To gain footholds in the $40 billion online travel industry, Orbitz and Travelocity built up significant market presences using virtually identical business models. In targeting Internet-savvy consumers, both companies provided discounted prices and packaged travel in an almost identical format. Recently, however, increased competition has begun to force changes.
Direct sellers, such as AMR Corp.’s (AMR) American Airlines and Marriott International Inc. (MAR), can offer similarly low prices along with such benefits as frequent-flier miles and hotel points, while metasearch engines, which search for travel services but don’t allow you to book directly, can guarantee the cheapest option for consumers. Also, to earn those precious travel dollars, Orbitz and Travelocity are going to have to differentiate themselves in ways that grab consumers’ attention.
“What we’re seeing is the U.S. online travel market maturing with consumers wondering where they find value,” said CIBC analyst Paul Keung.
Travelocity and Orbitz, however, are only two of the four most prominent companies in the online travel agent marketplace, which also includes Expedia Inc. (EXPE :
expedia inc del com
News , chart , profile , more
Last: 24.16-0.22-0.90%
4:40pm 06/06/2007
Delayed quote data
Add to portfolio
Analyst
Create alert
Insider
Discuss
Financials
Sponsored by:
EXPE24.16, -0.22, -0.9% ) and Priceline.com Inc. (PCLN :
priceline com inc com new
News , chart , profile , more
Last: 61.04-0.66-1.07%
4:52pm 06/06/2007
Delayed quote data
Add to portfolio
Analyst
Create alert
Insider
Discuss
Financials
Sponsored by:
PCLN61.04, -0.66, -1.1% ) . In terms of total customer awareness, Prophis eResearch, a Toronto-based travel research firm, reports 97% awareness for Expedia and Travelocity, 96% for Orbitz, and 92% for Priceline, with no other company above 86%.
For 2007, Thomas Weisel analyst Jake Fuller estimates $18 billion to $19 billion in total U.S. business booked both domestically and abroad for Expedia, $12 billion for Orbitz, $11 billion for Sabre and $4 billion for Priceline. The figures include Fuller’s prediction of an almost 25% bump for U.S. bookings growth to $47 billion for the year.
As the market grows, acquisitions continue to change the landscape, making some of the bigger companies even bigger. In Europe, for example, the second-largest travel firm, Thomas Cook, recently merged with the third largest, MyTravel Group (MT.S.LN), while in the U.S., Sabre recently bought Site59 to combine with lastminute.com.
Expedia, the largest player in the industry, has built its presence partly through acquisitions. In the past several years, Expedia has made international purchases, such as French online company Egencia and U.K. travel agency World Travel Management, as well as such domestic sites as Hotwire and hotels.com.
Now, Expedia has earmarked more than $300 million for capital expenditures over the next three years, with its target possibly set on any of its three largest competitors. Fuller noted, however, that Orbitz might be the most likely choice. Since Travelport announced an IPO for Orbitz, “they must also be looking at options for the asset,” said Fuller, who warned that going public might force Orbitz to be a little tighter on spending.
To maintain their independence and stave off competition, online travel agencies in Expedia’s shadow must differentiate their products and brands, analysts say. To do this, Orbitz has focused on its “TLC” program, which includes alerts for late flights and coordination between each of the companies in a packaged travel deal, according to Michael Cannizzaro, director of information services for independent travel research firm PhoCusWright.
Cannizzaro says the company is working to make the process more efficient with mobile devices, such as PDAs and Blackberrys, as well as adding weather forecasts as part of its trip planner function.
Travelocity, on the other hand, is trying to offset an increase in customers booking directly with airlines and hotels by striving to become liable for every part of a customer’s trip, according to Chief Executive Michelle Peluso.
“If a pool closes at your hotel, we now have active alerts to tell them (the customers), and we can move you,” said Peluso, who noted customers booking through the hotels directly wouldn’t get the same service.
Travelocity also is revving up its rewards programs, which includes discounts on travel and offering concierge service when you book directly through the site, and personalizing its travel offerings by using a customer’s spending habits to find deals and suggestions on such items as theater tickets and sporting events.
Analysts say another area where online travel agencies can distinguish their products and offerings is by going overseas. In Europe, for example, three of the four chose to buy into the market, prompted by Orbitz’s decision to buy U.K. online travel giant EBookers.
Priceline, however, didn’t buy an already established European agency. Instead, the company focused on becoming the most prevalent U.S.-based agency in developing areas. In places like Hungary and the Czech Republic, which have hotels unaffiliated with big chains, Priceline enables consumers to search for the best deals online, and has become the easiest way for many mom-and-pop hotels to find guests. So far, Priceline’s decision has paid huge dividends, with earnings for the most recent fourth quarter more than tripling and pro forma earnings 5 cents a share above analysts’ estimates in the third quarter. Following both earnings releases, the company’s stock shot up more than 5%.
Jeff Boyd, president and chief executive of Priceline, said the company’s model is geared more to remaining an independent company, although he admitted the recent wheeling and dealing within the online travel industry could continue. Making Orbitz and Travelocity more likely targets for an Expedia takeover is their access to some of the largest Global Distribution Systems in the industry. A GDS, or reservation system, is the middleman between travel agencies and hotels, airlines and car rental companies. The GDS, which earns fees from both sides of the transaction, usually receives more money per transaction from the supplier and travel agency than the agency earns.
Currently, private equity firm Blackstone Group holds both Orbitz Worldwide and GDS Galileo under its Travelport umbrella, while Sabre Holdings maintains its own GDS. Though Orbitz declined to comment on what type of relationship it might have with Galileo after the IPO, both companies now have access to the booking information of almost every travel agency in the U.S.
And by having it in-house, both companies said, they can see market trends quicker and act accordingly. That’s something Expedia may covet.

information from : www.marketwatch.com

This entry was posted on Thursday, June 7th, 2007 at 4:08 am and is filed under Travel. Tags: airline America American Airlines Blackstone Group car rental Consumer Czech Republic Europe European Expedia Expedia Inc Hotels Hotwire Hungary information services Marriott Marriott International Marriott International Inc. Mobile online travel Orbitz Sabre Sabre Holdings search engines Toronto Travel travel agencies Travel agency travel industry travel management travel market travel services Travelocity . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.