Cendant Ventures Into Travel

Cendant Corp., the largest hotel franchise company in the world, is about to become a technology supplier, a competitor to Sabre Holdings Corp., and the first nonairline owner of a major travel-distribution system.

The New York company, which owns Avis Rent A Car, Century 21 real estate, Days Inn, and Howard Johnson, last week disclosed plans to acquire Galileo International Inc. of Rosemont, Ill., in a $3 billion deal expected to close by fall. In addition to selling software to travel companies, Galileo operates a 21-server data center in Greenwood Village, Colo., that's linked to reservations systems of 233 major hotel companies, 505 airlines, and 37 car-rental companies. Travel agents and online travel sites access Galileo to see what's available and make reservations.

Cendant may not stop with Galileo. Well-placed sources say the company is also negotiating to buy Worldspan, the smallest, yet most aggressive, of the four travel-distribution systems and the engine behind Expedia, Orbitz, and Priceline. Cendant declined to comment on possible talks with Worldspan.

But acquiring both Galileo and Worldspan makes sense from a technology perspective. Cendant could close redundant call centers and assemble an IT team composed of the best employees from both companies, says Forrester Research senior analyst Henry Harteveldt. He also notes that Worldspan isn't considered a strategic asset by its airline owners, so they probably would sell if the price was right.

Further, Worldspan's IT staff has the online prowess that Galileo needs. Each of the major travel-distribution systems--Amadeus, Galileo, Sabre, and Worldspan--was launched as a closed network to give travel agents access to airline inventory. But now they sell directly to consumers and business-travel buyers through Internet sites. Galileo hesitated to jump into the online channel and bought online travel site Trip.com in March 2000. But Worldspan scooped up contracts with three of the biggest online travel sites, giving it more experience than Galileo in handling online travel.

A double buy would turn Cendant into the top provider, one that serves both online buyers and travel agents. Galileo handled 316 million air segments in 2000, and Worldspan ticketed 156 million, according to Business Travel News, a biweekly trade publication. Sabre, the market leader, booked 423 million air segments last year.

Cendant's travel experience is good for the industry, says Eric Speck, group president of Sabre travel marketing and distribution. But he notes that the airlines have been divesting themselves of their technology divisions because travel agents and consumers were reluctant to trust supplier-owned distribution channels, believing they would steer customers to their own products rather than fairly display products from all suppliers. That's an issue Galileo likely will run into now with hotel buyers.

Launched by 11 major airlines in 1993, Galileo is now publicly traded, although United Airlines still holds 18% of its stock. The Galileo network, which stores 22.6 terabytes of data, handles 7,700 messages per second in peak periods and 295 million requests for information each day. "Buying Galileo," says Harteveldt, "makes Cendant a powerful, vertically integrated company."