Holiday Break and Wishes - Back Jan 8 (or so)

Merry Christmas, Happy Hanukkah, Seasons Greetings, Happy New Year etc. My best wishes to all for the break. Hope you have a chance to have some time off to rest, play and catch up with friends and family. I am going to take a little break from posting (unless I can't help myself). Am aiming to be back on the blog around January 8 (maybe 15). It is looking like a beautiful summer in Sydney so I plan to enjoy myself.

Thanks for being a reader over the last six months or so. Thanks to the comment posters for adding to the experience and keeping the volume of Travelport posts in check. And thanks to those other bloggers that have shared the link love this year including Travolution, Hotel-Blogs, dottourism, HotelReview, Social Media on the Fly, our Spanish friends Megustaelturismo, Go Man Go and even those crazy sploggers that somehow think they can make money out of stealing my posts and surrounding them with gibberish (here's an example).

All the best to you and yours and see you in 2007

Farewell Netus

I have been spending the last twelve months deep in the Internet venture capital world working for the News Ltd funded VC firm Netus. Has been a great year working under e-industrialist Daniel Petre and working on some of most exciting areas in new media. However I have realised over this time that my career goals no longer sit with corporate development and investment areas which dominated so much of my early career as a lawyer. Instead, I crave a return to the challenge and buzz of managing a large team of people with a P&L/revenue focus that was (up until recently) my main focus. Naturally I will stay in the Internet arena but on the operational side rather than investing.

It has been great to come to this realisation but once I did, sadly, I had to resign from Netus. I will take the next few months off to work on a few private projects and rest on the beach with my kids before announcing my new plans. You can stay in touch with me through my BOOT email address or my linkedin profile.

Planes, Trains and Accor-deals

Another inventory/supply deal for Bezurk has been announced. This one with Accor. I have talked in the past about how content deals should be the main focus of Bezurk - and all meta-search players - ahead of the more sexy/apparently appealing distribution deals. This is a particularly good inventory provider to have access to as Accor have been holding back inventory from a lot of the online companies. The margin is likely to be terrible (10% range) but it will give Bezurk a differentiation versus other players.

On the eve of the announcement of the deal I ran into Founder and CMO Craig Hewett on the train. He is looking confident and should be pleased with the state of the product.

Travelocity could get distracted looking out the Window

Hoping to cash in on the... Trying to generate traffic through improved SEO... Giving their editor-in-chief a place to... Improve customer loyalty through putting a face to the brand...

I don't know why but Travelocity have launched a blog called the Window Seat. I get the business model based on generating huge amounts of traffic and the great SEO boost from large amounts of user generated content and reviews as captured in Sidestep buying Travelpost, Expedia when it bought Tripadvisor and Travelport's (original plans) when it bought asia-hotels. I also believe you do a lot to improve your relationship with your customer's when they can see behind the scenes in of the business through a corporate or CEO blog such as Tripadvisor's fantastic blog on actual customer queries.

But I do not see the benefit to Travelocity in setting up a generalist, editorially driven travel blog. The general travel blog is one of the top three crowded blog spaces on the planet (next to porn and tech). Sure Travelocity have a good writer in Amy Ziff but there are well established players here such as Gridskipper and uber blogs like RealTravel that collect together the blogs and commentary of others so Travelocity is entering this space late.

It is not just second mover status that makes me question this strategy, it is that by definition Window Seat cannot speak to all or even a majority of the huge customer base of Travelocity. The chances of Amy or her team writing anything that more than 5% of the Travelocity customer base is interested in is near zero. That has nothing to do with Amy's writing ability it is because there are just so many Travelocity customers from so many different countries - each with different ideas, plans and needs around travel - that it is impossible. Travel itself is a big category, combine that with hundreds of thousands, if not millions of different customers and you do not have a chance to target them in a single catch all blog. Travelocity would have to replicate the travel section of the local bookstore or newsagent to get close - with a blog for each of the major areas (backpacking, cruise, VFR, adventure, romantic, gay & lesbian etc...).

This is why UGC is so fantastic because each viewer/user/reader can find the other viewers/users/readers with the same interests without having to wait for the journalist to get round to it.

I like the look of the blog and I enjoyed this little piece on Venice but Travelocity should be spending its blogging time and energy helping IgoUgo catch up with Tripadvisor not musing on the fat content of pre-prepared food.

What is a frequent flyer worth?

If Qantas does go private - what will the new owners do with the frequent flyer program?

When frequent flyer programs became popular in the 80s in the US and 90s in Australia it was seen by airlines as a means for reducing price competition. The hope was that you would lock in a customer in such a way that it would take significant price differences for them to shift to another airline. The advantages were obvious. The disadvantage was that it also made customer acquisition a little harder. Pretty soon every airline had a program up and running, it made it easier for each Airline to retain it's customers but harder to steam customers from another airline. If Airline A wanted to steal customer from Airline B it had to drop its prices dramatically or carry over the tier status of the customer to convince the customer to abandon years of miles and free booze in the lounge. Frequent flyer programs in competitive markets began to lock in the market shares of the players - strangely enough reducing competition. You can read more about this fascinating phenomenon in the book Thinking Strategically.

In Australia Qantas does not have this problem as it killed off its main frequent flyer competitor - Ansett Airlines. Virgin-Blue has just recently abandoned the Low Cost Carrier "code of conduct" that prohibits frequent flyer programs and launched one (Velocity) in late 2005. However the gap between the death of Ansett and the launch of the Velocity program allowed Qantas to not only grow its program dramatically but establish the Qantas Frequent Flyer program as the dominant rewards program in Australia. All airlines have made money selling/sharing points with alliance partners and other travel providers (hotels, cars etc) but Qantas have turned it into an art form allowing partners as diverse as real-estate agents, financial services providers, retailers, wine clubs, telecoms companies and more to buy points/miles and provide them to customers. It became possible to rack up hundreds of thousands of miles needing to eat a single airline meal.

There is now enormous financial value in the buying and selling of miles for Qantas (and other airlines). Canadian airlines actually spun off its whole frequent flyer program in July 05, Aeroplan, a business that is valued at the time at CAD$2bil (now about $900mm) based on 4.8mm members.

With the plan to privatise Qantas, questions are being raised about whether or not the soon to be new owners will want to spin off parts of the company such as catering, cargo and the frequent flyer program. Qantas are assuring their frequent flyers that it is "business as usual" including sending out a dedicated email to that effect. But with a value range of AUD$400mm to $2 billion (Australian newspaper article) it is almost certainly at the top of the list for the consortium that will be sitting on a debt pile in the AU$10billion range.

So - should you rush off and book your frequent flyer seat? The answer is yes - but not because Qantas may spin off the program. The answer is yes because there are simply too many frequent flyer miles in the world - including Australia. It is inevitable that over time the value of a frequent flyer mile will decline. Qantas re-valued the program about a year ago making it more expensive to buy international flight. They re-wrote the program in 2000 converting from kilometres to miles (effective 38% devaluation). AND - it costs of hundreds of dollars per "free" ticket.

As the Economist stated more than a year ago - it is like the printing of a currency by a failing state - the more the print, the less the value. So the more miles that Qantas sells into the market the more regular will be the "updating" of the program to find ways to reduce the value of miles. There is no need to use up miles just because of the sale of Qantas but my standing order advice is have to use up your miles on a regular basis. The winner is the person who had the most holidays not the one that dies with the most miles in the bank.

Here is a great post from a finance blog about other frequent flyer valuation activity in the US

Can't ingore $11billion

Have been trying to ignore the actual deal around the $11billion buy-out of Qantas as I wanted to focus my thoughts/rant on the Australian Government's constant screwing up of competition on the Pacific Route.

The story behind the deal is a simple/traditional PE deal - large US group (Texas Pacific Group) joins forces with with the Australian Millionaires Factory (Macquarie) and another Australian group Allco to de-list the Red Rat. I would normally say that owning an airline is a dangerous aim to have. The airline business is subject to constant out of your control shocks (SARS, War, Terrorism, etc), huge capital outlays for airlines and the number one cost element (gas) is not only variable but wildly so. However the Texas Pacific Group are good at owning airlines - they are credited with the turn around of Continental Airlines. Oh - and they now own Sabre. We always used to joke at Galileo that one way to protect segment fee margins was to own and airline...

eMarketer compares the numbers

I am usually bored by more reports of big numbers for the online travel biz as we really know all that we need to know in this area - the sector is proven, the sector is big. However will make an exception for eMarketer's comparative chart above as it gives a nice little summary of what each of the major research houses think about the US market. There is actually a lot of agreement between them. Estimating may become harder in the future if (as a result of both being/going private) Orbitz and Travelocity cease to break out their online sales.

50 of the best

Luggage on line have nice list of "50 of the best travel sites you probably never heard of". My favourite on the list has always been the Airline Meals site. I love this site - it is like a cross between food porn and trainspotting. Thousands of photographs and reviews of airline meals from the best in the world like SQ first class to the What The Hell Is That of Borat's favourite Air Kazakhstan.

The fantastic underground site not mentioned is SeatGuru - do not fly without looking here first. Shows you the layout of each of the major configurations of each of the major airlines - which seats to look for and which to avoid. Green for good, yellow for something to note and red for reach for the sleeping tablets. Even SeatGuru can't help you if you are flying Qantas to the US code sharing with American as you will end up on a MD S-80 aircraft, which as you can see here has nothing in Business Class that is recommended. Not a seat.


Thanks to Mark Fridgen's blog where I first saw the link to the 50 best.

Too busy looking at Travelport to see the money chasing Sabre

We were all so busy tracking the Travelport and Worldspan rumours that the hints around the possible privatisation missed me until today. Forbes (and many others) say that there are two PE groups bidding for the business in the $4billion dollar range. The stock price has reacted accordingly - up more than 10% at the time I type this. Lots of good assets inside Sabre - of course there is Travelocity and Lastminute - but also the small but successful Holiday Autos and the booming in the US Site59.

Not that it will likely weigh much in the mind of the PE bidders - their weakness is in the Asian online market. Zuji talks a good game with localised sites in many countries - Hong Kong, Singapore, Australia, New Zealand, Taiwan and Korea- but in each of those (except I think Taiwan) they are well behind the leaders despite years in the market and millions in marketing money. Mainly this is due to the product - both functionality and inventory - always being a step behind the competition. The single ownerships structure (as opposed to their early life under a dozen or more airlines) should help fix this however that will depend on them having the right management and almost flawless execution.

UPDATE - here is RedHerring's take on the announced deal. Thanks to Anon in the comments below for being the first to let me know of confirmation of the deal.

Qantas might go private but the Australian government lied ot the public

Australia has joined the private equity boom (especially in media) with the two largest TV network media groups, 7 Media and Channel 9 owning PBL, having combined with KKR and CVC Asia Pacific respectively. I am a bit late with the story on this blog, but the newest Australian candidate for going private is the Red Rat - Qantas. I am not known for my kind words about Qantas (for screwing up online, for charging a fortune for free travel here and for having no idea about customer service) but my largest and loudest rants related to Qantas have been the Australian government's outrageous defence of the pacific route duopoly.

You may recall my quote of then Federal Transport Minister Warren Truss when to defend excluding Singapore Airlines from this lucrative rout he said

"The economic modelling work [on the Pacific Route] that we have done suggests that the benefits of an airline such as Singapore entering that route would be very, very small to the Australian tourism industry,"

Now comes something even more stupid out of the mouths of Australian parliamentarians and an admission that Truss was making it up. Here is a quote from a Melbourne newspaper

...several Liberal MPs [government parliamentarians] have told The Age they believe the Prime Minister is more likely to embrace an open-skies policy if Macquarie and its national private equity partners succeed in their $11 billion takeover.

That is - that despite all claims of making decisions based on economic realities, the government would abandon its protection of Qantas on the pacific route if it ceased to be a public company because, well just because. If this proves true then it will go down as one of the greatest acts of business hypocrisy by any centre right/conservative government in living memory. If this becomes policy then Truss will be proven to have lied to the public earlier this year.

I am mad not just for the principle of the thing but because I/my company has to pay almost twice the per km cost to go the US than the UK while being forced to use an inferior product to market leaders Singapore Airlines, Emirates, Cathay Pacific etc. Just as before there is no justification in the pacific route duopoly and even less justification in believing a government that says that there is.

"Worldspan+Travelport=Gal-World" - how a search term became a company

First it was a strange rumour. Then it was a search term here and there. Finally it became a mountain (well a small hill) of traffic to travel blogs such as yours truly, Travolution and Travel.Beat. Now it is reality - Travelport (Galileo) has acquired Worldspan.

Interesting points from the deal:

• Cendant bought Orbitz in part because of the huge revenues that Galileo would gain from migrating Orbitz from Worlspan to Gal. Presumably part of the reason behind Galileo buying Worldspan is eliminating the litigation risk and migration cost that arose from that strategy - how serendipitous;
  
• Worldspan itself has been in some financial trouble. This deal will not simply be a case of cutting costs. The Worldspan and Gal products will both have to be kept alive for some time. Reviving Worldspan will be a enormous integration task for Gal; and
• There are lots of financial machinations behind the deal - an immediate recapitalisation of Worldspan and a $125mm loan to Worldspan. The item to keep a close eye on is the comment that
  

  The initial integration focus will be on consolidating technology and administrative operations resulting in near-term cost savings of approximately $50 million

  That is - a lot more head count to go.

But my favourite part of the deal is that it confirms that Google knows everything. There is no secrecy in M&A activity any more because the answers are all in Google's logs. If I can sit he with my tiny free tracking service and see that people with Worldspan and Travelport IP addresses are furiously typing in every combination of Worldspan and Travelport you can think of, can you imagine what could be gleamed from Google, Yahoo, MSN search logs by looking for combinations of company names.

Now comes the fun part - need to pick a new name for the combined company. "Worldport", "Travelspan", "Portspan", "Worldtravel"...all too corporate and boring. We need something fresh that speaks to generation Y - which is why I propose "Gal-World"....OK, maybe not...it probably wouldn't work too well typed in a search engine.

Thanks to Ed Silver who was first to forward the PR news to me.

UPDATE - e-tid are reporting that (registration required)

Worldspan will assume the Galileo name

Farewell Barney, Welcome Henrik

The unpublished rumours were true - Barney Harford is now the former President of Asia Pac for Expedia. After what must be close to 9 years with Expedia Barney will step down to be replaced by former head of lodging for Europe, Asia and everywhere not American, Henrik Kjellberg. Barney will retain his links to the firm through Chairmanship of eLong. Henrik inherits the few months old Expedia AU (including offline marketing plans), few days old Expedia JP and Australian, Japanese, Korean and Hong Kong versions of Hotels.com. With Henrik moving to Hong Kong ,will be the first time since 2002 that Expedia has had a VP or above level exec in the region. Congrats to both Barney and look forward to seeing you in Sydney Henrik.

Clock ticking on Priceline.com.hk/sg/tw

Enough of rumours - fact of the day is that Asian mega-company Hutchison Whampoa have sold the last of their Priceline shares. Hutch is the majority shareholder in the Priceline Asia operation (Hong Kong, Singapore and Taiwan).

The Reuters article says

"Priceline.com said it continued to do business with Hutchison Whampoa through a joint venture, Hutchison-Priceline in Asia"

but almost certainly this means that joint venture is on life support - soon to be put out of its misery. As I discussed earlier Priceline Asia has unfortunately been in trouble from the start, never living up to its promise in Asia. Priceline has not had much luck in Asia. In addition to the troubles of Priceline Asia, it's efforts in Australia went through a lot of money - mainly largest teleco Telstra's - under a different name (www.myprice.com.au - domain name now belongs to a car company) before shutting down moments after launch in a barrage of expensive post/early bubble bust redundancy payments.

Priceline should take this chance to close down its Asia JV and relaunch efforts under Bookings.com brand (I would have liked to have said the Activehotels brand but no more).

Record Traffic Day - thank you Worldspan and Travelport

The day is only half over and already I have had a record day for traffic to the blog. Nothing that is going to blow out the stats engines of Nielsen Netrating or Hitwise but enough to make me turn to my referral logs and try to figure out what is going on. There have been some links from fellow bloggers such as Guilliaume at HotelBlogs and Kevin at Travolution (thanks to both). However the area is which traffic is going bananas is search engine traffic around the following terms:

• worldspan + travelport
• worldspan travelport announcement
• travelport acquires worldspan
• galileo rumour
• worlspan rumour
• and so on....

Search traffic is hardly a definitive indicator of M&A activity but it sure is a useful buzz measure. I first 'felt' this traffic spike building last Thursday but today is exponentially higher.

Expedia in downtown Sydney

Expedia marketing in Australia has started to go offline. Picture below with charming scenes of female marketeers dressed in yellow, spruiking their hearts out to the lunch time crowds in Sydney's Pitt St Mall. Perfect opportunity for a caption competition. First prize is a year's free subscription to this blog.

Photo courtesy of Ted Szukalski, Digital Photo