As its pace of revenue growth slows, travel-tech player Travelport needs to diversify beyond distributing airline tickets. Rental cars are one bright spot. It is gaining traction thanks to a new deal with Hertz.
Global distribution systems traditionally made their bones distributing flight information between airlines and travel agents, but Travelport has been hellbent in recent years on trying to go way beyond mere airline distribution.
In fact, the Langley, UK-based company wants to increase its share of non-air revenue to a third by 2020, up from 27 percent in the third quarter. In the September quarter, Travelport’s “beyond air” revenue, which includes its eNett payment-processing subsidiary, rose 11 percent to $169 million.
One positive aspect of Travelport’s non-air push is that it is gaining momentum in car rental sales. The company announced a deal with Hertz to make the rental car giant’s full worldwide inventory of rental vehicle rates, including prepaid rates that once were only available on Hertz’s own website and mobile app.
Travelport sold 29.8 million rental car days in the third quarter, up 16 percent from the previous year.
The prepaid rates had been a sticking point in negotiations that were overcome thanks to Travelport improving its technology for displaying branded content. Earlier in the year, Travelport renewed a similar agreement with Hertz’s global rival, Avis Budget Group.
This summer Travelport also signed deals with fast-growing European brand Right Cars.
To keep those deals and add more, experts said Travelport will need to further enhance its merchandising capability to help those chains sell ancillary products such as satellite navigation tools, flexible booking products, insurance, electronic toll payment devices, and class-of-car upgrades.
In an interview, Travelport president and CEO Gordon Wilson chalked up the growing pace of car rental bookings to technology investments that would enhance merchandising for partners.
He also credited improvements in the booking path that travel agents use. In that regard, Travelport this summer entered into a long-term agreement with Mobacar, an Irish startup specializing in artificial intelligence applications for travel industry, to help predict the type of rental car customers would prefer after they’ve bought a flight.
Some of its travel agent partners, such as Expedia, have also improved their ability to sell rental cars, which has also led to more transactions. Several of the online travel agencies Travelport work with are primarily sellers of airplane tickets, and as they do work on their end to take advantage of Travelport’s rental car and hotel offerings, they may see higher upsells of the product.
Travelport, whose core business is as a middleman-reservation system for 68,000 offline and online travel agencies, continues to look to balance its portfolio by distributing products beyond airfares and in growing its payments business.
The majority of its revenue is from airline-ticket and ancillary-services distribution. Among its online travel agencies customers are India’s largest player, MakeMyTrip, and Traveloka, Indonesia’s fast-growing travel company.
In the third quarter, Travelport’s net revenue rose 3 percent year-over-year to $611 million.
Payment Processing for Travel Agencies
Roughly half of Travelport’s “beyond air” revenue came from its majority-owned eNett subsidiary, which processes payments for agencies. In the third quarter of 2017, eNett saw net revenue growth of 30 percent year-over-year to $54 million — with a forecast to grow 20 percent for the full year compared to 2016’s numbers.
The other half includes hotels, rental cars, and rail. The company’s revenue from hotel distribution in the third quarter grew only about 4 percent compared with the previous quarter.
Tours and Activities
Why hasn’t Travelport added tours and activities, in light of how other business-to-business distribution platforms like FareHarbor, Palisis’s TourCMS, and Hotelbeds have been growing significantly?
Wilson said, “We’re working on it. One of the things we’re looking at is how to make money out of it given it tends to be a low-margin product. We also believe the sales will mostly happen in mobile apps for travelers rather than at the desktop when agents do the flight bookings. Eventually, we would like to sell in-destination product, including rail, via new mobile apps that we plan to roll out.”
Travelport had weaker-than-expected profits in the third quarter. Its net income was only $5 million, down 78 percent from the year prior. About $13 million of the $17 million decline, year-over-year, was due to higher tax bills as the company shifted to new markets and lost some tax benefits.
The company’s free cash flow, a metric closely watched by investors, declined 26 percent year-on-year to $63 million for the quarter. Executives said the issue is a blip and that their guidance for the company ending the year with at least $165 million in free cash flow is unchanged. But the company’s free cash flow growth estimate for the year has been more than halved since its 2016 forecast.
Investors were displeased, shaving about 8 percent off the stock’s value by the close of trading on Thursday.
Travelport said its beyond-air products are growing at a nice clip. It said its rate of attaching non-air products to air sales is 48 percent — up several percentage basis points from a few years ago.
To get to a long-term rising pace of growth, Travelport would need to push that higher to meet its diversification and revenue goals.
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Photo credit: Hertz is bringing its inventory to Travelport's 68,000 agents and many online travel agency partners. Hertz