PhoCusWright reports on European online travel market

The European online travel market is on the brink of a growth spurt, according to the about-to-be released PhoCusWright European Online Travel Marketplace Report.
PhoCusWright estimates that the European online travel market will nearly triple in size from an estimated US$2.9 billion worth of gross bookings in 2000 to more than US$10.9 billion in 2002. That puts it a few years behind the U.S. in its development—but that’s where most similarities end.
One big difference: tour operators. In Europe, they are major powerhouses that own or control airline fleets, hotel rooms, cruise ships and retail travel agencies. As a result, the battle to dominate online sales is not a two-way struggle between airlines and online agencies, but a three-way near tie among airlines, tour operators and online agencies, who control 28%, 27% and 26% respectively of the European online travel market.
Also unique to Europe is its highly developed and utilized rail system, another mode of travel that has been quick to seize upon the Internet not only as a new distribution channel but as a highly effective yield management tool.
That’s why the top three sellers of travel online include not just an airline and an online agency but a national rail company as well. The current top dog is easyJet, the low-cost U.K. airline that sells 75% of its tickets online. Its projected 2000 online gross bookings were $266 million. Next is ebookers, which began life nearly 20 years ago as flightbookers, a traditional agency that has managed to move online fairly successfully, not just in the U.K. but throughout Europe, by buying other travel agencies and putting them online. Third is SNCF, the French national rail system (PhoCusWright included its sales over Minitel, France’s text-based information service in those figures).
Ferries are another major mode of transportation that anecdotal evidence indicates has moved online, according to PhoCusWright.
What does all this mean? In the U.S., purchasing an airline ticket is generally what moves consumers online. It’s a fairly straightforward, relatively inexpensive, low-risk venture. But, in Europe, consumers can buy a an airline ticket, a train ticket or a ferry ticket online, the risk is not much greater than buying a few CDs. That broadens the size of potential online travel consumers significantly. European travel consumers have not one, but three low-risk ways to test the waters of online travel purchasing.
And, there is yet another product that is far more popular in Europe than in the U.S., that should ease the way for Europeans to work their way toward buying more complex and more profitable travel products—perhaps sooner than their U.S. counterparts will. And, that is last minute travel, the mainstay product of several major European travel sites, including the eponymously named lastminute.com, which this fall acquired the French site Degriftour, whose mainstay is also last minute travel.
Expedia localized its U.K. site to feature more last minute travel and L’TUR, a major German site, also specializes in last minute travel. A last minute package has fewer changeable components and is therefore easier to book online. All that makes it an easy way to introduce consumers to buying vacations online—and online travel retailers need to sell vacations, because they are high margin, profitable products that will allow them to stay in business.
All that said, establishing an online presence in Europe is far tougher than it was for U.S. online travel sellers when they were at the same stage of development a few years back. One is the investment climate in general. Dot-coms have gone from being the can-do-no-wrong darlings of the investment world to the outcasts—only those companies with a track record or a truly unique business plan are getting any additional investment in Europe these days (examples include ebookers, edreams and travelstore.com).
And, that’s too bad for European players, who need more money than their U.S. counterparts did at this stage of their development. That’s because a company can’t have one pan-European site, it has to have local site in all nations and all languages. That’s expensive and that means that whoever is going to win in Europe needs deep, deep pockets. Which gives the advantage to two very different players. The first are U.S. dot coms benefiting from the scale they’ve built in their U.S. operations. Expedia U.K. is an excellent example of this.
Although U.K. based ebookers’ total sales are greater than Expedia’s, that’s because about 60% of ebookers’ bookings come from outside the U.K. Expedia beats them in the U.K. itself; its gross online bookings total $87 million. The other player with the greatest advantage resource wise are European tour operators. The best example is Preussag, Europe’s biggest tour operator, whose total travel sales in 2000 were more than $9 billion. Its chairman, Michael Frenzel, sees the Web as a way for Pruessag to generate incremental business.
European tour operators already have got brand name recognition and a customer base. But the Internet offers them new ways of pricing and a way to bind themselves more closely to their existing customers—and generate incremental sales as a result. There are many other players trying to establish market share across Europe. Both Expedia and Travelocity have sites in the U.K. and Germany, Europe’s two largest travel markets. The U.K.‘s lastminute.com has sites in France, Switzerland, Italy, Spain, Luxembourg, Belgium and the Netherlands and elsewhere in the world as well. France’s Travelprice is in the black in its French operations and has sites in Germany, the U.K., Italy, Spain, Belgium, Denmark and Canada and plans further expansion. Flights.com, founded as TISS in 1994 and based in Germany, has 22 sites, nine of them in Europe.
All of these online travel sellers have obstacles to overcome. European consumers pay for their local phone calls, which makes it expensive to spend much time surfing online. Fortunately, flat rate Internet access with pricing structures include telephone time, making pricing for Internet access similar to that in the U.S., are being introduced across Europe. Europeans use credit cards less than Americans, forcing European e-tailers to give their customers alternative payment options online, such as using invoices, a practice that is constraint on the growth of online retailing in general, not just in travel.
There are technological challenges; it’s hard to book a holiday package on line. And in Europe, unpublished fares proliferate, integrating published fares (which are the most common fares used in the U.S.) and unpublished fares on a single screen is another challenge.
At the same time, Europeans are forging ahead of Americans when it comes to m-commerce. Already consumers can book and pay for a rail ticket in certain countries using their mobile phone and phone account—and then use the display screen of that same phone as their ticket when on the train.
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