Ex-Orbitz star creates his own ticket system

Full article: Ex-Orbitz star creates his own ticket system

Alex Zoghlin and online travel agency Orbitz Inc. parted ways last year, but their paths are converging again.

The 34-year-old tech wiz and his former employer both want a slice of a big opportunity in the air travel business: ticket distribution. Mr. Zoghlin, who stepped down as chief technology officer at Orbitz in April 2003 after designing its online ticketing system, launched a company this year that offers airlines a cheaper way to sell tickets to travel agents.

G2 Switchworks Corp., Mr. Zoghlin's company that was announced two weeks ago, has signed eight airlines, including United and American airlines, to sell tickets through its system. The announcement came three weeks after Orbitz disclosed plans to offer small travel agencies a direct connection to carriers over its Supplier Link system.

To Orbitz and G2, the time looks ripe to attack the stronghold of four large global distribution systems that act as middlemen between carriers and travel agencies. Big airlines buffeted by discounters want to cut costs, and the fat fees the systems charge carriers make an inviting target.

Both Orbitz and G2 offer steep discounts on the standard global distribution systems fee of $12.50 per ticket, but Mr. Zoghlin undercuts Orbitz's $4 charge by a dollar. For now, the two companies say they're not competing: G2's offering is aimed primarily at larger travel agencies, while Orbitz is after smaller shops.

But Mr. Zoghlin took an apparent swipe at his old company in the press release announcing G2's new airline partners: "G2 is a privately funded independent company that does not compete with its agency customers by operating an online or offline agency," the press release reads. Several big carriers, including United and American, own big stakes in Orbitz, which, like other online travel Web sites, competes with travel agencies for retail customers.

Orbitz, for its part, isn't ceding the large-agency market to Mr. Zoghlin.

"We are very well-positioned, should we decide to enter the market in the (large) travel agency channel, with existing technology no one else has today," says Steve Tracas, president of the Orbitz for Business unit of the Chicago-based company. He emphasizes Orbitz's technological head start with Supplier Link, a system up and running in the retail travel market for two years.

But G2 has advantages of its own. Its $1-per-ticket price edge, multiplied over the millions of tickets big airlines sell, represents significant savings for the carriers. And travel agencies may be more comfortable doing business with G2, because it doesn't compete with them in the retail market.

Subsidizing the competition

"The agency that books through Orbitz is sitting there saying, 'I just subsidized my competitor,' " says travel industry analyst Henry Harteveldt at Forrester Research Inc. in San Francisco. G2 is "probably going to do a better job at this than Orbitz could do, because Orbitz is torn between running the travel agency business and the tech division."

Mr. Zoghlin says G2's technology allows large travel agencies to operate more efficiently and save money.

"Nobody else has rethought any of this (global distribution systems) business logic for 30 years — Orbitz or anybody else," Mr. Zoghlin says. "We provide them a completely new world."

G2's toughest task may be weaning big agencies away from the global distribution systems, which rebate a big chunk of their fees to the agencies. But Mr. Harteveldt warns that those fees are likely to shrink anyway, when airline contracts with global distribution systems begin to expire in 2005 and the carriers demand deep price cuts. United officials last week said they planned to cut their distribution costs by $120 million annually. A spokeswoman declined to provide details.

"Agencies need to learn that their clients, and not the supplier (airlines), need to be the ones who provide them with their revenue," Mr. Harteveldt says.

©2004 by Crain Communications Inc.