Despite tough economic conditions, a tense political climate and fewer travelers, the online travel market performed surprisingly well in 2002. According to a new report from Phocuswright Inc., Online Travel Overview: Market Size and Forecasts 2002-2005, online leisure/unmanaged business travel grew 37% to over US$28 billion while the overall travel market declined 5%.
By 2002, 15% of all travel was booked online, and slower but steady growth is predicted for the next few years, assuming improved economic conditions by the second half of this year or early 2004. Online market penetration varies widely by segment; for example, one in five airline tickets is sold online (for Southwest, the percentage is more like six in 10), but that percentage falls to 9% for hotel reservations and 4% for cruises and vacation packages.
Phocuswright foresees some shift in market segmentation between now and 2005, when the percentage of travel booked online is likely to double and reach over 30%. Today's largest segment, airlines, despite significant online growth, will lose market share as online travel retailers continue to diversify. Airlines' current 54% share of the online travel market will fall to 49% in 2005 as other segments, including international sales, cruises, vacations, car rentals and hotels, grow at a faster pace.
Online travel agencies represent roughly half (49%) of all travel booked online, with supplier Web sites comprising the other 51%. Again, reliance on online travel agencies varies by segment. For airlines, 43% of online sales are booked through travel agencies, but that percentage is closer to 60% for vacation packagers.
Looking at the other end of the spectrum, in 2002, the largest gains in the online travel market were posted by the smallest segments – vacation packages and cruises, which grew 75% and 64%, respectively. Combined, these two slices of the online travel pie represent only 4% of the market.
Higher-margin, more complex vacation packages and cruises are a tougher sell online. Roughly 90% are sold through traditional travel agencies, and, especially in today's economy, suppliers are reluctant to jeopardize these firmly established, reliable relationships, despite the commissions involved.
The online vacation package market will reach $1 billion this year, up 74% from last year, according to Phocuswright. Online cruise sales will reach $900 million this year, up 61%. Even though only 10% of packages and cruises will be booked online by 2005, it's an important part of the equation as many consumers will make their travel decisions online, even if they ultimately purchase offline. As a matter of fact, about half of online cruise sales are researched online but purchased offline using the toll-free number on the travel Web site.
Another somewhat unique factor to consider in this niche is the fact that nearly 60% of online vacation packages are sold through intermediaries, and this percentage is expected to grow considerably by 2005. Tour operators do not have the brand recognition or marketing budgets to compete with the mega online agencies. In addition, dynamic packaging, whereby consumers can create their own packages by combining air, hotel and/or car in real-time, also threatens the online future for tour operators and vacation packagers.
Cruise lines work with online travel agencies to sell discount and last-minute inventory, but they use their own Web sites for marketing purposes rather than direct sales. Many don't even feature consumer booking engines on their sites. Thus, 54% of last year's online cruise sales were generated from online travel agencies, with Travelocity grabbing one third of this business.
Overall, online travel growth rates will ultimately slow down, but stay in the double-digits – which will still be impressive as the overall travel industry struggles.
|