Several online travel companies have joined forces to battle Google's proposed $700-million acquisition of flight information company ITA Software Inc., arguing the deal would raise prices and reduce competition and innovation in the online travel industry.

The group unveiled a website and a lobbying effort on Capitol Hill to get regulators to block the acquisition. Other critics of the deal include Microsoft.

Google fired back in a blog post Tuesday, saying the deal has support in the travel industry.

Even before the proposed acquisition was announced, airline ticket search and booking sites including Kayak.com and Hotwire.com lined up against it. They have argued to the Justice Department antitrust lawyers reviewing the matter that the acquisition would give Google an unfair advantage because it runs the world's most popular search engine.

But Google says it's trying to help travelers more easily search for flights with times and prices the way its competitors already do. Andrew Silverman, a senior project manager, said Google had no plans to sell airline tickets.

-- Jessica Guynn

Source : Los Angeles Times 26 October 2010

Travel Technology Research has examined the case in a "FirstView" note to its subscribers. Taking into account the various interests - airline, consumer, travel agent and technology suppliers - it is possible to draw some preliminary conclusions:

The Speculation

We have argued that the deal will be allowed to go through but with strings attached.

The DoJ is likely to pull out the old rules it had from the early days of the GDSs and should probably consult the historians on GDS abuse in the past. It will realise that it cannot allow market forces to take care of the issue. There are too many opportunities for market distortion, and ultimately for disadvantage to the consumer.

The European Union will probably consider the Google process close enough to existing GDS practice to deem Google a GDS, and may to want to mandate Google adherence to the GDS code of conduct.

Either or both of these regulatory bodies will have multiple interests in Google:

• Google will probably have to expose its planned algorithm for presentation to the regulators. It will have to be described in terms that are comprehensible and relevant to the regulatory process.

• Google / ITA is likely to be forced to allow any airline to participate. Airlines may choose not to participate, but Google will not be able to prevent them. The costs of getting availability to Google / ITA will be the airlines’, but that’s probably the extent of direct fixed costs.

• Airlines are also likely to see an increase in some system transaction costs, although there is an argument that their system look-to-book ratio will decline due to the offload of pricing to ITA’s infrastructure. Only availability management will remain. The consumer performs the search; they set the attributes that are relevant and Google returns those products that are available now and/or those products that would be available at some other time.

• Differentiated pricing on the click-through or the deep link to booking could distort competition. It will have to be one price for everybody. Anything else might be seen to influence the economics and therefore pricing to the consumer. Referral costs would have to be standardised, terms like non-discriminatory pricing are likely to be back in fashion.

A preliminary calculation of the financial opportunity for Google might take the following form:

• 2.7 billion passengers were flown world-wide in 2009. 30% were sold via the Internet. With 30% of the market Google would process around 240M passengers.

• Assuming Google’s market share would double over time to 60% (still less than its current share of general search), and this would also drive Internet sales to the point where 50% of seats were sold online, we get to some 810 million bookings.

• At $1 per booking, 10 years of revenue would be $8.1 billion. Assuming it costs about $100-200M a year to run the service then Google will generate about $6 billion from its investment of $700 million. Even taking risk into account, this looks decidedly worthwhile.

So regulation will prevent Google from excluding any airline, probably limit charges to something reasonable and put a squeeze on the GDSs, particularly those that do not have an airline IT business.

Profits on airline IT will increase as airline inventory systems need to be upgraded to generate and send the appropriate availability to Google. Add the airline IT systems providers’ ability to charge for EMDs and this picture becomes even more complicated.

For a while the airlines will be happy. Their e-commerce sites will boom. They will develop attractive UIs and APIs to ensure that their ancillaries are available and Google will aggregate all of the attributes that are relevant to the customer. The unbundled will become bundled again. Google will stimulate the minds and revenue management systems further than they have ever been stimulated before.

Google will be forced to continue its contracts with existing ITA customers on broadly similar terms, and probably be forced to renew them as well, although over time newer entrants such as Everbread could take a share of the market. Google will have truly entered the travel business as the regulators interfere more and more with its operation.