Chief executives of global companies in six industry sectors offer their assessments of the business environment they expect to be facing next year. The interviews were conducted by Editor in Chief Arnie Weissmann.
We expect improving economic strength on a global basis, but the most interesting thing, as a backdrop, is what was referred to as the BRICs [Brazil, Russia, India, China]. By any measure, those four economies are going to vastly underperform the forecasts that were out there, starting almost a decade ago. China had hung in with long-term growth rates, and they have slowed a bit.
We view the U.S. economy as continuing to improve. We see Latin America being spotty: Venezuela has been a disaster. Brazil has had continuing issues and a fairly steep decline, and Brazil’s such a big chunk of the Latin American economy that it matters. We expect Asia to still be the fastest-growing and largest region in the world, both economically and from a travel perspective, but a little bit dampened by the China pull-down. We talk about GDSs being in the 4% to 6% growth range globally, from a revenue perspective, then we think about the growth in Asia being in the 6% to 9% range.
“[Looking at the region that includes] Europe, the Middle East and Africa (EMEA), while the broader Russian economy hasn’t performed all that well, the travel out of Russia has been fairly robust. And we’re seeing modest growth in Europe, kind of in the sub-2% range. Sabre’s been growing there because we’ve grown market share, so we’ve had quarters where we’ve grown as much as 20% in EMEA; but really, the growth in the travel sector is in the very low single digits.
So it’s kind of a mixed bag, but I think the good news is that the travel business is still growing better than gross domestic product in most markets, and the global economy is still chugging along.
GDS performance varies by regional strength. Amadeus and Sabre have been growing market share, Travelport has lost market share. But if you normalize for [share shift], other than regional mix differences, the GDS industry continues to be healthy and growing, on a global basis, in that 4% to 6% range. I think that’s sustainable.
Passenger growth should be up in the 4.5% to 5% range globally, and I think GDSs will keep pace with that.
Unless there’s an alternative that provides a better value proposition, the GDS business should continue to have strength. As it relates to direct connect, there is no clamoring for direct connect. There’s no discussion in the industry that’s got any heft behind it. Most of our airline customers are talking to us very productively about how we can increase revenue through the GDS, how they can sell products and services through our systems and how we can get out to markets around the world and allow them to interact with their best customers in new ways. They need to sell travel in a way that makes sense to consumers, corporations, travel management companies, OTAs and travel industries.
The GDS business should continue to have strength. … there is no clambering for direct connect.
This requires a high degree of technology and investment, and doing it at scale. Suppliers want to distribute products globally in a uniform way in an industry that they also choose to make increasingly complex. Complexity is our friend. I’m sure my competitors think about this similarly. Any new entrant would have to make very, very big investments to be able to get to a value proposition that’s similar to a GDS, never mind one that’s better.
IATA’s New Distribution Capability, which we participated in helping define, allows technology companies to move more quickly to satisfy the needs of suppliers, but the suppliers have to decide how they’re going to use it. The technology is there today, but airlines are still struggling with how they want to deploy their products and how they want to use the standards. It’ll take a while before the standard really gets embedded in the system and you’re able to have a repeatable process to deploy the technology.
The OTA business continues to get more sophisticated, and from a consumer perspective is in many cases outstripping supplier-direct. OTAs around the world are servicing customers in ways that are unique and specific to their target markets. The big-scale players — and I’ll use Expedia and Priceline as examples — are outpacing anybody else in the industry in their investments in technology to make their products better, more responsive and intuitive about how customers are shopping, what they want to look at and how they want to buy. They just become better and better, not just at selling one product but multiple products. I think that’s why they have the confidence to continue to invest and consolidate and run multiple brands. Their organic growth rates are quite good for the scale they’re at.
Uber looked at different partnerships, trying to better understand corporate travel, and TripCase has been a productive channel for them. If you’re a corporation today and have a big traveling population in your company, you likely have a lot of people using Uber, and you really want to capture that data and have insight into what your travelers need. And we think that the GDS ought to be involved, to make sure it facilitates that.
I think the same is true of alternative lodging, whether it’s Airbnb or any other type. At the corporate level, companies want to understand what the opportunities are. We’ve not had meaningful discussions with Airbnb, but we’ve had discussions. It’s not a “direct or indirect?” issue; it’s a “Do you get travel information in one place?” issue. And “How do you use mobility and data and analytics to have a better understanding of what travelers really want, and provision whatever it is?”
We made a couple of acquisitions last year that are meaningful. We acquired Abacus midyear. We still have work to do to make sure that we integrate effectively and get the value that we expected for our customers out of the acquisition. We think we could immediately make that business better, more competitive. We should be able to grow more aggressively. We’re starting from a leading share position, so we bought a terrific business, but one we knew had some weaknesses because of its structure.
Our fastest-growing business is our Hospitality Solutions, by far the leading central reservation system for hoteliers. And we just announced the acquisition of Trust, which we hope to complete here fairly quickly. That’s a business we think can be very, very big.
And in the airline technology business, we released more than 20 products since our IPO in 2014. They’re in areas of personalization, getting a better view of the customer, making data more accessible to airline customers. We’ve built a very strong pipeline behind those new products, and we’re signing hundreds of millions of dollars in contract value and in a relatively short period of time.
I think the big thing we need to keep our eye on is that the industry uses technology really well, but travel is experiential, and not much has changed around the experience itself. The big promise of mobile, of data and analytics to help people understand their customers better, and the ability for customers to give information, real-time, to suppliers and their travel management companies, those things, over time, should transform the experience. We certainly see consumers purchasing from a mobile perspective, but we have to step back and ask, “Has it made the experience of travel better?” I think there’s big promise there and, with our investments in mobile, we’re looking at things like TripCase to provide better insights to suppliers and travel management companies. I think that’s the better shot at being able to transform the experience, and I think that’s the next big competitive landscape for suppliers as well as for travel management companies.