Abu Dhabi, April 29: Google is understood to be planning a bid for ITA Software, a specialist in internet travel software, for about US$1 billion (Dh3.67bn).
The move would coincide with spectacular growth in Middle East airlines’ market share and a concerted effort by Google to penetrate the Gulf’s growing online community.
The Middle East travel market is crucial to Google’s strategy as it is growing faster than most other regions. In January, Middle East airlines reported a 23 per cent rise in passenger demand compared with the same month last year, according to the International Air Transport Association (IATA). In the same period, carriers in Google’s home market of North America grew by just 2.1 per cent.
“Travel is such an obvious category for Google to get heavily involved in,” says Jonathan L Yarmis, a senior research fellow at the market analyst Ovum.
“It really is a point of intersection of so many of Google’s current initiatives: search, maps, voice, mobile devices. ITA is a powerful, behind-the-scenes provider of solutions that would certainly benefit from Google’s scale and end-user reach.”
Even before the ash from the volcanic eruption in Iceland cast a six-day cloud over Europe’s airports, European carriers reported a growth of only 3.1 per cent. Asia-Pacific carriers experienced a 6.5 per cent rise in demand and Latin American airlines saw 11 per cent growth.
The IATA says the Middle East airlines’ expansion was powered by “solid regional economic growth and some gains in share on long-haul markets”.
During the financial downturn, some European airlines cut capacity by up to 20 per cent, giving regional airlines the opportunity to add capacity and capture additional traffic, according to the Arab Air Carriers Organisation.
Most of the capacity increase in the region is being led by three airlines: Etihad Airways, Emirates Airline and Qatar Airways. These carriers are going toe-to-toe with European and Asian fleets for the lion’s share of the lucrative long-haul market. The big airlines are also keen to add routes to countries such as Japan that present opportunities for growth.
The increasing success of Middle East airlines comes at a time when international travellers are forsaking traditional travel agents and going online to discover for themselves the cheapest fares and fastest routes.
So far, online travel agencies have dominated the internet-based market but the big search engine companies are now moving in.
One such, Microsoft’s Bing, has been gaining users as a result of travel-related features using technology such as ITA’s airline reservation systems. Google, which has more than five times Bing’s market share in the US, is determined to win back the initiative and analysts believe the time is right for an aggressive move.
“With signs of an economic recovery, you can expect a wave of acquisitions in the industry as the survivors consolidate and take over the weak,” says Mr Yarmis.
“This is the last best-buying opportunity as a sustained recovery will drive up the prices of acquisitions. This is the best time to buy, when your business prospects are turning up but before your acquisition candidates have an opportunity to benefit, and while your investors are still hanging on.”
Google has already announced six takeovers this year and the ITA acquisition would speed up its time to market for new online travel services, with all the additional advertising revenue online bookings would bring.
ITA has raised $111.4 million from venture capitalists who may welcome the investment exit a Google acquisition would bring. As well as providing systems for search companies such as Microsoft’s Bing, Kayak.com and Orbitz.com, ITA also supports sites for carriers such as Continental Airlines.
It is not only the flight ticket booking business that is going online. Travellers are increasingly using the internet to not only book holidays and hotel rooms, but also to share recommendations with one another. Social networking sites such as Facebook are now being used by Middle East hotel chains to attract customers.
The hotel company Starwood’s Aloft Abu Dhabi, having used the social networking site as the platform for its opening campaign, now has 7,000 Facebook users.
“Cairo is the third most popular location for Facebook viewers after the US and Canada,” according to the Canadian-based Fairmont Hotels and Resorts (Cairo). “Social media is about nurturing community and conversations.”
Google also has its sights set on the social networking space with its Buzz service. Google’s travel and social networking initiatives coincide with its new Arabic website, Ahlan Online, designed to teach Arabic speakers how to use Google tools to navigate the internet.
Already available in an early“beta” phase, it provides guidance on Google search, Gmail and Google Talk. But the search engine giant is attracting increasing flak over its policy regarding users’ privacy.
Privacy watchdogs in 10 countries including Canada, France, Germany, Italy and the UK last week sent a letter to the Google chief executive Eric Schmidt accusing the search engine of violating the principle that individuals “should be able to control the use of their personal information”.
When it launched Buzz in February, Google suffered international criticism for taking information on its Gmail users’ most regular correspondents to build its social network site quickly.
The watchdogs said they remained “extremely concerned” about how Buzz came to be launched in the first place.
Google Street View, which provides above eye-level photographs of streets and houses in a growing number of countries, has also attracted a rising number of complaints that the service could be used to look through windows into private homes.
Should Google ever achieve dominant market share in the global online travel business, it would own a truly formidable database of users’ habits, virtually tracking their every move.
Buying ITA would enable Google to win a dominant share of the online travel market, raising further privacy questions over its ownership of personal information.
—Agencies