IQ News: Prepare For Takeoff

Airlines Ponder A Nation Of Amateur Travel Agents Imagine stepping up to a United Airlines ticket booth and booking a flight on Delta. Or calling United's 800 number to make a reservation on American. Sound strange? That's precisely the kind of service United is now offering on its Web site (www.ual.com). Through the site's United Connection service, visitors can reserve and purchase tickets on more than 500 other airlines. And United may not be alone; Continental is mulling a similar tact on its site (www.cooltravelassistant.com.) So why have the skies suddenly become so friendly? The person who shops online is an advanced breed of bargain hunter, explains Matt Meyers, Web site manager for United. They're looking to maximize convenience and savings, he says, "so whether they do their research on ten sites on the Internet or just one, they're going to try to accomplish the same goals. Why not give visitors everything they're looking for on ual.com?" Another, more cynical explanation might be found in the new crop of online travel agents, which have made the majors rethink the way they'll do business in the Information Age. Unbound by allegiance to one carrier, unconstrained by long-distance or customer service expenses, services such as Expedia, Travelocity and Preview Travel have been offering consumers the one utility they desperately seek: the opportunity to pick over a variety of fares in the quest for that rock-bottom ticket. With revenue estimates ranging from $6-9 billion by 2002, the online travel business is widely expected to be one of the Internet's biggest commerce breakthroughs by the millenium. Online transactions for travel reached $274 million in 1996, according to Jupiter Communications, making it the No. 2 commerce category behind computer software and hardware sales. So far, the upstart online agents have carved out less than 1 percent of the ticket booking market, according to industry figures. Airlines book about 20 percent directly, on the phone, at the counters, and to a much lesser degree, via their sites. But for the carriers, who have been hoping that Web sites like ual.com would allow more direct customer communication with lower expenses--and no travel agent commissions--online services are just more competition. Already, the lure of the interactive medium has converted companies such as Microsoft and Sabre Interactive, Dallas, a specialist in building and maintaining reservation booking systems for airlines, into travel agents. Sabre's online travel aid site, Travelocity (www.travelocity.com), gives would-be passengers the same access to flights, fares and schedules that it does travel agents. The company booked $95 million worth of reservations for rental cars, hotels and airfare in 1996, its first year of business on the Web. In addition, Sabre builds sites for regional travel agents, giving them access to its computer reservations system. Microsoft's Expedia (expedia.msn.com) anticipates $100 million to $110 million in online booking for 1997, which would put it in the category of top 35 travel agents nationwide, says Simon Breakwell, group manager of Expedia sales and marketing. Other online travel agents have been busy trying to expand their reach: Preview Travel (www.previewtravel.com) has struck deals with Excite and America Online, and Travelocity has linked with Netscape Guide by Yahoo. In the meantime, scrambling airlines have focused their Web efforts on reinforcing their relationship to their most important customers: frequent fliers. That's why American has "NetSAAvers," an email system that alerts registrants about last-minute bargain fares. Delta can tell you whether the Reds will be at home during your next trip to Cincinnati. And United can help you brush up on your French before your next flight to Paris. Many others offer bonus-mile incentives for those who book flights from carriers' sites. Conspicuously obscured, however, is fare information. Even United's comparative fare finder is buried deep in the bowels of the site. It makes sense for airlines to use the Internet to communicate with loyal customers, says Terrell Jones, president of Sabre Interactive. But the notion of an airline doubling as a "broadly neutral [online travel agent] won't work." The public won't buy it. Online travel agents are targeting an entirely different crowd from the carriers: the leisure traveler. With more time on their hands and less money in their pockets, leisure travelers are more inclined to head to an independent source for fares and fare comparisons, Jones says. And therein lies the biggest threat to airlines: The success of Travelocity and Expedia cuts directly into carriers' ultimate objective: increasing their direct sales to customers. Delta Air Lines' Brad Gerdeman agrees that the independent online travel agents have a distinct selling advantage over the airline sites in what he considers a very lucrative market. "They definitely will be a big competitor," says Gerdeman, who is the system manager for national marketing and communications. Still, it's far from an all-out war between airlines and virtual travel agents. Expedia has provided carriers such as Continental and Northwest Airlines with booking software, and Sabre is itself a spinoff of American. In addition, nearly half the airlines access Sabre's proprietary reservation engine. Some carriers have also found a ray of light in the new interactive landscape: They've used it as an excuse to rewrite the book on commissions. According to Tom Parsons, the editor of Best Fares, a magazine and Web site that tracks the industry, most major carriers pay a maximum $10 per-ticket commission fee on Internet bookings done by a third party. Traditional commission fees run as high as $50 per ticket, Parsons says. Of course, automated Web-based travel agents can process more fares in a day. They also receive a few million dollars a year in advertising revenue--mostly from the airlines themselves. But at $10 a head, the airlines might be getting the last laugh over online bookers, who face tough competition and tightening margins. Expedia's Breakwell says the industry is ripe for a shakeout. "There will be a consolidation in the online travel business," he says, "because this business is still a matter of who's losing the least amount of money."

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IQ News: Prepare For Takeoff

Bernhard Warner

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Bernhard Warner