Travel Tech CEO Series: Travelport Is Doubling Down on Its Payments Business and on Distribution, Too

Editor’s Note: This year we expanded our coverage of the technology companies that do the behind-the-scenes work of powering the technology systems of the world’s major travel companies.

We’re sitting down with a handful of industry leaders for our new Travel Tech CEO Listening Series to discover where they think the industry is heading.

Travelport, a Langley, UK-based enterprise software company, provides a lot of e-commerce services to the travel industry.

But it is perhaps best known for being one of the world’s four major middlemen of airplane tickets, along with Amadeus, Sabre, and Travelsky.

Airlines distribute their fares via these so-called GDSs, or global distribution systems, which provides booking platforms for tens of thousands of travel agents and online travel agencies worldwide.

In June 2011, Gordon Wilson became the company’s president and chief executive. At the time, the company was backed by private equity group Blackstone, which had bought it for $4.3 billion in 2006.

In 2014, Wilson successfully guided the once heavily indebted company to an initial public offering.

Like its peer companies, Travelport wants to diversify beyond its distribution business, which — while still a cash cow — is facing pricing pressures on several fronts. Its most successful diversification effort is with eNett, a business-to-business payments service that is growing rapidly.

In his first interview with Skift, Wilson discusses his plans for the travel marketplace company and his view of what’s next for the industry. (The interview has been edited for brevity and clarity.)

Skift: What’s next for Travelport?

Wilson: Last year we did about $2.34 billion of revenue. Our plan is by 2020 that we’ll be a $3 billion company.

We’re going to get there through investment in becoming the market leader in digital corporate travel solutions through the various investments we’ve made in our facilities in Ireland and Australia.

We’ll also get there through continuing to be the market leader in commercial payments in the travel industry through eNett, which is growing fast.

Skift: Let’s say you were sitting on an airplane, and you struck up a conversation with an investment banker who was sitting next to you. As you chat, she is trying to get a sense of Travelport’s position. How would you explain the apparent disadvantage you have in size to your competitors? Travelport has a market capitalization equivalent to its revenue run rate or less of about $1.6 billion.

All of your travel commerce platform competitors have larger market caps. Travelsky is at $2 billion; Sabre is at $6 billion; Amadeus is at $20 billion. How are you able to manage maneuverability and be able to maintain your global average market share in the air GDS business when you have the smallest market cap of the bunch?

Wilson: First of all, never strike up conversations with merchant bankers on planes.

Skift: And she would have asked a more sophisticated question than that, in real life.

Wilson: Let me try and answer your question, which is a totally fair one.

First of all, market cap doesn’t govern your position to invest in your business. It is just a reflection on any given day of how Wall Street sees the value of your company, and of course, the market cap doesn’t talk to enterprise value because to get to enterprise value you have to ask how much debt that the company has as well, minus cash. We have an enterprise value as a company of more than $4 billion.

The most important point here is the ability to invest. It’s your results and the cash that you generate which enables you, the business, to invest or not to invest in your company.

Now, as a business, and given what we disclose publicly and also what our competitors disclose, I can tell you, for example, in 2016 alone, in distribution, which is the largest business we do, we invested about $170 million in 2016 in CapEx (capital expenditure) in our platform, whereas one of our leading competitors, one of the companies you’ve mentioned, that you list there, invested on a comparative basis about $98 million in their distribution platform.

So we’re investing near enough 2x more than our competitor is doing in distribution. And that has been the case, incidentally, since about 2012, when we first started issuing this kind of data.

That is not to say that the competitors you’ve mentioned don’t spend more overall capital dollars than we do because they all do. But those dollars mainly go into their airline IP solution businesses, i.e. the reservation systems. And those are very capital-intensive and indeed labor-intensive businesses.

But to be frank, except for what we do for Delta and Emirates, we don’t have a dog in that race. We’re not really an airline IT solutions provider in the sense of providing a multi-host airline hosting system.

There’s nothing wrong with those businesses, they’re fine businesses, but they’re very capital-intensive, much more so than distribution.

We focus on distribution. We’re investing considerably more, and have been, than the competitors. And that’s why if you look at why we’ve been successful in mobile, why we’ve been successful in payments, why we’ve been successful in merchandising. We’ve been out-investing those competitors in those areas for the last four or five years now.

Skift: You mentioned that distribution of air content via travel agencies is Travelport’s main revenue driver. In early April investment analysts at Credit Suisse released a 100-page analyst investment report on one of the other players I mentioned. It was talking about the larger strategic landscape, and it was very concerned about middlemen like your company being disintermediated by the airlines, who don’t like paying third-party distribution fees.

Now every year since you took this job as CEO and president, you’ve answered questions about the potential threat of disintermediation, and it’s always turned out to be overblown. Some analysts now feel that the threat may be different and more real today. Lufthansa, and then in March Ukrainian International, have added surcharges to bookings made in the GDS channel to try to encourage direct bookings.

If some major airline groups do shift share out of the GDS channel, the decline could happen faster than the four major players would be able to make the shift to their other new business units. Is there anything to this larger issue about full-content agreements possibly evolving, etc. that you can comment on?

Wilson: First of all, I don’t see a major shift away from the channel because the GDS channel, if you want to call it that, or the travel commerce platform channel.

Bookings made through travel agencies, TMCs and the like, are still by far and away, the highest value products that airlines sell. The average ticket value sold through the GDS channel, through the TMCs etc. is way higher than the average ticket value sold directly by airlines.

Of course, there’s a reason for that. That’s because the customers that are being serviced by TMCs or high-end leisure agencies, etc. are not buying the $90 back-end-of-the-bus tickets.

So I think if you look past the Lufthansa surcharge, it’s not causing a major shift out of the third-party channel at all. There’s maybe some marginal movements in Germany for marginal players, and I don’t see this as being a different set of circumstances this time around.

When you push back on most airlines, you talk about connecting with IATA’s New Distribution Capability, etc. and when you ask them some rather perfunctory questions about how you’re going to manage changes, how you’re going to manage schedule change, how you’re going to manage ticketing changes, etc. there is kind of a blank look on their faces, in terms of having definitive answers.

Now that said, we are still the only GDS now certified by IATA as an aggregator of content. So we embrace the ability if the airlines want to connect to us in different ways.

Again, to my earlier comments amount merchandising, that’s exactly what we did when we rewrote our platform some years ago now, which has given it its market leadership position.

Which plays into the second part of your question, which is full content. Full content as we knew it is already a thing of the past because full content used to be making sure that the GDS had the same fares and the same availability as the airline’s’ direct channel.

But now it’s not just a question of that. It’s a question of having all the same ancillary products for sale, having all the same fare families for sale and the way that those products are displayed and shown.

Again, in our particular case, as Travelport, we’re the market leadership position there, not just against our mainstream GDS, but against everybody else in the marketplace today.

Skift: You mention investment. How successful has Travelport’s investment been, given that the company is the smallest of the four?

Wilson: We are growing by leading in the speed and quality of our search and shopping product. We’ve got over 210 airlines implemented today in our system who have the full ability to show all of their merchandising content, all of their fare families, to agents. We include low-cost airlines like Ryanair and EasyJet, and major carriers like American and so on.

We believe that that is at least four times more than any other of the mainstream GDSs, whether that’s Amadeus, Sabre, or Travelsky. That’s 210 airlines that display their branded fares and ancillary content in a graphically rich, visual way to agents. Those 210 airlines cover over 60 percent of the volume we process as a booking system regarding airline content.

The reason that we are so far in advance, in all honesty, is because we saw how the market was changing earlier than the other guys did, and we invested in our platform to enable us to take the content in, first of all through APIs and other sources.

Secondly, we changed our point of sale capabilities to enable that content to be shown and displayed and consumed by the travel agency community. And the last way, which is in place now also, in real traction, is all of that content is available to the APIs (application programming interfaces) we provide to online travel agencies and corporate booking tools and the like. All that content can be made available through their applications, direct to the consumer.

Skift: Travelport has claimed a 48 percent attachment rate of non-hotel content to air products sold by agencies using its desktop reservation systems. Why is that significant in the broader competitive context?

Wilson: So the attachment rate speaks to our broader goal is diversification beyond air bookings. Our beyond-air business last year was $518 million in revenue. That was up 18 percent year over year, but it is up from about $218 million of revenue when I took over as CEO of this company in 2011.

We’re well on course for achieving $1 billion of beyond-air revenue by 2020, which will be a third of our $3 billion that we’ve set ourselves as a target.

The 48 percent non-hotel attachment rate to air bookings indicates two things.

First, we’ve got better and deeper content than our competitors. So we in Travelport have got not only chain hotels, with all of their corporate negotiated rates, but we’ve also got the ability to show and book the independent hotel sector, which characterizes the European and the Asian market base, with corporate negotiated rates.

And the second element is that we’ve been investing considerably in our point-of-sale capabilities, including the agent user experience, and our API to enable this hotel and car rental combo.

Skift: At a recent Travelport customer conference, executives said your company is the fourth-largest hotel distributor after Priceline Group, Expedia.com, and Ctrip. Really?

Wilson: Some of that content comes from those sector household name players. So, through our Rooms and More capability, we have content which is delivered to us from Booking.com, from Agoda, from Expedia, from about 25 other hotel aggregated and bedbanks. Alongside all the traditional chain hotel content that we’ve always had in our GDS from the Hiltons, InterContinentals of the world, etc.

Then alongside that is what we get through our Hotelzon capabilities, which is where we run our extranet out to hotels, particularly in Europe, inclusive of corporate negotiated rates with them. So you add all those elements together, and I think we’ve got unsurpassed hotel content.

Skift: An important growth area is your payments business, eNett. In February 2007, Travelport reported a 64 percent net revenue increase to $150 million for the eNett business. What’s driving the growth there?

Wilson: The eNett acquisition has been a super success story for us. Just so you know, eNett has been EBITDA cash flow positive, has contributed to Travelport, since 2013. So the fact that it made $150 million of revenue last year, a 64 percent increase as you mentioned, is great.

It’s just down to eNett gaining more customers. We’ve integrated its solutions into Travelport’s point of sale, for our travel agency customers.

We have a lot of eNett customers who specialize in hotel bookings, and they’re using eNett on the merchant-model basis, which is where the consumer pays $100, and the agency is remitting $80 to the hotel, and eNett has been used for that $80 remittance. The merchant model, which as you know, is growing like a week, particularly in EMEA and Asia/Pacific, and eNett’s main markets are indeed EMEA and APAC, so we’re in the right place at the right time as payments in travel become digitalized, if that’s a word. And we are, we believe, the market leader in this space.

Skift: Is there sort of a defensive moat around the eNett business, because I’ve talked with WEX, which has a travel practice Worldpay. Citcon. Conferma sort of. How defensible is eNett’s position?

Wilson: If eNett ever stands still and stops innovating, stops adding capability, stops adding product, stops adding currencies, then, of course, that would be a bad. But that’s not going to happen. We’re investing and plan to expand the product range that eNett offers.

As you said yourself, some of the companies you mentioned are alive in the B2C space, and the B2C space is super competitive to new entrants. Apple Pay, Google Wallet, to add to the list you’ve already mentioned.

And we’re not in that space. We’re firmly in the B2B space, which is ripe for change. It’s a massive market. We calculate that the total addressable market in B2B payments in travel as being about $800 billion.

So the fact that there are a couple of other players here in this space, you mention WEX is one of them, there’s a big enough market to go around.

We are greatly aware of the fact that we’re barely scratching the surface of the market opportunity that’s there.

We think that our product set, the integration of the products into the Travelport platform, the level of currencies that we do, the quality of our customer service, the quality of the data reporting, and other things that we do will enable us to continue the momentum that we’ve seen in this business for the foreseeable future.

But we’re not going to stand still.

Skift: Corporate venture capital and incubator accelerator programs have gotten very “buzzy” in travel now with several different companies experimenting with them. The Denver-based Travelport Labs accelerator graduated its first class of travel startups in spring 2016. How does it fit in the context of the larger company?

Wilson: We develop a lot of innovative things in Travelport, but we’re also not stupid enough or arrogant enough to think that we come up with all the good ideas.

Running a Lab program whereby we look at some startups, we put them through a program and give some investment dollars for their business, has proven so far to be successful.

About 80 percent of the ten who have graduated the program are still in business. Two of the startups have completed a funding round. And four are actively raising money as we speak. One has already gone profitable, and a couple of the other things the Labs have cooked up have driven products which Travelport has since incorporated.

One of the most interesting to me is a product that enables booking and reservation of chauffeur drive services. Analogous to what we do in car rentals. And that product is now out and live in South Africa, where there’s a big market for this kind of thing because people don’t take taxis in South Africa. And that came out of the Labs, and it’s going extremely well.

And a second one out of our Labs program, we are testing an integration of one of the startups’ services, a mobile app to enable airlines to deal with disrupted passengers.

Whereby, occasionally the airlines got a problem with weather, storm or whatever coming so they have to hotel program people. The new service enables travelers to book themselves into a hotel electronically without having to deal with the trouble. Don’t have to stand in line or wait for a voucher or whatever else goes on.

Of course, it can offer different passes hotels to different classes categories of their customers, the best hotels to the more frequent flyer, valuable customer, and so on. That’s now in test.

Skift: We don’t want to get bogged down in the financials, but the one question that did catch our eye was at the IPO in September 2014, you told reporters that you had to plan for paying down debt at Travelport. How is that on track?

Wilson: We’ve been absolutely on course, in line with everything we told investors since we IPO’ed.

To give you an idea, before our IPO, we were 6.5 times levered in 2013.

Post-IPO — and all the proceeds of our IPO were used to pay down debt in the company we reduced that 6.5 times leveraged to 4.2 times. And then by the end of last year, we were 3.8 times leveraged.

And we paid down about $74 million of our term loan debt in 2016. We’ve also repriced our debt twice, which means we pay less interest, and we’ve been able to get a lower interest rate because of our performance as well as market conditions, to be fair. Because we’ve got better ratings from S&P and Moody’s.

And what we’ve told the investors is that our goal is to get ourselves down to around about three times levered in the next couple of years.

And then after that, take a pause as to whether we do other things with our cash. Search out increasing our dividend or doing stock repurchases, or whatever.

What I’d also tell you is that, debt aside, the overwhelming priority for this business continues to be using our capital to invest in our products and our capabilities, some of which we’ve talked about already: airline merchandising, hotel and car content, our payments business, and then the digital stuff we’re doing around mobile and corporate travel as well as search and shopping and API.

Skift: Back to the airline distribution business, which is still the core. There are several airlines in the next few years that will have their contracts coming up for renewal or that are not currently associated with GDSs, and that might be able to come on board, like low-cost carriers. In light of the lost lawsuit by one of your competitors, Sabre, versus American Airlines’ owned US Airways, this past winter, there is speculation about contracts. There’s talk in the industry that “full content” distribution agreements between airlines and GDSs like Sabre may be replaced with different agreements. If so-called “full-content” distribution agreements with airlines evolve into something less than “full content,” logic dictates that Travelport and its peers would have to give up significant pricing to keep all of the content — or else not have received as much content, which would make it less attractive to travel agencies.

Wilson: Apart from what I said about full content, I think that full content is almost now, as it used to be defined, is becoming an out-of-date concept, in all honesty. Because full content, in my mind, now has to include merchandising, ancillaries, all the fare families, and so on, not just the rudimentary fares and availability.

So we, like every company in our space, we have some long-term airline agreements that come up. I’m not sure that all get renewed in exactly the same way that history has dictated. But I’m very confident that we will continue to be a major source of high-value transactions and air fares for the airlines, and that we can clearly demonstrate the value that we bring.

Skift: It seems like Travelport is particularly well positioned in the African market, and perhaps number one among its peers regarding share. Is that a strategic move?

Wilson: It’s strategic because you see huge new traffic flows, particularly from Africa to Asia. There’s a lot of inward investment into Africa from Asia, and from China in particular. Therefore a lot of traffic is being generated.

We’re all waiting for the African Century to come about, as Africa grows. It’s a huge area of resources. There’s obviously some issues around how some of the countries in Africa are governed. Some of the bigger economies there have got massive potential. And so we continue to be a big player and to grow there in Africa.

That said, Africa is not growing for us as fast as Asia, where we’re gaining more share and traction. To give you an idea, in Asia/Pacific we’ve grown in 2014 by 8 percent, in 2015 by 15 percent, in 2016 by 12 percent.

We are also rapidly growing in key markets like India, which this year will be the second biggest GDS market for air bookings in the world, after the United States.

So India is now bigger than Germany and so Asia/Pacific is a massive strategic and high-growth market.

Africa is also strategic. It’s not as big a market as Asia, but it’s clearly linked into the ecosystem, in particular, because of the investment flows from Asia into Africa.

Skift: Which CEO in the world has inspired you and what is something you learned from their example that informs how you do your job?

Wilson: Frankly I admire most CEOs since this is not an easy job! I have been the fully fledged CEO of Travelport now for five years, and I observe and learn from a whole variety of other leaders.

In the travel space, I am a big fan of Carolyn McCall at easyJet, Michael O’Leary of Ryanair, Tim Clarke at Emirates, Richard Anderson and now Ed Bastion at Delta — in addition to Chris Nassetta at Hilton and Richard Solomons at InterContinental Hotels.

All have transformed and continue to transform their businesses whilst having the longevity to see the results of their decisions come through and to be accountable for them – and their batting average is pretty good!

Check out other articles in Skift’s Travel Tech CEO Series, including interviews with the CEOs of Amadeus, Sabre, and Travelport.