success online. It was simply, he says, "a very sound, strategic move."


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