Gnomes in Citi's Future?

Bloomberg reported today that Citigroup CMO Michelle Peluso (and former Travelocity CEO) has hired former Site59 and Travelocity co-conspirator Tracey Weber away from Barnes and Noble.

Tracey joined BN.com only in April after leaving Travelocity where she was COO.

The Gnome never sleeps......

Tracey Weber Trades Gnomes for Tomes

Long-time Travelocity (and Site59) executive Tracey Weber has been appointed EVP Textbooks and Digital Education at Barnes and Noble.com (www.bn.bom)

Tracey Weber is one of the last Site59.com senior executives still with Travelocity. We expect that getting back to New York City was a key driver of Tracey's decision. No immediate successor has been named.

Pay Now or Pay Later: A New Choice at Priceline - And the Next OTA Battleground?

Priceline.com has begun including "pay-at-checkout" inventory alongside traditional, "pay-in-advance" merchant model hotel inventory at select hotels. Priceline has developed a jazzy new logo and tagline: “Pay When You Stay” to highlight this option.

Users are then given the option of paying upfront or at time of booking when they click to select the hotel.

And this isn't a matter of simply including traditional agency inventory sourced via a Global Distribution System (GDS) such as Sabre or Travelport. This stroke of genius is actually the latest convergence of booking.com inventory with Priceline.com non-opaque (i.e. Travelweb) inventory.

Booking.com's rapidly expanding inventory base within North America now enables Priceline to offer multiple sources of inventory with multiple payment options for the same hotel. At the same time, as more hotels roll out, Priceline has removed one of the largest perceived negatives to booking with an OTA - upfront payment.

The gap between supplier.com and online travel agencies continues to close. First booking fees fall, then change and cancel penalties disappear and now this latest game-changer.

Travelocity Shakes Things Up

Travelocity just announced the departure of Paul Nelson who is leaving the company at the end of the year. Filling his shoes as President, Global Partner Marketing is long-time Travelocity vet Noreen Henry. Noreen has most recently been VP of North American Hotels and Packaging.

Noreen's step up to the big chair created the proverbial domino effect and allowed Leslie Harris to step into Noreen's role. And filling Leslie's former role as VP of Travelocity Business will be Yannis Karmis who currently heads Sabre's global customer care team.

Nice to see some great people get promoted and a company with solid succession planning in place.

Gilliland: What Airlines Need is a Chief Merchandising Officer

Sabre Holdings Chairman and CEO Sam Gilliland, speaking at the Beat Live in Austin this morning, suggested that airlines need to appoint a Chief Merchandising Officer in order to manage the continued onslaught of new fees (or revenues depending on your perspective) that the airlines themselves are developing.

We agree and think this is a great idea. To date, while airlines have been highly inventive in coming up with new fees (e.g. Delta's fee for redeeming miles on Skymiles partner airlines - even when completed online - which is thankfully going away on October 1st) there has been limited creativity in actually marketing many of these fees and add-on services online or on board. Most efforts have centered around in-seat materials or website messaging.

I believe a truly integrated (pan-airline i.e. during the booking process, after booking, at the airport, on board and maybe even after the flight) and creative (mobile anyone?) effort by the major carriers could not only take some of the sting out of these fees but could also result in further growing these revenue streams...

We'll see if the airlines can innovate beyond asking consumers for their wallets...

AA to change out engine mid-flight

Ed Silver, partner at Hudson Crossing here. While Tom is on vacation drinking Ouzo in Greece, I've taken the liberty of stealing the keys to the blog. Please don't tell Tom when he gets back.

Today, as reported in " The Beat ~ a travel business newsletter" AMR Corp has signed a letter of intent with HP's EDS division to implement a new platform for "reservations, pricing and ticketing, inventory, flight information and check-in." AA will be migrating away from the system it first helped create along with IBM five decades ago.

Hudson Crossing will be pondering the impact of this news for a while, but an airline moving platforms is like brain surgery on the wing of a 747 in a thunderstorm trying to land at LGA! It is no easy task and AMR is to be applauded for this forward thinking change.

More to come soon on the reasons behind this, and what we think it means for customers of AA.

Delta: Ooops, we forgot the fuel surcharge: Crazy deals to Europe!

Last night, Delta uploaded a host of new fares for Central and Southern European destinations including Madrid, Zurich, Athens, Barcelona and the like. In so doing, however, they managed to leave off the $200 fuel surcharge making for some outrageously low airfare deals.

For example, JFK-Zurich in August for $233 including all taxes and fees. Similar deals were to be had to Madrid and Barcelona - the taxes alone to Europe these days are often over $100. Athens was a bit more but who is going be bothered paying $400 for a ticket to Greece in the peak of summer?

How did this happen you may ask?

Airlines file or load international airfares from their internal systems to a distribution partner known at ATPCO or the Airline Tariff Publishing Company. ATPCO is owned by most of the major airlines and serves as a central "hub" for fare (but not inventory) distribution to the major Global Distribution Systems (GDSs) such as Sabre, Travelport and Amadeus. ATPCO sends international fare changes to the GDSs five times per day where it is processed and made available for sale. Travel agents (everyone from Amex to Expedia) can access the airlines fares, schedules and availability directly from the GDSs.

Airlines send two pieces of data to ATPCO with each load: Fares and rules. The fares are fairly self explanatory - a basic dollar amount for each specific fare product. The rules get more tricky. This is where each fare product is defined - things like Saturday night stay requirements, advance purchases, etc. Also part of the rules section is, you guessed it, fuel surcharges. In last night's load, Delta inadvertently left of the $200 fuel surcharge for these fares. ATPCO dutifully uploaded the fares to the GDSs and voila: Cheap tickets to Europe!

And, yes, the deals are still out there as of this posting - but dont expect them to last too long - you can be sure Delta is taking steps to correct their mistake....

New EXPE Board Member - Chairman of Amadeus - really!

In a small 8K filing late last month, Expedia added Jose Antonio Tazon to the Board of Directors. Tazon replaced Expedia long-time insider and fellow European Simon Breakwell who left the board.

Breakwell leaving isn't particularly interesting aside from the fact that he was one of the "old guard" from earlier times - he joined the company in 1997.

But the Chairman of one of the big three GDS systems joining the board is interesting indeed. Clearly, Tazon brings a wealth of European knowledge and insight to Expedia - which could be crucial as Expedia continues to slug it out with the likes of booking.com in particular. Amadeus also brings deep experience in serving both airlines and travel agents alike.

But Amadeus' market strength comes from the European Markets - not North America where Expedia's strengths lie.

Amadeus, on the other hand, unlike Travelport and Sabre, has limited experience in the direct-to-consumer online travel agency space. From a consumer marketing standpoint, clearly Expedia sets the bar.

We doubt this is a prognostication of further consolidation within the travel distribution space (yet) but Expedia and Amadeus certainly have plenty to learn from each other.

Delta joins AA in Suggesting that OTAs and Travel Agents Should Pay for Content

If you listened to Delta's Q1 earnings call this morning, you heard some interesting commentary on the future of distribution according to Delta.

DL management echoed American's CEO's suggestion on their call last week that the time would come when OTAs and agents would pay the airlines for their content. Interesting how the airlines can have these "open" discussions in their earnings calls, isn't it? We've been following the commentary over on Dennis Schaal's blog but this was too rich to pass up without a few thoughts of our own!

Of note, DL stated that "TMCs have an important role to play" and seemed to imply that their main target was the OTAs particularly when DL described the "value we provide vs. others" online. Maybe so, Orbitz's Price Assurance which offers consumers a refund when fares decline seems like a pretty good value. The same can be said for the multitude of air+hotel packaging options that the OTAs provide to consumers. And many consumers would also vote Orbitz's TLC in-route support to be far superior to many airline's offerings. And multiple airlines? Try booking a multi-carrier trip on Delta.com or Continental.com. OTAs are all about offering consumers choices and comparison opportunities - things they do quite well.

More interesting, however, was the suggestion that "OTAs should pay for [airline] content the way they do for hotels" Hmmmm. Obviously, someone at Delta has not taken a quick look at hotel distribution costs - nor drivers of OTA profitability. Newsflash: OTAs don't make any money selling airline tickets! They make it selling hotels. And they don't pay hotels - quite the opposite. Can you imagine the horror if someone at Delta knew that many chains are paying Expedia/Travelocity/Orbitz in the mid-teens for distribution? And what of independent hotels? Considerably more.

And finally, DL mentioned that Delta.com was driving ~ 37-38% of Delta's revenues - great news indeed. But they also estimated that the OTAs were providing in the area of 30% of Delta's revenues - wow is all we can say on that one.

Travelocity to match Expedia on no booking fees

Today's Wall Street Journal is reporting that Travelocity will announce they are matching Expedia in removing booking fees for published airline tickets until May 31st.

As we previously posted, we don't think the removal of booking fees at Expedia (or Travelocity) is a temporary promotion anymore than it was for Priceline and Hotwire. Adding fees back in is hard - really hard.

It has taken Travelocity a week to digest this dramatic change in the landscape that has occurred and now they have gotten on board. And now Travelocity has matched Expedia - reminds us a little of how the airlines all miraculously match fares and add-on fees. This is a seismic change for the OTA industry - Expedia has put all of their chips "in."


Orbitz will be forced to match the fee reduction as well - the customer overlap is now just too large to ignore. According to Nielson/Net ratings data from 2007, well over 50% of visitors to Expedia also visit Orbitz or vice-versa. We doubt that some of the airline product innovations that Orbitz has developed (Orbitz TLC, Orbitz Pricematch) will be enough to convince finicky customers (just look at those retention rates!) to book with Orbitz vs. Travelocity or Expedia. If only Orbitz had spent as much time working on hotels as they have on air......

January US Airline Agency Sales off 25% - demand plumets faster than airlines can remove capacity

The Airlines Reporting Corporation (ARC) has posted January US travel agency sales and the numbers are, in a word, shocking.

A bit of background first. ARC is a company owned by the major US airlines that facilitates payments between the airlines and all travel agencies (including OTAs such as Expedia et al). If a ticket was bought at a travel agency in the US, the revenues flow through ARC. Airlines' sales outside the US, as well as their own airline.com (e.g. delta.com, aa.com etc) revenues do not flow through ARC. Roughly 50% of US airline revenue is handled by ARC and it skews heavily towards business travelers.

The raw data is here but year over year, actual ticket sales numbers plunged by nearly 25% while revenues plunged by an even greater amount - nearly 27%. This is one of the first indicators we have of what is to come for the airlines now that the holidays are over and the true recession has set in. Most analysts have pegged capacity reductions at around 10% year over year - revealing a great chasm is opening between demand and capacity.

Indeed, the carriers' worst fears are being realized - demand is falling faster than they can reduce capacity. Things were not supposed to work out this way.

These declines are also telling for the Global Distribution Systems (GDSs) . Galileo, Worldspan (both owned by Travelport), Sabre and Amadeus are no doubt seeing similar declines in airline segments as nearly all of ARC's revenue is delivered by the GDSs. With their heavy debt loads from their privatizations, things may get interesting quickly for Sabre and Travelport.