The online travel business continues to expand but at a diminished rate from what we saw several years ago. Nonetheless, the year-on-year change is a substantial increase in terms of dollars.
According to the new eMarketer report, Online Travel in the US: Pursuing Customer Loyalty, online leisure/unmanaged business travel sales in the US will total $78 billion in 2006, up 20% over last year, while online corporate sales will be in the neighborhood of $37 billion.
“With most U.S. travelers already using the Internet, online travel distributors will compete more aggressively for their business,” says Jeffrey Grau, eMarketer senior analyst and author of the report. “To earn customer loyalty, online travel agencies are beefing up customer service and online travel suppliers, such as hotels, are adding more information about accommodations and nearby activities.”
Philip Wolf of PhocusWright sees the online travel world leaving the era of Web 1.0 and maturing into a new business model. Online travel companies will increasingly need to differentiate themselves and be classified by their strengths. Added to that, argues Wolfe, will be the growth of communities within the sites - which is not a new concept. IBM’s business unit, Lotus, developed a similar philosophy of community and collaboration within a corporate environment as far back as mid-nineties, based on its Notes Collaboration Tool Suite. The concept was that power users within a company needed more than just email communication, and therefore Lotus (and more recently Microsoft) added team rooms, chat rooms, webinars and instant messaging - all designed to make geographically distributed users totally interactive. Using the same concept these collaborative tools are now available on retail sites to allow visitors similar types of community activities, such as eblogs.
Let’s consider the Shop-to-Book process. It has five steps beginning with research and ending with the reflection and expense reconciliation of the actual trip itself.
The process starts with Research of trip options, and once the trip concept is agreed, the browser moves to Shopping, then on to Booking and, finally, the trip itself. Frequent travelers can have overlapping trip cycles and may be at various steps of various cycles simultaneously. For example, consider the traveler who may be researching a future summer vacation while in a hotel room on a business trip and completing an electronic expense report for a previous trip.
Travel sites can be classified into three general functional areas: Travel Search (Research), Travel Shopping (Compare) and Travel Sales (Buy).
Travel Search sites provide reasonably intuitive URLs where the consumer is attracted to the site by advertising, web mail campaigns or other promotional and marketing media. The sites have an infinite number of links to other sites where travel shopping is actually performed. In some cases, the initial site may display a variety of options and provide a comparison for the consumer who can then choose the best offer. Examples of these sites are Yahoo.com and Cheapflights.com
The business model is one in which the search portal collects a referral fee from the receiving site, based either on the number of referrals or resultant revenue production. Additional revenue is derived from other sources such as advertising. The interplay is interesting as there is little original content on these search portals, and the travel site receiving the referral relies on a linked booking engine to consummate the travel purchase transaction.
To give you a sense of the ad spend involved, in 2005 gross U.S. advertising expenditure was $276 billion, with an online spend of $12 billion and paid search of $5.2 billion. Growth in online spend and paid search was 34%, significantly higher than corresponding growth in traditional media. Travel Search providers can ensure targeted content placement, which results in better leads and higher conversion rates than current options—and produce much greater ROIs for advertisers than simple keyword combinations.
Shopping sites can often be viewed as Travel magazines, such as “Conde Naste”. Interesting content is shown and common interest group communities are created. Add new technology to these passive sites and the site visitor is drawn into a more collaborative, compelling online experience. Two sites come to mind which demonstrates these new concepts: a new travel search engine, boardinGate.com, which uses Web 2.0 and RSS features. These tools are dedicated to the travel domain, thus changing the way we perceive information. BoardinGate uses Web 2.0 in the travel domain (i.e. Blogs podcasts, ajax, tags, etc.), and is particularly attentive to RSS, which represents a formidable opportunity for this sector.
RSS is spreading rapidly across the Internet. The new format is changing the way we access news, and revolutionizes the way we are informed as delineated information comes to the user. An intelligent, tailored access to information allows each surfer to personalize content based on their needs. It is information on demand.
Another site called Farecast.com aims to predict where airfares are heading. For example, if you are planning to travel from Boston to San Francisco in a month, it researches fares, based on historical information, and offers an opinion of possible future fare movement. This allows the user to make informed decisions about a purchase timetable. For anyone who has missed the “window of opportunity,” this is a godsend.
Meanwhile, Online Travel Agencies (OTAs) have taken a different tack by positioning themselves as a one-stop shopping site able to solve all travel needs. They have developed many innovative processes and technologies not offered by traditional agencies, which rely on brochures, phones, faxes and GDSs to serve their customers. Conversely, OTAs contract directly with travel suppliers and negotiate net fares and rates, offering them with their own mark-ups. This approach is known as the merchant model, moving away from the commission model and supplanting more costly outlets for excess capacity distribution.
An additional innovation was the re-creation of the direct technology link. With air segments comprising roughly 32% of the total spend in the global travel marketplace, roughly 20% of that is booked online. If a travel site can access core inventory directly from the host engine, there are inherent savings of $6 to $8 per transaction, while reducing costs and providing greater content control. These are all important attributes that fulfil the shopping experience.
Finally, the “Selling Sites” are mostly the travel provider sites, e.g., BA.com, Marriott.com, etc. Their primary mission is to sell the travel providers’ basic offering, such as seats, hotel rooms, etc., with little additional focus. If you want to get from A to B, it is here that one often gets the best rates and most reliable information related to the product offering. The travel companies—hotels, airlines, car hires, tour companies and cruise lines—have invested heavily in developing these sites with one simple reason in mind: reduced distribution costs.
When you add other reasons such experience-based differentiation (EBD) and branding control and loyalty, one begins to understand why companies are pushing customers to their own sites. The strategy works most successfully for a straight-forward product offering such as low cost airlines offering simple point to point fares and products, mid-tier hotels rooms and car rentals. This is the best example of travel as a commodity. For more complex or pricey purchases, such as a $10,000 cruise, the buyer more often needs additional guidance, customer care and information - often not supported elegantly on a web site and with a clear chargeable benefit.
A new breed of Selling sites is emerging that will provide a bundled offering of various travel components, unlike travel providers’ web sites where the main focus is selling their own inventory. These new vendors will contract directly with suppliers and assemble the product dynamically. How are they different from Shopping sites? They have their product offering pre-bundled versus a shopping site that assembles the product as you shop. An example is ecasual.com, a site being created as a part of the eCasual site suite developed by a start-up company called Dynamic Leisure Corporation.
Originally seen as channel disrupters, online portals are now the preferred channel for travel providers as they reduce distribution costs. Equally important, and even more so in the future, these sites provide the travel supplier with direct consumer contact, which was lost in the previous value chain. Actually knowing customer preferences allows a much more tailored customer loyalty program to be implemented.
The good news is that whether the consumer is simply searching, shopping or buying, there is a site for everyone. The bad news is that the consumer often feels the need to check multiple sites before making a purchase. The Economist summarized the process correctly by calling the travel search process as one of “outsourcing” the search to the consumer (using low cost, self-service search tools).
The more information the consumer receives about their travel options, the better their expectations are met. And, in turn, they will be less likely to be disappointed with the travel experience. A seat offered by Ryanair or jetBlue for a simple point to point air trip can easily meet or exceed the low expectation of the consumer, while a more complicated product such as a cruise needs to provide much greater content to create demand but set expectations.
While providers see most value when consumers access their offer directly, each of the three options provides better information at lower cost and provides incentive for consumers to buy when they really were “just looking.”
By Declan Boland
Declan Boland is a Director within the Global Communications Practice for Unisys Corporation, a Fortune® 300 technology and services company, based in Boston.
His mission is to provide Unisys’ solutions and services capabilities and expertise to airline, travel and hospitality clients focused on a broad range of solutions including consulting, reservations, loyalty systems services, security, business intelligence and IP technologies.
Prior to joining Unisys, he was a consulting Partner for 10 years with IBM Travel and Transportation industry group. In addition, he held a variety of similar roles at Sabre, Cendant, Galileo - amongst others.
Acknowledgements :: Ron Kuhlman, Unisys Scorecard
“Originally Published in ENewsline: www.enewsline.net