Worldspan: Up, Up and AwayBy John McCormick | Posted 2003-05-01 Email Print
Travel reservation giant Worldspan stopped gazing skyward for opportunities. That's when it really took off.
According to those familiar with the company's operations at the time, Worldspan's employees and line managers were putting a lot of pressure on Chief Executive Officer Paul Blackney to mirror Sabre's e-commerce move.
"I just didn't think that was the answer," he says. "That was Sabre. This is us. And we were going to do what's right for us."
What Blackney and his management team felt was right for Worldspan was not, like Sabre, to compete with its travel-agent customers. Instead, the executives already had decided that in addition to offering reservations and bookings to traditional travel agents, the company would develop interactive reservations services and start to target its products and services to the growing number of online travel agencies, such as Expedia. And Blackney was going to stay the course. That decision spurred a revamp of Worldspan's computer and communications infrastructure—including moving parts of the reservations process from big, expensive mainframes to small, efficient servers—and the creation of a line of Web-based travel products. Most of these moves proved successful.
Worldspan is a prime example of how a company can use information technology to change strategic directions and move successfully into new fields.
Over the past three years, Atlanta-based Worldspan has increased its market share, in terms of overall travel bookings, while its two major rivals have seen market share declines (see chart, p. 71). A lot of the growth is coming from online travel. Worldspan has used its streamlined reservations system to lure online travel agents and now boasts four of the five largest travel Web sites as customers: Expedia, Priceline.com, Orbitz, and, since the beginning of last month, Hotwire. The only holdout of the top five is Sabre's Travelocity. Worldspan says it now handles 100 online travel agencies and that half of the approximately 36 million airline tickets purchased annually over the Web are processed by its computers—with Worldspan charging the airlines for each ticket booked through its system.
Worldspan has hit the travel sweet spot. While the economy, war and disease have dragged down just about every sector of the travel market, Forrester Research expects the online air travel market to grow from $20.5 billion last year to $25.3 billion this year. Worldspan is privately held, but a rough estimate puts its annual e-commerce revenue at about $115 million or more.
"Worldspan has emerged as the clear leader—the undisputed leader—in serving Web-based travel agencies of all types," says Henry Harteveldt, principal airline and travel industry analyst at Forrester.
That's not to say its growth has been painless, nor has every move the company made paid off.
Worldspan and its chief rivals, Sabre, Galileo and the European-based Amadeus, run the reservations systems for the vast majority of airlines, hotels, and car rental companies doing business today. Worldspan and the other Global Distribution Systems (GDSs) take orders from travel agents, book the reservations, issue tickets, and charge the hospitality and transportation companies a fee for each transaction—about $4 for each part, or segment, of an airplane trip, for example. The distributors increase their sales by signing up travel agents as partners and working out some form of payment to the agents for sending them business. Worldspan declines to talk about the deals it strikes with its partners. However, some industry estimates peg the GDS payback to travel agents at 10% to 20% of the fees the distributors receive from the airlines—40 cents to 80 cents from each $4 payment.
But online travel agents say they need more than just a good deal from a distributor. Greg Brockway, chief product officer at Hotwire, says the company's primary concern is having a strong platform on which to expand its business. "We were looking for someone we can continue to grow and develop with," he says.
While all GDS computing platforms are essentially the same—big IBM mainframes running on the 40-year-old Transaction Processing Facility (TPF) operating system and doing everything from holding airline ticket inventories to handling transactions—Worldspan has aggressively moved some applications to faster, less-expensive servers. In January 2002, it shifted its fare and pricing applications to servers running Microsoft Windows NT.
Now, when a fare request comes into Worldspan, its system asks whether the transaction is best executed through an NT server, which can quickly handle simple requests such as a round-trip from New York to Los Angeles, or on a TPF mainframe, which has the processing power to handle complicated trips, such as an international tour with multiple stops.
Worldspan Chief Information Officer Sue Powers says the setup allows the company to handle 10 times the number of concurrent requests as before. "By moving fares and pricing off of TPF and onto NT we were able to supercharge our transaction" processing ability, she says.
Hotwire is one company reaping the benefits. Like other low-fare sites, Hotwire negotiates special rates with the airlines. So, in addition to offering customers the lowest published fare, it can offer a discounted fare if it has one available. Hotwire used to send in at least two requests—one to check for the everyday low fare and others to look for the lowest negotiated price. It would then sort out the prices on its end before presenting its customers with the lowest fares.
Worldspan, however, created what it calls a "combo entry," which lets Hotwire send in just one request for a fare. Worldspan parses the request, performing a search for the negotiated fare on its TPF complex and scouting out other low fares on its NT system. The GDS then sends one message with the lowest fares back to Hotwire.
Not only does this result in improved performance, it also cuts processing cost. While Worldspan won't talk about its IBM contract, the computer vendor is said to charge mainframe customers by the number of transactions conducted on its machines. Worldspan booked almost 200 million tickets last year. A conservative estimate of the total transaction cost of a booked ticket is about 25 cents, bringing the annual bill for a company like Worldspan to $50 million. On a server, the only real cost is the equipment purchase—maybe a few thousand dollars. Fare processing is thought to account for a bit more than half a distributor's computing transactions, which means Worldspan could be halving its transaction costs. "You're talking tens of millions of dollars," Harteveldt says.
Worldspan, however, has no intention of abandoning TPF. In January it signed a five-year, $350 million contract with IBM to integrate IBM's Websphere Internet software with TPF, which will make Worldspan's applications more easily accessible by Web browser. "The technology refresh at Worldspan is well under way," Powers says. "It's going to enable us to sustain the competitive edge that we have."