With companies in the travel industry starting to see payment innovation as a long-term investment instead of a short-term cost, Amadeus IT Group is reportedly in talks to potentially acquire hotel reservation system provider TravelClick. TravelClick could bring in as much as $3 billion, but the terms of the potential arrangement have not been finalized, Reuters reported.
TravelClick is owned by Thoma Bravo, a private equity group, and counts major hotel brands, such as Marriott, Accor Hotels, Hilton and Radisson, as its customers. And TravelClick is no stranger to mergers and acquisitions (M&A) activity: Thoma Bravo purchased the firm for $930 million in 2014. Amadeus, in turn, has a $37.5 billion market value and runs a booking system designed for airlines to manage reservations, departure control and inventory.
The potential deal comes as companies, such as airlines and hotels, face challenges when it comes to payments. The global travel industry generates approximately $1.4 trillion in revenue annually and, in doing so, spends 5.4 percent of its revenue processing payments. In fact, worldwide airlines, travel agencies and hotels spend $75 billion per year to pay their payment service providers. That’s as cheap as it gets, too, because switching to in-house payment systems can cost them even more.
When it comes to hotels, which Amadeus could tackle with TravelClick, 6.3 percent of revenues from an independent hotel are devoted to third-party payment fees and 6.4 percent of revenues from a hotel conglomerate are dedicated to that expense. Hotel chain subsidiaries, however, fare a bit better, coming in at 4.6 percent. When it comes to airlines, major airlines outperform hotels, with only 4.2 percent of their revenues devoted to third-party payment fees.
In terms of fee structure, the size of a company in the travel industry matters. Smaller operators that earn less than $15 million per year tend to get hit with higher fees than those earning $100 million to $1 billion per annum. But, at the same time, larger travel companies see stronger benefits from payment innovation.
According to the PYMNTS Travel Payments Study, 39 percent of companies that earned between $500 million and $1 billion said that innovation would decrease their costs, compared to 7 percent of companies that earned less than $15 million per year. And, while companies such as big airlines and hotel chains have high fixed costs that they have little control over in the short term, they could stand to benefit from new payment technologies that can drive down their variable costs in the long run.
As a result, global travel companies are gearing up to undergo a fundamental restructuring of their payment systems to mitigate these costs and meet the growing customer demand for faster payment options. Overall, 81 percent of related companies planning to initiate at least some new innovations in the next three years.