Travel was one of the first items to be sold over the internet, and it became part of the e-commerce industry in Australia when Travel.com.au started business in 1996.
Online travel agents now claim annual sales of $400 million and a 5% share of the Australian travel retailing market. Three online travel retailers - Travel.com.au, Webjet and Travelshop.com.au -are listed on the stockmarket, and there are privately owned companies such as Whereto.com.au and JetNet.com.au.
Despite their growth, none of these companies has made a profit. The market leader Travel.com.au, which reported revenue of $68.2 million in the six months to December 31 last year, lost $4.3 million. In the corresponding 1999 period, it lost $3.6 million. Its share price peaked at $2.94 in May 1999 and is now about 20 cents.
Marc Phillips, a consultant at the internet research company APT Strategies, says the main source of business for online travel retailers is domestic customers, because domestic flights are easier to book online than overseas trips, which involve more complicated scheduling and pricing. But relying on domestic business is making life difficult for online travel retailers because domestic airfares offer slim profit margins.
In Australia, less than 1% of airfares are booked online; in the United States, the figure is 4%. To attract customers to their sites, many online travel agents have been forced to slash their commissions to bring down prices, further reducing their already low margins. Industry sources say that, until recently, most of the online travel agents were charging a standard 10% commission, like conventional agents. But some online travel agents have been forced to cut their commissions to win sales. Travel.com.au is rumored to charge 6% and Webjet charges between 4% and 10% according to the level of service.
In February, Webjet upgraded its Web site and booking technology, hired more sales staff and reduced its technical staff to accommodate the changes to its commission structure. Its rates now begin at 4% of a fare for the “do it yourself” option, which allows customers to search and book through Webjet`s database. If a customer wants to talk to a Webjet sales person, the commission rises to 6%; booking through e-mail, as opposed to using the online database, pushes the commission to 8%. If a customer phones a Webjet travel consultant, the commission is 10%.
The managing director of Webjet, David Clarke, says the new commission structure will lead to strong sales growth for the company. “It allows consumers to book fares at prices formerly available only to bulk buyers, and delivers commercial advantage to our customers,” he says.
Webjet posted a loss of $1.1 million in the six months to December 31 last year on revenue of just $79,000. The new structure was launched on February 7, and Clarke claims that Webjet bookings jumped 300% in February. He says that if the current level of sales continues, Webjet will turn over more than $10 million this year. (The Webjet share price peaked at 34 cents in April last year and is now about 5 cents.)
Guy Cranswick, an analyst at the internet research company Jupiter Communications, says the main problem for online travel agents is that consumers treat their Web sites as research tools, rather than places to buy travel. The industry`s “look-to-book ratio”, which measures the percentage of visitors to a site who actually buy something, is a paltry 2%. Cranswick says: “This is going to have to get up to about 10-15% if they are ever to make a profit.”
Cranswick says most consumers are still not sufficiently comfortable with the internet to book travel online. Qantas, Ansett, Impulse Airlines and Virgin Blue are pushing people to book domestic travel online, and although their efforts will encourage more people to use the internet, they will not immediately boost the business of online travel retailers.
Cranswick says that airlines, now that they are also online travel retailers, are eating into the potential revenue of companies such as Webjet and Travel.com.au. Webjet offers the Qantas low-priced internet-only deals, but Qantas has not allowed the other online retailers to sell the fares.
The chief executive officer of Travel.com.au, David Tonkin, says most consumers see the internet as a way of getting a bargain. A survey of buyers of online travel in the US, conducted last year by the research company PhoCusWright, found that 54% said saving money was the main reason for buying travel on the internet. Other reasons given were reliability (20%), ease of use (16%) and customer service (9%).