Cruises, packaged tours, and consolidator tickets all are richly margined travel products, and everyone in the online travel universe is trying to guess who will capture these more profitable areas of business.
Although analysts favor companies such as Travelocity-Preview (TVLY) and Expedia (EXPE) to say that these two dot-coms are the whole story. In fact, there’s downright optimism that smaller players will prosper online.
“It will be difficult to compete head to head against Travelocity-Preview and Expedia, but that leaves opportunities for niche players,” says Melissa Shore, an analyst at Jupiter Communications. “In the right niche, a small player can do well.”
A few online travel providers are therefore abandoning the grandiose ideas of becoming the travel megamall and competing with the likes of Expedia and Travelocity-Preview. Instead, smaller agencies are trying to make a dotcom name by catering to niche markets, such as business travel and vacation packages.
Complex travel sales especially vacation packages and cruises—tantalize every merchant because commissions are rich, often more than 10 percent. One such vendor eager to peddle vacation packages is Lowestfare.com.
Last November, bought Maupintour, a leading provider of packaged tours. Lowestfare.com is mostly owned by investor Carl Icahn, who also owns a right to buy steeply discounted TWA tickets into 2003, since he had for a while owned Trans World Airlines (TWA).
“At a recent travel industry conference, that announcement triggered an audible gasp,” says Kirby, editor of The Interactive Travel Report newsletter. “People were stunned.”
For good reason: Lowestfare.com wasn’t considered a long-term player—when Icahn’s cheap tickets ran out, so would the company, or so industry thinking had it—but by acquiring Maupintour, Lowestfare.com positioned itself to put a range of brand-name tour packages up for sale.
Yet for now, that’s not happening. “We haven’t done so yet,” says Lowestfare.com CEO Ken Swanton, but inevitably the company will start selling these trips. If Swanton pulls it off, it’s a sure thing that other, richer competitors will start acquiring tour companies and building up their vacation package offerings.
In fact, Travelocity-Preview is planning to do just that. “We are growing our vacation business—the margins are higher—and that part of our business will continue to grow as people get more comfortable spending on the Web,” says Travelocity’s CEO Terry Jones, the executive tapped to head the combined Travelocity-Preview venture.
The richest commissions come from cruising—as much as 14 to 18 percent of a trip that averages $3000. For travel agents, that equates to upwards of $400 per booked cruise package.
Although every online agency talks about pursuing this niche, they may have been beaten to the punch by Uniglobe, which has tilted its online offering to put heavy emphasis on selling cruises. Analysts such as Gomez Associates’ Krista Pappas suggest that “Uniglobe has a comfortable future.”
“We’re bringing together high-tech and high-touch. On average it takes 14 contacts with an agent to sell a cruise. Using the Web, we are getting that number down to two or three,” says Uniglobe CEO Martin Charlwood.
Considered more of a dump station for airline overflow than a true travel agency, CheapTickets (CTIX) has specialized in selling airlines’ excess inventory by phone since 1986. Because it already had its systems in place, says Jupiter analyst Shore, the company is ready to take on the Internet. Also, consolidators such as CheapTickets don’t work on commission—another advantage for this agency, she says, in a time when airlines are reducing commissions they pay out.
Several airlines give CheapTickets CEO Mike Hartley access to excess capacity, and it’s up to Hartley to sell the seats, at whatever prices he chooses—usually 20 to 40 percent below conventional tariffs. But he’s ensured he has enough of a margin to reward CheapTickets with $6.1 million in net profits on sales of $273 million for the nine months that ended in September.