Archive for January, 2005
Here’s a story about a subject that I’ve given some thought to for quite a while. Any player in the supply chain can become the first point of contact for an online traveler to start the trip planning or purchasing process; airline, hotel, car rental company or destination. Who will leverage that position and offer the customer a one-stop shopping experience?
It is not surprising that travel suppliers are starting to expand their share of online travel purchasing beyond their own product. We will increasingly see airlines add hotels and car rental booking to their sites and hotels to add air, car and additional ground services. This trend to one stop online travel shopping will continue and the major supplier brands will compete with online travel agencies for the business aggressively. The question I have is, when will the destinations wake up and join in the fray?
Most online travelers start their travel research with a visit to a destination site to gather information. What prevents those destinations from offering those interested potential visitors the possibility to not only book accommodation and local transportation in their country, region, city or resort but to offer an air booking capability? Aside from technology investments it is most likely the lack of familiarity with the role of travel rather than information provider. A lost revenue opportunity if I ever have seen one, in this day and age of cross-selling. To be truly customer focused destinations will need to change their attitude if they want to stay relevant to their constituents and visitors alike.Read Full Post | Make a Comment ( None so far )
This article Click to fly – Express Computer offers one of the better definitions of “dynamic packaging”, the buzzword that in ’04 made it even into the general media such as the Wall Street Journal.
It certainly is the next big thing in online travel, especially when defined properly as in this article. Two key aspects are “customer control” and “bundled or packaged price”.
The first one is about giving the traveler the tools for “self-assembly” of her desired vacation trip, multi-component, multi-destination all based on customer choice, not pre-planned and packaged by some tour operator. This, of course, requires a certain level of familiarity by the customer with the destination and the available options. To get that level of familiarity should not require visits to all sorts of websites, but the elements should be presented in logical sequence of DREAM – LEARN – PLAN – GO! right on the online travel company site, leading from planning to booking. This poses numerous challenges in website development, especially usability and technology integration. Another initial stumbling block is very likely the lack of familiarity by customers with such a new type of site as it quite likely will be different in look & feel from today’s first generation travel sites.
The second issue poses another challenge. Today, online travel seems to be all about price. Everything is geared to finding the lowest fare from A to B and the lowest accommodation. Guess what the margins on this business are! Unfortunately customer perceptions are hard to change, however, to thrive online travel companies need to be able to re-claim a margin. This is hardly possible in a totally transparent market for individual travel components. Bundling of these components – self-assembled bundling by the customer, nonetheless, or truly dynamic packaging is the logical progression and more so, the value added proposition that leads to increased profitability. The challenge is to convince the online travel shopper that such a trip is cheaper than the individual adding up of components.
It will be interesting to see how this is tackled by the online travel players.Read Full Post | Make a Comment ( None so far )
This headline and article caught my attention.
January 10, 2005
When a large meteorite hit the Earth long eons ago, scientists say the fate of the dinosaurs was sealed.
And when the Internet hit the travel industry much more recently, some wondered what fate awaited traditional travel agencies as heavy objects like Web-based Expedia, a do-it-yourself travel site, fell on the competition.
The short answer is that travel agents are no dinosaurs.
“We’re here to stay,” Michael Matz, president of Travel Management Agency in Casper, declares.
Indeed, one Jackson Hole travel agent even goes so far as to say the rise of online travel sites has been a plus for his business.
Get the full story at the Casper Star Tribune
Here’s my take on this no longer so new argument:
It was never a question of “all” traditional travel agencies to disappearing after the introduction of major online travel companies. At the same time there is no denying the fact that major shifts have happened in the travel industry to the online entrants away from the off-line agencies. The first to go were exactly order takers who did not get their business based on superior customer service but on cheap price and lack of alternative purchasing options in their local business area. With the new online entrants going after the low hanging fruit of price based airline ticket sales this was a predictable outcome. It also seems logical that with the present make up of online travel sales there remains room for qualified travel agents to sell their knowledge to travel shoppers, who themselves have acquired a higher level of product and destination knowledge by using the web as an information tool.
The big question is what happens next, when the online giants will introduce new technology that offers the online information seeker a much improved purchasing experience for what is often called “complex travel products” or packages ? To sustain profit margins this development seems inevitable as even a major online player can’t derive a profit from selling a purely price based commodity such as an airline ticket or hotel room. The bundling is the key to establishing some kind of differentiation in the marketplace.
Branding is another and the major players certainly have an advantage in this key area and have gained considerable customer trust. Contrary to often voiced opinion, they also have a high level of customer support. Orbitz has staked a claim on offering online support that many offline travel agents will have a hard time to beat.
As the dinosaurs did not disappear overnight, well trained, knowledgeable travel agents will not fall by the wayside, but in the long haul the dinosaurs will be gone and as successor species followed the dinosaurs, so new kinds of travel companies will appear on the scene offering superior service levels combined with innovative products.
What will not change is the fact that the web has empowered a vast audience of potential travelers and whoever wants to sell their services to them will have to satisfy their wants and needs. The innovative will survive!Read Full Post | Make a Comment ( None so far )
Similar comments as the one below have been made recently on future travel trends, especially for the high end segment of the market.
How will this be reflected in online travel. It seems to me that a lot of products offered on the major websites are geared to the middle of the road market and the lower end, all in the name of “the lowest price wins.” With the largest growth in internet usage and online shopping being recorded in the affluent segment of the population, I see a certain disconnect between what these demanding travelers are looking for – increasingly on the web – and what the online travel players are offering.
It will be interesting to follow the development on this front. This seems to be the high margin market, where price is not the dominant factor, but the ease of the purchase experience, attractiveness of product presentation, or in other words – added value.
The Big Trend
Couples, especially families, will choose villa and private home rentals in lieu of booking a hotel stay. Frequent travelers value privacy and space and will skip big hotels for smaller, more personal stays. The newest crop of rental villas has every service that a hotel offers, such as housekeeping, a cook, a gardener and even a concierge. The new interest in villas fits in with the emergence of upscale vacation clubs, such as Exclusive Resorts, which is partly owned by Steve Case, and Abercrombie and Kent’s Destination Club, which is an ultra-luxurious club that allows members access to vacation homes and concierge villas anywhere in the world.
The Unconventional Wisdom
Adventure travel was the big trend a few years ago, but the new travel trend to watch is cultural travel. Food tours, especially throughout Italy, are hot and will continue to grow in popularity. We’ll also be seeing an increase in specialized tours which combine food, shopping and visiting art museums and galleries. Niche travel will also be big. Whether it’s a Star Trek convention, a sporting event, concert or film festival, people will be planning vacations around these events.
The Misplaced Assumption
Travelers do not want a cookie-cutter, one-sized-fits-all travel experience, especially when it comes to hotel rooms. Familiarity does not breed comfort–it breeds boredom. Hotels, especially the big luxury chains, are responding by tweaking hotels to have more of a boutique look, and to relate to their location. The new Ritz-Carlton in South Beach doesn’t look like every other Ritz. Instead, it has a distinctive Art Deco look that blends with the neighborhood. Expect to see more hotel customization in the next few years.
Is this the Year when major new developments are going to occur in the online travel space?
The previous posts included a basic thought paper on how I view the position of destination marketing organizations in the online travel space and how they best address the challenges of new hybrid consumer planning & purchasing behavior.
The Financial Times ran an article that described the overall market situation very well. It prompted me to write a letter to the Editor, which was actually published by the FT!
We can safely say that 2004 was the year of mega deals in the online travel space.
Seems like the major players are lining up their arsenal for the fight to dominate the next phase of online travel – Travel 2.0. It was also the year that saw a lot of buzz about travel meta search by the likes of Kayak, Mobissimo, SideStep, and FareChase. The jury is still out about the deep impact these players may or may not have on the market, but in the near term they will certainly make “rock bottom price fishing” much easier. With the vast majority of online travel transactions still being airline tickets from A to B and hotels, but even that category a distant second, there certainly is a market for this type of service.
2004 was also the year when dynamic packaging became the buzz word covered for the first time in The Wall Street Journal and other main stream media. While most experts seem to agree that the sale of travel packages will record the fastest future growth this is predicted to happen despite what many still consider a rather poor overall online travel shopping experience for packages. Let’s just imagine how fast the package business will grow once the next generation of innovative travel technology is being deployed, allowing true customer self-directed dynamic packaging.Read Full Post | Make a Comment ( None so far )
Web-based travel companies must evolve to continue offering value
Published: August 18 2004 05:00 | Last updated: August 18 2004 05:00
From Mr Joseph E. Buhler.
Sir, With reference to Comment & Analysis (August 16): online travel companies have had the staying power, and have not become victims of the post-bubble bust, because travel is an ideal service to be purchased conveniently online at any time.
What has recently changed for online intermediaries is that the low-hanging fruit has largely been picked and future growth can only be sustained by a shift away from price-focused individual component sales to the online sale of leisure packages. To achieve that requires significant investment in new technology that offers web users a much improved online travel-buying experience.
Dynamic self-packaging of individual multi-destination travel components that in combination make up the entire trip content will have to become the standard to take online leisure travel to the next level.
Offering online travellers not the cheapest price but true added value is the profitable way forward. Seamless, real-time connectivity between online agencies and suppliers will not only make this possible but also result in cost efficiencies that will allow online intermediaries to continue to play an important role in the marketplace and offer competitively priced, bundled services.
The purchase of single components for a simple single destination trip will shift even more to large supplier websites but there will always be a much larger number of small- and medium-sized suppliers, especially in the accommodation sector, that must rely on intermediary sales to attract customers in any market and online travel companies will continue to be their most cost effective partner.
Joseph E. Buhler, Chief Executive, netStrategic, New Canaan, CT 06840, USRead Full Post | Make a Comment ( None so far )
The article below appeared in The Financial Times. My letter to the editor was published a few days later and you can read it in the next post.
By Matthew Garrahan
Published: August 16 2004 05:00 | Last updated: August 16 2004 05:00
From online pet shops to trendy fashion “e-tailers”, the end of the dotcom boom in 2000 quickly made it clear how many of the outlandish start-ups to receive sizeable sums from star-struck investors were silly ideas doomed to fail.
Not all online operations went the way of Pets.com or Boo.com, however. The travel industry was among the first to realise the internet’s potential as a simple sales tool. The technology was a natural asset for an industry that did not depend on the shipment of bulky goods or require overly complex transactions. Booking travel on the internet became an immediate hit.
Indeed, the sector has continued to grow even though events of the past three years – including terrorist attacks, war and even the outbreak of severe acute respiratory syndrome in Asia – have undermined confidence in international travel. Online travel has grown from an industry worth $5bn (£2.7bn, €4bn) in sales in the US in 1999 to $20bn in 2003.
Companies that had weathered such traumatic conditions might have been expected to grow strongly when optimism returned to the travel industry.
After all, global travel patterns have stabilised after the downturn sparked by the terrorist attacks on New York and Washington on September 11 2001. US tourists are returning to Europe in large numbers. BAA, the UK airports operator, said last week that the volume of passengers flying across the Atlantic had returned to pre-September 11 levels. The Travel Industry Association of America is forecasting a 3.2 per cent increase in summer leisure travel and says “real recovery is clearly under way”.
But, ironically, the upturn in confidence and the improvement in passenger numbers seem to have had an unexpectedly negative effect on some of the largest players in the online travel industry. In fact, the return of the good times has revealed new challenges and doubts about their business model.
These issues will be brought sharply into focus today when Ebookers, one of Europe’s largest online travel groups, reports its full-year results. Its shares recently fell more than one-third after it warned that profits for the year would be significantly below expectations.
Ebookers’ peers are also struggling. Shares in Lastminute.com – floated in the UK at the height of the dotcom boom on a wave of optimism about the potential market for late purchases of holidays, flights and hotel rooms – have almost halved since July. The company reported weak third-quarter results recently and said it would cut 350 jobs – or 15 per cent of the workforce – to try to slash costs.
The bad news is not confined to Europe. Shares in Barry Diller’s IAC/ InterActiveCorp, owner of Expedia and Hotels.com, have fallen by almost one-third since the beginning of 2004. IAC is the largest vendor of internet travel in the world, selling airline tickets, hotel rooms, car hire and cruises. But net income for the second quarter was down 25 per cent on the same period last year.
The decline in the performances of Lastminute.com and Ebookers comes at a time when more traditional holiday companies are also under pressure. Europe’s largest package tour operators – such as MyTravel, formerly Airtours, and Tui, which owns Thomson Travel – used to exploit their purchasing power to acquire hotel rooms, airline tickets and car hire at cheap prices. They would then package them and sell them on to holidaymakers.
That model is under threat, partly because more people are choosing to build their own holidays using the internet. Why, then, are internet travel companies struggling? Online intermediaries make money by selling the products of other companies. Unlike traditional package tour operators, they allow consumers to decide how best to assemble the component parts of their holiday. But because they do not own the products they are selling, the online intermediaries will always be at risk if there is a change in their supply chain. Increased demand from travellers is now disrupting that supply chain.
Simon Champion, leisure analyst with Deutsche Bank, says that during the recent downturn many owners of travel “products” – flights or hotels – found that online intermediaries were an excellent way of distributing unsold seats or rooms.
“In other words, you can distribute unsold inventory through online intermediaries when you have to. But when things pick up you don’t have to sell so much distressed stock,” says Mr Champion.
“The underlying issue is that ownership of content has always been critical in the internet industry. If you are an internet travel company and you don’t own the content you might be able to carve out a niche as a website that allows people to compare prices. But when things pick up, when hotels and cruise operators are trying to sell as much as they can, you are going to suffer.”
In the US, for example, IAC earns some of its highest margins by selling unsold hotel room inventory. But there are fewer hotel rooms being made available by hotel operators because customer demand has increased. Revenue per available room – the key industry indicator – has risen as business has returned, with the increasing volume of sales allowing operators to push rates near to pre-9/11 levels.
Big chains such as InterContinental Hotels Group and Hilton Hotels Corporation of the US were happy to sell unsold room inventory to online intermediaries when times were bad. But with business coming back they want to profit from the sale of those rooms rather than pass them on to a company such as IAC. Furthermore, the big hotel chains have taken an increasingly aggressive line in their dealings with online intermediaries.
Steve Bollenbach, chief executive of Hilton Hotels, said recently that IAC was one of the biggest threats to the future of the hotel industry. InterContinental will work only with those online partners that sign up to a strict new code of conduct and is set to sever its ties with Expedia, the online travel service owned by IAC.
“The likes of Hilton are still providing Lastminute.com and the others with room stock,” says Rod Taylor, head of Barclays European hotels team. “But they are insisting that this stock is sold at a minimum price. This is putting pressure on the online intermediaries because they can no longer promise that they are selling something cheaper than can be found anywhere else.” he online intermediaries are under pressure from other fronts. The low-cost airlines that have shaken up the aviation industry have sophisticated online sales operations that allow them to sell flights directly to customers. But they do not want to share their success with third-party internet operations such as Ebookers or Lastminute.com.
In the US, JetBlue and SouthWest, low-cost carriers, do not allow internet operations to sell their flights on their behalf. Ryanair and Easyjet, Europe’s largest low-cost carriers, have adopted a similar stance and use only their own websites to sell flights online.
“The only place you can buy Easyjet flights online is Easyjet.com,” says an Easyjet spokesman. “As a direct sales airline we want people to come to us. As soon as you start selling to Expedia customers will go there rather than come to us.”
Cruise operators are also taking a tough line. Together with car hire and hotel rooms, sales of cruises are one of the highest-margin businesses for online travel operators. Intermediaries used to receive a commission from the cruise operator for the cruise they sold and would then pass some of that commission on in a saving to the customer. This practice, known as rebating, would drive a greater volume of sales and help the intermediary become established as the seller of the cheapest cruises, thus earning more commissions.
However, Carnival and Royal Caribbean, the world’s two largest cruise operators, have called an end to the practice. “They’re still giving the intermediaries a commission but they are not allowing any of that to be passed on to the customer,” says Mr Champion of Deutsche Bank.
In spite of this aggressive stance from many hotel, airline and cruise suppliers, online travel intermediaries say they are optimistic about their business model and say maintaining good relations with suppliers is important. One way of keeping them on side is to make sure technology does not create extra work, says Michelle Peluso, chief executive of Travelocity, the second largest travel service in the US. “In an era where hotels have more choice they can say they don’t want to do business in a certain way,” she says. “That’s part of the challenge our company is facing. I have enormous confidence in our ability to add value.”
Erik Blachford, chief executive of IAC/InterActiveCorp, says online travel is not a counter-cyclical business. In other words, online travel companies can prosper in the good times just as they can in the bad.
“If you look at occupancy levels [in hotels] destination by destination there is enormous variation. Occupancies go up and down all the time, which is the reason we are in this business. There are always times when hotels need help to sell their rooms,” he says.
“I think the basic model is sound . . . If we were a counter-cyclical business right now it wouldn’t be a question of us growing a little more slowly. We would be way, way down on last year. And we’re not.”
In the US, says Mr Blachford, about 25 per cent of leisure and unmanaged business travel is booked online. “We expect this to rise to about 65 per cent by 2010. In Europe, internet penetration for travel is not yet 10 per cent of [total travel bookings] but there’s an expectation that half [of all trips] will eventually be booked online.”
However, there is no question that the sector is facing new pressures. Hotels and airlines are as keen as their online intermediary partners to take advantage of the shift towards internet bookings. So the online companies constantly need new ways of attracting business, either by offering rooms from new, less aggressive hoteliers or finding new travel-related products to sell.
Lastminute.com is banking on its new “dynamic packaging” technology proving a hit with its customers. The technology allows users of its site to assemble the component parts of their holiday in a more cost-efficient way.
“The next era for online travel is about being much more than a simple seller of travel,” says Brent Hoberman, chief executive. “You have to keep thinking of new ways to keep customers loyal.”
But, as this relatively young industry adjusts to what appears to be a more benign trading environment, he admits that prospering in online travel has been “harder than people may have first thought”.
“Online travel is complicated,” he adds. “It’s getting simpler, but it’s complicated. And that’s costly.”
When Barry Diller’s IAC/ InterActiveCorp, owner of Expedia and Hotels.com, recently reported a decline in second quarter net income, the group laid the blame partly on increased competition from rival online travel companies.
That competition could increase still further because of a shake-up in the global distribution systems that provide airline pricing and departure data to travel agents.
Traditionally, GDS companies such as Sabre Holdings or Amadeus charged airlines and other suppliers a flat fee to publish their flight data on the computer terminals used by travel agents. The agents would then use the data to help holidaymakers choose the best deal.
However, the growth of online travel and the low-cost airline market, where carriers sell direct to their customers, means holidaymakers are increasingly by-passing travel agencies.
This has left GDS companies struggling to catch up. In the US, the government recently responded by deregulating the sector, removing some of the commercial shackles that have hindered the industry’s growth.
In the deregulated market the four largest players – Galileo International, which is owned by Cendant; Worldspan; Sabre Holdings, which owns Travelocity; and Amadeus – will be able to negotiate different deals with airlines according to how much business they do with them. In the regulated era, by contrast, GDSs had to offer the same commercial terms to all airlines even when their business was concentrated among certain carriers.
Deregulation is set to follow in Europe. As the largest players look at how best to exploit their relationships with airlines and other holiday suppliers, their attention has turned to online travel.
“With the GDS market likely to be deregulated in the EU as it was in the US, the big four operators within this space potentially face a problem,” says James Ainley, leisure analyst with Dresdner Kleinwort Wasserstein. “Sabre Holdings and Amadeus have already attempted to pre-empt this by acquiring consumer-facing online businesses through their acquisitions of Travelocity and Opodo. I would expect more acquisitions in online travel from GDSs as they strive to protect their revenue streams.”
Amadeus is one of the four GDS market leaders and although the Madrid-based group continues to make most of its money from its core GDS business, it has invested heavily in Opodo, the third largest online travel business in Europe.
“If you consider that 40 per cent of European travel will eventually be booked online, we want to be sure that we are as important in that market as we are in the GDS market,” says Eddie Ross, Amadeus marketing director.
In the US, Sabre Holdings’ Travelocity is snapping at the heels of IAC’s Expedia and Hotels.com. As the two other leading GDSs monitor developments in online travel, more consolidation is expected. Competition in the industry, it seems, can only intensify.Read Full Post | Make a Comment ( None so far )
Here’s an article on what’s required for successful destination marketing with a majority of potential visitors researching and planning their vacation on travel sites, especially destination sites.Read Full Post | Make a Comment ( None so far )