The low hanging fruit has been picked…

Posted on February 17, 2006. Filed under: Uncategorized |

Expedia Seen Range-Bound Through 2006.

Piper Jaffray cut the price target on the online travel agency to $23 from $26.

To anyone who has followed the online travel market for a few years this is not a surprising development. As I’ve commented previously, Expedia and it’s online agency competitors are intermediaries in the industry, an industry that has becom increasingly transparent ever since these companies revolutionized the way travel – primarily airline tickets – are sold to the public. Selling these components in large volume has been the low hanging fruit, especially in the post bubble and 9/11 world when travel suppliers depended on this new channel to a great extent to produce business, any business, even at less profit.

Now things have changed, especially in the past year or so, with the introduction of meta search companies that speed up the commoditization trend. What has been even more of a threat, however, is the supplier efforts to sell their own products directly and not only their own but complementary services as simple packages.

Today the market has shifted and every supplier can be his own packager. The technology exists and brand loyal customers, who treasure the perks they receive from their favorite suppliers are increasingly inclined to buy from these suppliers, especially if these perks are no longer extended if the customer buys the same service from an intermediary.

How to keep those customers from deserting, online travel intermediaries have to move from a pure price focus to market added value and a compelling, easy one stop travel shopping experience. This will have to go beyond today’s mostly still pre-packaged products to true tailor made ones, self-assembled by an increasingly savvy traveler. To achieve this, the customer shopping experience has to improve vastly over the one still prevalent today. The technology investments will be sizeable and the challenges to overcome considerable but there seems to exist no viable alternative. The overseas expansion into Europe and Asia can only be a stop gap measure, until the same developments as are happening in North America will happen there a few years down the road.

How’s that old song title again "Only the strong survive" – and in the online travel world you might add "smart" and "nimble" as well. There will be winners, the question remains, who will they be, today’s major online players, the recently awakened traditional operators who are rapidly moving online, at least in Europe, or even some new unheard of players.

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