Morningstar | Amadeus' network and efficient scale advantages intact, but awarded too much credit from investors.
We expect Amadeus’ leadership position in global distribution systems to grow over the next several years, driven by its leading network of airline content and travel agency customers, as well as its superior position in technology solutions for these carriers and agents. Among the top three operators that control nearly 100% of market volume, we expect Amadeus' share of GDS bookings to approach 43% by the end of this decade, up from 42.2% in 2017, and its technology share of passenger boardings to be high 40% by 2020, up from 42% in 2017.Amadeus’ GDS enjoys a powerful network effect. As more supplier content (predominantly airline content) is added, more travel agents use the platform, and as more travel agents use the platform, suppliers offer more content. This network advantage is solidified by technology that integrates GDS content with back-office operations of agents and IT solutions of suppliers, leading to more accurate information that is also easier to book and service the end customer with. Additionally, Amadeus’ January 2016 acquisition of IT company Navitaire stands to further expand its GDS network advantage through new airline customer integration, as Navitaire focuses on low-cost carriers while the company’s existing Altea division focuses on full-service carriers.Replicating the company's GDS platform would entail aggregating and connecting content from several hundred airlines to a platform that is also connected to travel agents, which requires significant costs and time. As a result of these barriers, three operators--Sabre, Amadeus, and Travelport--form an oligopoly in the GDS market, and we think they enjoy efficient scale, which is evident in the limited traction that airlines or travel agents have had in bypassing this distribution platform.The main risks to Amadeus and the GDS industry are technology advancements that increase the ease of booking travel directly through supplier websites (disintermediation) or through direct connections between suppliers and online travel agency platforms that bypass traditional travel agents that use the GDS platform.Amadeus is a transaction processor for the global travel and tourism industry. Co. provides transaction processing power and technology solutions to both travel providers (including full service carriers and low-cost airlines, hotels, rail operators, cruise and ferry operators, car rental companies and tour operators) and travel agencies (both online and offline). Co. acts both as a worldwide network connecting travel providers and travel agencies through a processing platform for the distribution of travel products and services (through the Distribution business), and as a provider of a portfolio of IT solutions which automate certain business processes (through the IT solutions business).
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