Tourism Management

Online Travel Agencies

The online travel agency market as well as tourism management has changed dramatically in the past year. Five companies now account for over 90% of non-branded hotel bookings: IAC (Expedia, Hotels.com and Hotwire), Sabre’s Travelocity, Orbitz, Cendant (Lodging.com and Cheap Tickets) and Priceline, according to PhoCusWright estimates. IAC accumulated market power through organic growth and a series of acquisitions over a three-year period. Sabre’s Travelocity unit took steps in 2003 to organically grow its merchant hotel revenues. Orbitz raised the necessary funds through a public offering and increased merchant hotel revenues despite issues with its hotel partner, Travelweb. The leading online travel agencies will battle one another for market share by lowering the sell rate on hotel-only and package sales. In so doing, they will accept higher nets (lower margins) to get inventory from chains. Both actions will lead to less profit per property for the market leaders, and put the squeeze on some of the smaller players (e.g. Lodging.com, OneTravel.com) which must try harder to compete (or accept lower margins) to get access to chain inventory. As the online travel agencies together battle for the chains’ customers and bookings, chains’ ability to get customers to their own Web sites will be affected.

With 10,000-15,000 merchant hotel properties now available, the market leaders are far apart in terms of merchant sales. Expedia, Hotels.com and Hotwire combine to sell 87% of their hotel gross bookings via the merchant model. Hotels.com always sold via the merchant model (through its call center prior to the Internet) and Hotwire via the opaque model. Expedia entered the market via its Travelscape acquisition in 2000. Travelocity and Orbitz are catching up. All four of the largest online travel sites – Expedia, Hotels.com (via Expedia), Travelocity and Orbitz – have similar packaging functionality. Each offers dynamic packaging and pre-packaged vacations. Customers can select among vacation destinations, including cruise programs, as well as interests such as skiing and golf.

Tourism Management

With the exception of Orbitz, all of the major sites offer a low price guarantee. This tourism management applies to negotiated merchant rates and requires a booking plus a report submission to receive a refund for the difference between the online travel agency rate and the lower rate. Long a staple of the offline travel agency business, the business segment represents the next big growth opportunity for online travel agencies. PhoCusWright estimates the U.S. business travel market (managed and unmanaged) is over $100 billion in 2004. The online corporate travel market is projected to reach $23.3 billion in 2004, up 24% from 2003. A smaller, but growing sub-segment of the corporate travel market is the “lightly managed” segment, which has become more lucrative with the increased use of the Internet for travel planning and management, as well as self-booking and planning. This segment typically spends between $3-10 million on annual air travel, although the lower threshold may be as low as $1 million. To pursue the business market, the three leading consumer online travel agencies have also formed corporate divisions. Expedia formed Expedia Corporate Travel in November 2002, and expects half of its total travel business (estimated at $7.7 billion in gross bookings in 2003) to come from corporate sales and tourism management in the future. The company reported 1,100 corporate customers in April 2004.