Market plunges - its all China's fault

Been a tough day/night on the markets. The mainstream news is blaming China.

[The main China stock exchange] fell nearly 9 percent on Tuesday, erasing about $140 billion of value in its biggest fall for a decade, on concerns that share valuations had become overextended and economic growth may slow

according to Reuters/Ninemsn. The Chinese government is trying to fight back announcing that they had no plans to add a 20% capital gains tax . Related to not the market bounced back - up 1.2% according to the SMH.

Thought I would take a look at what impact their was/wasn't on eLong and Ctrip. Over the last five days eLong is down almost 10% and about 7% from where it was a year ago. Ctrip is down a similar 7% over the last 5 days but is up almost 50% over the last twelve months. This reflects Ctrip's widening gap over eLong and a premium for being number one in the market with the biggest potential. That said, Ctrip is trading at an extraordinary P/E of more than 65 (compared to Expedia's 30 times, Priceline's 32 times and Wotif's almost 40 times). Clearly a lot of work for eLong to catch up but also a lot of work for Ctrip to prove that the enormous multiple is justified.

Flight Centre privatisation in trouble

Word on the street (ok - from Travelweekly) is that the privatisation of Flight Centre is in trouble. The billion dollar plus deal was announced in October but is seems that management and the board are not going to get to the magic 75% voting mark to make the deal happen. The article says that it is Lazard Asset Management (28% owner of the company) that is holding out. Chances are they are simply looking for an increase in the bid.

However I would caution anyone against calling the deal dead. The PE firm behind the deal - PEP - are not going to give up too easily and with $400 plus million resting on the deal, the management including Scroo Turner are certainly going to keep fighting. Chances are we will see a revised bid very soon.

That said - this is not a slam dunk must do deal for PEP. I have not done the financial analysis so cannot say for certain if the value is right or wrong. But I do know - and said before- that Flight Centre has not reacted properly to the rise of online travel, to reductions in airline commissions, to changing staff patterns, to the international challenges (especially in the US and UK) or to the need to have more depth and breadth in directly contracted land product. If the deal does go through, PEP will need to address all of those issues


UPDATE - Ouch - Flight Centre stock is down more than 10% as a result of all this.

Lastminute sale a real possibility

International readers will be confused by the headline for today's post as most will assume that the sale of Lastminute.com to Sabre/Travelocity was old news (2005). However in Australia the Lastminute "franchise" is operated under a joint venture with local player Travel.com.au being the majority shareholder. Travelweekly is reporting comments from Travel.com.au CEO Adam Johnson that he is considering selling the business back to Sabre/Travelocity by exercising a right under the joint venture triggered by Sabre's recent privatisation. The key part of the comments from Adam is that this is not a done deal but merely a right possessed by Travel.com.au. Am looking forward to watching this unfold.

Latest in travel spam

As you can appreciate, my timsboot email address attracts a lot of spam. I wanted to share one of the recent ones with you.

Hello Dear,

I have 3 clients who will be coming for a vacation in your area from the 10th June to 25th June 2007. Kindly get back to me if you have vacancy for the specified period, Get back to me with the total cost of the 3 Doubles rooms for 3 clients for 15 days stay.

Do confirm if you accept major credit card for your payment.

Note, Breakfast will be included to the total cost.

Do get back to me with the total cost of their stay in Dollars.

Kind Regards,

I am guessing that the commercial angle is for me to write back and say "I am not a hotel" which confirms my email as legitimate. Or - maybe there is a Nigerian like angle here were they start a dialogue with me on how to book accommodation leading to me giving up a "deposit" etc. Anyway - my favourite part is the very familiar "Hello Dear" at the beginning.

The world in an excel spreadsheet

Dottourism blog brought my attention to a link to the World Gazetteer that provides global population data by location - going as deep as city, town and metropolitan areas. Can be used to mash together with Google maps to add population data to map data. I haven't quite figured out exactly what I would do with all this data - but am eerily attracted to the notion of having an excel spreadsheet with the population numbers for each city.

How much did IgoUgo cost Sabre

In the comments section of a post on Webjet's Planit/Panitonearth plans a discussion started on the valuations of other UGC based businesses such as Expedia's TripAdvisor and Sabre's IgoUgo. Anon posited that IgoUgo was sold for $600mm - which is clearly too high a figure. Sabre never disclosed the amount paid for IgoUgo. Sam Daams of Travellerspoint just posted a comment on my earlier post that gives some good insight so I will re-post it here

I did a bit of research and here are two articles that I think definitely put the 600 million number to rest. More likely under 10....

From Sabre Holdings Q4 earnings report:
" As a reminder, we consolidated the IgoUgo business into Travelocity during the third quarter, which put a $4 million drag on Travelocity operating income for the year. "

From a google groups thread
" I know recently IAC acquired Tripadvisor and sometime last year Sabre Holdings acquired IgoUgo. I posted a couple of weeks ago asking about any details on the Tripadvisor deal and the answer was really fascinating. Any ideas about how IgoUgo was evaluated and how much it was acquired for?

First of all, make it a habit to research SEC filings whenever you have a question concerning finances of a publicly traded company. If it's anywhere, it's in the company's annual report (form 10-K).

In this case, however, this approach doesn't quite work; Sabre's 2005 10-K lists two acquisitions in 2005, SynXis ($41 million) and lastminute.com ($1.2 billion). This probably means that whatever Sabre paid for IgoUgo was immaterial (accounting word for "too small to mention"). Sabre's 2005 10-K also lists acquisitions made in 2004 and 2003; the smallest acquisition mentioned, that of Sweden-based RM Rocade in 2004, is $15 million. So my guess would be that IgoUgo was acquired for significantly less than $10 million.

Jim Donnelly and Tony Cheng, IgoUgo founders, had this to say on the subject:

...over the past few years we've tossed around many big ideas for IgoUgo but lacked the resources to implement them. With the financial backing of Sabre, however, IgoUgo.com promises to grow into the site we've always known it could be. This acquisition affords us not only access to Sabre's extensive distribution channels and content sources, but also the funds to
pursue longtime goals like faster site performance and the development of new kinds of content.

Note that site performance is cited a problem that couldn't be solved by any means other than acquisition by Sabre, which probably means that prior to the acquisition IgoUgo was growing out of its existing Internet infrastructure, but couldn't afford an uprgade... Not a good position to be in when negotiating a sale, and another sign of relatively low purchase price...

Second, valuation of a growing company is a complicated exercise. Structuring an aquisition is even more complicated. Very few people will tell you any details, especially since pre-acquisition discussions are usually covered by confidentiality agreements."

Thanks for the comments Sam

Travelport break-up: GTA rumour

You know my belief that 2007 will be the year that Travelport is split into three. Well the number one source of traffic to my blog over the last two days has been versions of this search phrase in each of Yahoo! and Google - "travelport may float GTA". Here's an example. Search engine traffic is by no means definitive but as the Worldspan acquisition by Travelport proved, it is more than enough to start a rumour....

UPDATE - Looks like I broke the story first - thanks to anon below who pointed to an eyefortravel article adding to the rumours and speculation. As anon comments the rumoured float valuation of GBP500mm is almost 12% less than the original amount paid by the "old" Cendant paid for Gullivers.

Good results for Wotif

Wotif's half yearly results have just come out - and they look good. Total transaction value reported at AUD$250mm and net profit after tax just short of AUD$12mm ($11.9). This is more than 50% growth on the same period last year and almost 30% growth in transaction value on the previous six month period. I have pondered out loud that Wotif have a huge challenge to maintain growth levels without demand market expansion (which requires non-English language support) or new products (such as white-label affiliate functionality, customer reviews and loyalty programs) but they keep proving me wrong. Well done.

Here is the full release.

Expedia vs Tripadvisor (?)

Following on from my post about Expedia and TripAdvisor "Striking a Deal", Kevin May at Travolution has been hearing rumours that internal talks have broken down (at least in Europe) on how to implement this "deal". As I mentioned in my discussion of the original "deal" this is likely to because of two factors. Firstly each Expedia POS is a separate profit centre to the other and certainly to to TripAdvisor. Meaning that anything one profit centre "gives" to the other without compensation is a lost opportunity in meeting an internal target. Secondly there is a risk on the search engine rankings of Tripadvisor if it casually gives the content gold to Expedia. Can't wait for Kevin to divulge more from his sources.

UPDATE - May 07, Expedia.co.uk will add TripAdvisor review content by "end of 07". That is more than 7 months away so a very strange announcement and does little to calm the rumours of discontent at TripAdvisor over this "deal"

201 not out

If doing it twice makes a tradition, welcome to the traditional BOOT speedometer post marking 201 entries in the blog (101 not out is here).

The last 100 posts have clearly been dominated by meta search companies with my Business of Meta-Search Travel (BOMST) side line including:

• Boom time capital raisings for Sidestep, Farecast and a mind blowing round for Fare.net;
• Content deals, UGC deals, elephant deals and product launches a-plenty for Sidestep, Kayak, Lonely Planet and Bezurk; and
• Debates, advice and interviews with start ups Hotelsbycity, Asiatravelmarket and Travelpost.com (in fact I still owe Hotelsbycity an answer)
  

But the other sectors were just as busy:

• The PE firms went crazy buying everything in sight - Flight Centre, Qantas and Sabre.
  Even the smaller guys had a taste of the PE goodness with eDreams and GoVoyages joining the feast;
  
• Qantas managed to annoy me even more than usual by first ignoring me, then playing a game of "no it doesn't" every time someone told them that the Qantas VOD system was busted and finally by being involved in a mile high story what wasnt;
  
• Travelport continued its acquisition fever by merging Worldspan into its Galileo business. In a display of the power of search engines and search logs - the BOOT called the deal early based on record traffic from Atlanta, Denver and Parsippany to the BOOT in the weeks leading up to the deal;
  
• The Transportation Security Agency in the US went a bit crazy and started arresting every Tom, Dick and Harry;
  
• I went a bit video crazy with new business seats that are just plain old, 1950s nostalgia that looks a lot like 2007 marketing and a poker vid makes to sweat more than a Friday night stand-by; and
  
• I bade farewell to full time venture capital work at Netus (though I am helping them out on a project part time at the moment)
  

Things to watch in the next 100 (ie my predictions) are:

• Priceline changing its approach to Asia. With the Hutchison Whampoa group no longer a shareholder and the Asian growing fast - Priceline has to make a new move;
• Heating up in the full service online battle in Australia as Webjet, Travel.com.au, Expedia and Zuji all launch new products but all of them will fail to achieve the growth rates of the hotel only leaders Wotif.com and HotelClub/RatesToGo;
• More rumours and maybe a deal or two around the Travelport break up;
• Even more meta-search and UGC/Travel social networking launches in Asia Pacific, Europe and America; and
  
• More consolidation between the offline players (like the MyTravel-Thomas Cook deal in Europe and the MFS/S8 merger in Australia) as they try and make up for missing the online revolution.
  

And finally through some strange quirk that I did not plan, we had a lot of animals on the blog in this 100 from elephants to dinosaurs to suicide bomber donkeys.

Oh- and England won (some of) the cricket.

Webjet's plans for UGC and packaging are "almost here"

Two pieces of news (well almost news) on Webjet's new product plans out today - updates on their user generated content and packaging plans. Both are great sounding products and the right move - but I think a little more is needed to make them perfect.

Their user generated content plan is to launch a user review and social networking site. Previously called "Planit" the new working is "PLANITONEARTH". As per my earlier comments this is probably due to the fact that the Planit URL was already owned by a design company. The current PLANITONEARTH URL does not yet resolve to anything but is registered by Webjet.

I like this idea and by committing a million dollars, Webjet is indicating a preparedness to put in the significant time and money to build the huge scale and regularly updated features needed to be competitive in travel social networking and UGC. However I still advise them to rethink the name. Planitoneath is a big mouthful. It does not roll of the tongue as easily as Tripadvisor or WhereAreYouNow. Additionally, even though they have cleaned up the confusion with Planit the design company, there is the potential for confusion - well really search engine ranking dilution - with PlanitEarth (an environmental research group).

The next announcement care of TravelWeekly is that Webjet's package product/content is just two weeks from launch (after a four month delay). Again a critical step and product for Webjet. I remain confused as to why consumers continue to feel comfortable paying service fees of more than $24 per domestic booking on Webjet when the competition (ie travel.com.au and flightcentre.com.au) charge less than $10 and the airline sites direct charge nothing . Webjet needs to have a package cross sell system to generate the hotel revenue that will allow them to drop this fee before consumers wise up to the disparity.

Functionality will be critical to the success of the packaging engine but equally will be the content and inventory available to Webjet. The article re-iterates the importance that Webjet places on inventory from S8 inventory (very soon to be renamed Stella Resort Group) which will give them most of what they will need for families on the Gold Coast.

However for Webjet to truly deliver on packaging and hotel only plans it needs to establish an in-house product team devoted to contracting hotels property by property, chain by chain. White label deals with Travelport and large scale deals with Stella/S8 will not give them the domestic coverage and hotel influence of a Wotif or HotelClub/RatesToGo, nor will it allow them to compensate for the possible technology lag they will have behind Expedia's packaging. Building such a team will not be cheap - will likely take a commitment much like the $1mm planned for Planitonearth - but if Webjet wants to be a package/hotel player it will be essential.

UPDATE - m-travel are quoting Webjet as saying that planitonearth is out of beta an into full release. Sounds good except as at the time of this post (30 July) the url planitonearth.com.au is pointing to a "Server Not Found" page. Only way to access planitonearth is via the Webjet site itself. They will need to fix that.

Going going gone for GoVoyages

Accor's GoVoyages was one of the early winners in online travel in France. Was seen as one of the few successful examples of a hotel supplier setting up an independent multi-inventory sales channel. News now that Accor has sold the business for Euro281mm to Financiere Agache Investissement (Groupe Arnault). It is not only another private equity deal in travel but also fits into the management buy-out basket.

Important terms for the deal include the Accor retaining preferred distribution rights forfor three years. Press release also divulges that GoVoyages generated EUR118 million in revenue and EBITDA of EUR13 million in 2006.

Accor's rationale for the sale is clear - in this very competitive environment they need to focus on the core business of owning, managing and running hotels. However I think they might have left this business too soon. The French online market has taken longer than most expected to take hold. Given the earlier successes of online travel in the UK in 1999/2000 it was expected that France (and Germany) would follow suit very quickly. However it took until at least 2005 before the big and small players began to make traction in sales (and profitability) online in France. GoVoyages is one of the leaders here, is profitable and (I assume) is growing. Accor probably feels comfortable with an exit of more than 20 times earnings but given that the market is finally taking off, that Expedia and Priceline are trading at 30 times plus and that the management loved the business so much they wanted to buy it, if I was advising Accor I would have suggested they hold on for a little longer.

Now that is inflight entertainment

Not sure if Qantas has been hearing the criticism over its broken in-flight video on demand (VOD) system. But can confirm that from news reports today there are clearly still ways to have a fun time on a Qantas flight. News.com.au is reporting that a Qantas staffer and Hollywood super-star Ralph Fiennes were

seen exiting the same toilet moments apart.

The staffer denies that anything happened saying that

"I went to the nearby toilet and entered it, he followed me and entered the same toilet. I explained to him that this was inappropriate and asked him to leave. Mr Fiennes became amorous towards me and, after a short period of time, I convinced him to leave the toilet, which he did. I left the toilet a short time later. At no time did any crew member come to my assistance.

so it looks like there are no new entries due in any Mile-High tracking systems.

Poker and Online Travel

There are lots of links I could try to raise between online travel and high stakes poker such as the bluff and counter bluff between the airlines and the online travel agents (witness EXPE vs AA), the big bets being placed by private equity firms in taking out Flight Centre, Travelport, Qantas and Sabre (to name and few) and the hidden aces competition between Sidestep and Kayak where each tries to bring another content play to the table to improve their hand.

I could use all this to justify the poker video below but in reality it just such an amazing piece of video that it deserves to be shown on its own account. It is a clip from a High Stakes poker game involving two of the greats - Daniel Negreanu and Gus Hansen - chasing one of the largest pots ever seen. Watch and enjoy!

BOMST - More green for Sidestep

Sidestep have closed their third round of funding after cashing a cheque for $15mm from Trident Capital, Leader Ventures and Saints Capital. If memory serves this is almost the same size as the previous two rounds (which added to $17.5). Trident has been involved from the beginning but first time they brought in others to share the risk. Sidestep has been very active in expanding their content plays to draw more traffic and improve stickiness. Am sure their plans are that those efforts plus this new money will see them to scale and profitability.

Nostalgic Pan Am video highlights 50 years of standard marketing messages in Airlines

Am engaging in a bit of YouTube airline video surfing (see AA business class post earlier) and came across this one showing highlights of the now defunct Pan Am's Jet Clipper service on its introduction in the late fifties. If you ignore the content (praising the warm food, stable trip and ground breaking overhead lighting), the feel and timbre is exactly the same as the current crop of enhanced business class advertising (see the Singapore Example here). The core marketing message for non-LCC airlines has not changed in almost 50 years. There are no other products I can think of where you can say the same thing. Either the airline industry is immune to culture changes or as much as culture changes we still seek the same things from airline travel (comfort, certainty and escapism) or (as the LCCs would argue) the major airlines marketing departments haven't changed in 50 years.

Very late to comment on Viator.com

Through a happy co-incidence I had a chance to talk on the phone with Viator CEO Rod Cuthbert. If you are not familiar with Viator, they are an Australian based global online destination services company. It has been remiss of me not to talk about them before today.

Founded in 1999 they were one of the first to specialise in non-decrementive destination services (by non-decrementive I mean inventory that does not necessarily related to a specific seat on a specific day to a specific event like Ticketmaster or Ticketek).

Though they have had the early lead, this market is now a much more crowded space with each of the major full service players (Expedia, Orbitz, Travelocity etc) now fully stocked with inventory, old world players like GTA making their extensive inventory available through OctopusTravel.com, the meta-search players attacking the space (eg Sidestep) and new entrants emerging every day such as the recently launched Isango.

I put it to Rod that these (especially the full service players) would present a significant challenge for Viator. I asked him about how worried he was about the advantage that the full service player might have in directing their huge flight volumes into a cross sell path involving destination services. Rod had a couple of good replies - here is what he said:

1. Search Engines: destination specific search engine traffic (ie "Las Vegas Tours", "Jet Boats in New Zealand" etc) favours the dedicated specialists rather than the full service players;
   
2. Purchase Timing: purchase patterns for destinations services are not (with online consumers) aligned with travel arrangement - customers buy destination services at a later time to air and hotel, nullifying the advantage of the full service providers; and
3. Focus: both in terms of the single product and technology focused, but also in their M&A activities including the recent purchase of Vegas based and focused LookTours.
   

On the corporate side they have some good backing with uber PE firm Carlyle and early funding from Australian VC Technology Venture Partners. Rod shared with me that projected 2007 revenues are $65mm and staff numbers are just short of 100. Naturally Viator see their future in an acquisition by one of the bigger players - but not yet. Claim they want to crack the $100mm revenue mark first - so looking for a deal in 2008 or 2009.

Well done to all at Viator (including some fellow Cendant/Travelport refugees such as great Ken Frohling) and best wishes in the battle with the full service players, meta-search and new entrants.

American Airlines new business class

Poor American Airlines. When they are not stranding passengers on the tarmac for hours, or battling Expedia on commissions for distribution, or trying to explain why there is not a single seat on their flights between San Fran and New York that anyone wants to sit in, they have have tried to build some buzz around the impending re-launch their of business class. Here is a YouTube video that has compiled some footage from various sources to try and show what the seats are going to look like.



I wanted to construct a witty comment on this but one of the YT video comments says it all

"Great... now they're only one generation of seats behind Cathay Pacific and Singapore Airlines..."

If you need a reminder about what the new Singapore First Class is going to look like - here is the link.

BOMST- Interview with AsiaTravelMarket founder

After my initial post on AsiaTravelMarket, had an opportunity today to speak with Global Travel Market CEO Dave Simmons on his thoughts about travel meta-search and plans for the company.

You will remember (or not) my initial recommendations to AsiaTravelMarket were to:

• ensure that they added more content/inventory/suppliers to their search results;
• bring a booking engine to the front page; and
• potentially to re-think the name to avoid confusion with the other companies that have the words "AsiaTravel" in their name.

Dave and I had a very constructive conversation on all three of these. He made a couple of good points in reply to my comments which I will share with you:

1. The targeted nature of AsiaTravelMarket (and the sister sites like AustraliaTravelMarket) creates a very attractive audience for advertisers, especially tourist bureaus and CVBs. More so - he claims - than a generalist meta-search companies;
2. The platform is very modular, making it a great vehicle for building white-label sites for customers. Quotes the Malaysian Tourism Office's commissioning of GTM building MalaysiaTravelMarket - opening up dramatically different revenue streams that those accessed by the generalists; and
3. Their competitors in each source market (ie the UK versions of Expedia, eBookers, Lastminute) continue to under-invest in destination information and destination focused services especially in Asia.
   

I agree with all those points (except to the extent that Expedia is trying to more combine its TripAdvisor content and Expedia booking power as evidence by the recent buzz around the "deal" between the two). However I cautioned him on doing too much to target the customers he thinks he wants (very destination focused, very comfortable with multiple paths to information and content, very adept at using meta-search) and potentially ending up a market base that while very niche and lucrative is not large enough to achieve scale. We also agreed to disagree on the brand issue.

On the corporate side he shared with me that they plan to be cash flow positive within six months. Current operations are funded out of angel and founder rounds including and investment from Peter Wade (founder of Travelbag in the UK).

Dave and team have clearly thought through their model and plans. I look forward to hearing more.

EXPE vs AA - its a draw

PR announcement overnight that the brief stand-off between Expedia and American Airways is over. Expedia will again be selling business class and international fares for AA. Here is the (very) brief announcement. Can only assume that Expedia wanted more money per ticket, AA wanted to pay less and they met somewhere in the middle.

Bravo England

A break from our regularly scheduled Travel Program. I shared the Schadenfreude of one of the greatest English own goals of all time so it is only fair that I say Bravo England for beating Australia tonight in a one day cricket match. Here is the final score.

It has taken a flogging in 5 test matches, 3 one day matches, a Twenty20 match and as well as a handful of domestic embarrassments including losing the "unloseable" second test in Adelaide and scoring the lowest one day total (110) in (by coincidence) Adelaide other than a minnow (cant remember if it was Bangladesh or Zimbabwe) for England to find the magic touch and convincingly beat Australia- but they have. Well done to Freddie/Vaughanie's lads.

BOMST - More money for Farecast

Thanks to Techcrunch - fare compare with a twist site Farecast had raised a monster sized $12.1 million in their second round of funding. Still in beta (though it is of course very cool to be in beta), Farecast's claim to fame is that as well as providing fare meta-search it aims to predict whether or not fares will go up or down. Currently covers departures from 75 US cities (all domestic results). Great idea and with more than $20mm raised so far, there is plenty more to be spent making this come true. The VP of Marketing and Product Development has an interesting blog of his own. While it is updated only frequently, you will find a link in my blog roll on the right hand side (or here).

Downside of independent property listings

Nice little legal battle is engulfing some of Sydney's "elite" over desires to list apartments for short term leases (ie a week or so) on online hotel sites. The Sydney Morning Herald is reporting on an imminent court battle between a number of owners of apartments at the AEA Grand building in Sydney's Darling Harbour and the City of Sydney Council over zoning. The owners want to rent out their apartments by the week, the Council wants to stop them and Wotif.com is caught in the middle (according to the SMH article but I could not find a listing on Wotif of the AEA Grand).

Is an example of the regulatory and operational problems that have been hitting a number of the extranet only, flexible data structure online hotel players like Wotif.com, RatesToGo.com and Priceline's Activehotels in accessing and supporting rentals of independent property inventory. It does not take much for a property owner to put up a property for rent of sites like these - a couple of photographs, text, rates and a process for picking up a key. It is hard and expensive for the product/inventory managers at the sites to verify the legality of using the premises for short stay. If lawyer had to be involved in every approach from an independent property then hotel acquisition would grind to a halt. But you cannot ignore this inventory - independent properties are the last frontier of sale online.

The answer is:

• for product/inventory managers to be trained on how to minimise the risks (ie reject private homes, search the web for other listings and yank the property as soon as there is a hint of problems);
  
• to prepare the customer care team with an action plan for dealing with customers that are stung by a lock-out; and
• develop new products for supplier access. The "old fashioned" extranet approach needs to be reworked to support a property that has only one room.