Business Travel: Booking Travel Online Has Real Traction

By now, most of the extravagant claims about how Internet commerce will change the universe have collapsed like a $3 umbrella.Though my grandmother could have confirmed this years ago to any venture capitalist who inquired, it`s finally quite clear to all, for example, that we will not be doing our supermarket shopping online any time this century.
But one of the areas of e-commerce that does appear to have real traction, if not sustained profitability yet, is online business and leisure travel booking, which will account for about $22 billion in sales this year, according to Jupiter Media Metrix.
What`s more, while other e-commerce categories are consolidating and constricting when they aren`t shutting down entirely, the Internet travel industry is seeing a burst of competition. Online agencies, travel management companies, individual airlines and other brokers, including the chronically delayed but soon-to- be-started Orbitz site, are battling for market share.
Despite recent overall spending dips in both business and leisure travel, “the demand for travel online is not going away,” said Heidi Kim, an analyst at Jupiter who closely follows the online travel industry.
It is, however, showing signs of shifting. Jupiter will release a new study at its @Travel Forum in Miami on April 23 that suggests how intense the competition is becoming as the online travel business matures. The research shows that individual airline Web sites, most of which were only minor players in online travel until fairly recently, are surging forward. They are employing aggressive marketing strategies to corral offline customers onto their sites while trying to snatch other customers from big third-party online bookers like travelocity
and Expedia
, which defined the standards for online booking five years ago.
According to Jupiter, visitors to airline Web sites, which sell tickets directly to customers, increased 26.1 percent in February from February 2000, to 10.4 million from 8.2 million. While the online agencies still got the most overall visitors in February—15.4 million—their growth from the year-earlier month was 7 percent, lagging far behind the growth in the airlines` sites.
The airline sites are “clearly the sleeping giants” of online travel, Ms. Kim said. “They came to the Internet very late in the game. Travelocity and Expedia have been around for five years or so. The airlines only relatively recently began transacting online. But they had the power of the brand; they had the direct exposure to the consumer. Once they decided to invest in their online initiatives and actively promote them, we felt they would gain ground very quickly, and they have.”
Obviously, one virtue the online agencies like Travelocity and Expedia offer is the ability to comparison shop among a wide range of travel suppliers. But customers sometimes use these sites to “window shop,” Ms. Kim said, and then make actual bookings directly through a favorite airline, which is now more aggressively angling for them to do just that, using incentives like fare sales and frequent-flier mileage bonuses for booking on their sites.
Recently, telephone reservation agents at some airlines have been informing callers that better deals can be had on their airline`s Web site.
The online agencies, which depend on airline tickets for about 70 percent of their revenues, get about $10 from an airline for each ticket sold. They also make money leveraging demand into volume discount deals with airlines and hotels. But with their own Web sites suddenly humming, the airlines are sending strong signals that they see the online agencies as competitors for their customers as well as brokers for tickets.
Last month, for example, Northwest Airlines and KLM Royal Dutch Airlines eliminated commissions to online agencies. In response, Travelocity said it would add a $10 surcharge on tickets sold for those airlines. Expedia declined to match the surcharge, and said it had worked out another, unspecified, arrangement with the airlines to keep selling tickets profitably.
The competitive dust-up is about to get hotter, with the planned start in June of Orbitz, the long-delayed travel site that was developed by five big airlines and other partners. Officials of Orbitz, which is still under federal antitrust review, have insisted that the site will give consumers the opportunity to choose from a wide range of of “unbiased” fares from all airlines.
But critics assert that given its partial ownership by airlines that supply three-quarters of all domestic air travel, Orbitz could allow its participating airlines to set anti-competitive fare structures.
Orbitz will have the potential to act as a kind of “market-power ringmaster” allowing airlines to “jointly agree on anti-competitive provisions that they could not enforce individually,” said Jerry A. Hausman, an economics professor at the Massachusetts Institute of Technology who recently released a study on what he regards as Orbitz`s potential to fix prices in the airline industry.