Online Sales of Airline Tickets Soar

CHICAGO -- Online airline ticket sales continue to fly even as ticket sales in general decline amid the sluggish economy. The industry expects Web-based ticket sales, which jumped 50 percent or more at many major airlines last month, to double this year, generating about 15 percent of total ticket revenue at these companies this year. Airlines expect the majority of online ticket sales to come from leisure travelers. However, more corporations are finding ways to let their employees take advantage of the convenience and bargains offered on the Web. Industry analysts say the airlines' recent move to cut commission payments to travel agents will send more leisure travelers to the Web, since many agents will add service fees to make up for lower profits, or will completely drop low-profit sales of tickets for domestic flights. New customers continue to flock to the Internet, according to airline carriers, with first-time customers accounting for about 40 percent of ticket sales in July. Most buyers of airline tickets are drawn to the Web by special promotions, including sale prices and offers for extra frequent-flyer miles. Also, airlines typically give a 5 percent discount on Web sales. A one-day fare sale that American Airlines held on Aug. 8 pushed traffic on its Web site up 74 percent that day, according to Neilsen/NetRatings, a company that tracks Internet use. A spokesman for American, a unit of AMR Corp. (AMR), said the airline doesn't give out specific information on online ticket sales. Such promotions cut into profit margins, but airlines feel less pain because of the savings they get on commissions and fees they would otherwise pay to travel agencies. This year, for the first time, travel vendors as a group, including airlines, will overtake online travel agencies such as Travelocity.com Inc. (TVLY) in the percentage of total Web travel business they capture, said Heidi Kim, an analyst with Jupiter Media Metrix in New York. "This year, vendors will do 51 percent of travel volume, and travel Web sites will do 49 percent," Ms. Kim said. That's significant, she said, because just four years ago, airline Web sites offered consumers little more than advertisements. "The trend is toward airlines getting more and more of the business away from online agencies," Ms. Kim said. "Travel Web sites have had trouble generating customer loyalty. Their customers buy tickets based on price. Online travel agencies can't offer frequent-flyer programs, but airlines can." Northwest Airlines Corp.'s Internet sales will account for 15 percent to 16 percent of ticket revenue this year, according to Al Lenza, vice president of distribution and e-commerce for the nation's fourth-largest airline. He said that includes both the company's Web site and sales through third-party sites. "We think there's a lot more room to grow," he said. "Internet sales could eventually account for 60 percent of revenues from domestic tickets. We expect to get a very high percentage of leisure travelers, and a high percentage of lightly managed business travelers."Along with other airlines, this month Northwest (NWAC) cut the top rate on commissions it pays travel agents. Mr. Lenza said Northwest stopped paying 5 percent commissions to online travel agencies March 1. Instead, it negotiates a fee with each travel Web site. Travel auction sites don't collect fees or commissions, he noted. Going Corporate Mr. Lenza said Northwest is planning to add more features to its Web site for corporate travelers since a shift of corporate travel from traditional travel agencies to the Internet is expected to be the next big thing for online travel. A forecast from Jupiter Media Metrix predicts that managed business travel bookings, which represented $4.3 billion of the $18.2 billion booked online in 2000, will jump to $13.4 billion, or more than half of total travel bookings of $25.1 billion by 2003. With the downturn in the economy, many corporations put off their plans to go online this year, Ms. Kim said. But according to the National Business Travel Association, whose members include more than 2,000 corporate travel managers at U.S. companies, the savings and efficiency of buying airline tickets online already have encouraged some Web-savvy organizations to do 100 percent of their bookings over the Internet. Corporate travel departments at the top 100 U.S. companies spent an average of $40 million each on airline tickets last year, said association director Marianne McInerny. Companies now book most of their travel through travel agencies, which work within parameters set by each company, often restricting employees from going online to make their travel plans. But those parameters can be incorporated into customized Web sites that allow employees to make their own travel plans. Tom Kelly, a spokesman for Bank One Corp. (ONE) in Chicago, said the company books its travel through American Express. "We can make our own travel plans on the Internet. Employees really like this because they have choices, and they're saving the company money," he said. Ms. McInerny said the savings are significant. "Microsoft said after the first three weeks of online booking that it expected to achieve savings of 20 percent, and Honeywell, which does 75 percent of travel booking online, said it will save $4 million within one year," Ms. McInerny said. When companies move their travel bookings to the Internet, she said, they can expect average savings of 25 percent on airfares. Copyright (c) 2001 Dow Jones & Company, Inc. All Rights Reserved.

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