Morningstar | Travelport Take-Private Offer Doesn't Fully Appreciate Its Network and Efficient Scale Advantages
Travelport received a take-private offer from asset managers Siris and Elliott management Dec. 10, 2018, for $15.75 per share plus $2.4 billion in debt. The transcation includes a "go-shop" provision, allowing the company to seek out other bids until Jan. 23, 2019. The existing bid is scheduled to close during the second-quarter 2019 if approved.We expect Travelport’s global distribution system, or GDS, revenue share to remain stable at around 30% the next several years, driven by a solid position in fast-growing areas (payment, hotel, air merchandising, mobile, international traffic) fostered by a strong technology platform. However, the company is not focused on providing IT services like inventory and reservation management, which are more capital-intensive than the distribution business but also offer higher margins and growth opportunities, in addition to switching cost barriers.Travelport was the first GDS company to move from the legacy green screen technology to more innovative technologies, which has allowed it to offer modern content (airline merchandising) and services (hotel content, payment, mobile) on its platform.Travelport’s distribution platform enjoys a network advantage, as increased supplier content encourages more travel agents to use the platform, and as more travel agents use the platform, suppliers offer more content. The firm aims to solidify this network advantage with continued development of its leading technology and product offerings.Replicating the company’s GDS platform entails 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 (Travelport, Amadeus, and Sabre) control 98% of the GDS market, and we see these players enjoying efficient scale.One key risk to Travelport and the industry is disintermediation--customers booking directly on airline websites, a headwind that has stabilized as GDS networks offer suppliers more customization. Other key risks are incentives paid to travel agents and online travel booking growth, both of which we expect to continue increasing.
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