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Are
holiday bargains for true or have catches hidden?
REMEMBER
YOUR LAST CONVERSATION WITH THAT family relative who
couldn’t talk enough of how much they saved on their
last holiday package deal? Or that colleague bragging
about his $59 round- trip flight to Las Vegas and his
stay in a 5-star hotel at $89 a night? Have you found
yourself staring wistfully (and suspiciously) at a $399
package deal for two for Hawaii?
Just
because your email seems flooded at times with seemingly
impossibly priced travel offers, and you find Internet
search engines are flooded with 1000’s of sites selling
internet travel besides big hotel brands and branded
distribution sites don’t discount them all.
Who
can you count on?
Just four or five years ago, when you looked for travel
discounts you could choose between a travel agent,
the airline offices and the hotels themselves, and maybe,
if you were lucky, some travel guru down the street.
Today, there’s a massive range of things you can do
online, and a lot of them can save significant amounts
of money.
The reality is:
• Nine out of 10 online travelers now have some history
of shopping for travel online, and nearly 15% of all
Americans purchased travel online last year - that’s
five times the penetration rate of 1998. (PhoCusWright
Consumer Travel Trends Survey)• Nearly one-third of
online travel buyers say the Internet was responsible
for their travel purchases last year.
• In 1998, six million consumers bought travel online
in the U.S. Jump ahead to 2002 when 30 million Americans
purchased travel online in the last year. Half of them
only buy their travel online. (PhoCusWright Consumer
Travel Trends Survey)
• Online travel bookings exceeded $23 billion in 2001,
and are expected to reach $63 billion by 2005.
• Internet bookings in the first three quarters of 2002
accounted for over 23% of rooms sold in New York, and
over 15% in Los Angeles, Chicago, and San Francisco.
Anecdotally, for some properties, hotel managers are
reporting Internet bookings ranging from 30% to 50%
of all room nights in 2002. (Smith Travel Research and
TravelClick)
What does this mean?
This means that online
distribution channel is extremely successful in reaching
buyers and buyers are finding it more confirmable to shop
online. They are seeing a broader range of travel options
and variety of products and packages. And its more likely
that consumer wants to control that transaction through
access to more competitive pricing. Pricing is becoming
key factor to determine the sale.
Key factors: Why travelers prefer to book online
• Competitive Price
• Ability to compare product and Prices
• Ability to plan last minute
• Availability of Range of options
Online travel shoppers are not very loyal on where they
shop—65 percent of online travelers do not view themselves
as brand-loyal. As much as they love to shop online
and spend their time researching what suits their needs,
they are not loyal to the companies from which they
buy.
The above scenario indicated that the travel suppliers
have no choice but to participate in this online distribution
channel. The suppliers are realizing that the traditional
channels like GDS (Global Distribution System)/travel
agent and call center/reservation office is somewhat
inefficient and expensive, especially when the economy
is weak. Ignoring online distribution channel and concentrating
only on traditional distribution channels will result
in lower occupancy, and higher distribution and operational
costs for travel suppliers. As online channels become
more popular among suppliers their participation is
increasing.
How
Pricing and Distribution Become Key
9/11 caused a dramatic shift in how consumers booked their
travel. The instability caused a large drop in demand
for airlines, hotels and car rentals leading to ever-lower
prices. This low demand factor forced travel suppliers
to introduce unprecedented discounts. Travel suppliers
struggled to sell seats, rooms, car rentals to a significantly
shrunk leisure and business travel market. Every air seat,
room and auto not booked cost their companies money. Better
to sell dirt cheap than not to sell at all. But how to
get the word out?
Smart, proactive suppliers adopted the Wal-Mart business
model—sell low and distribute inexpensively and efficiently.
But how?
The Internet allowed them to reach consumers, sell inventory
outstrip their less progressive competition. Those suppliers
who had no clear Internet strategy or understanding
of how the Web and online distribution works suffered.
Discount hotel sites attract millions of buyers with
their special rates leading to stratospheric sales through
these channels. They thrive on hoteliers selling their
distressed inventory at a fraction of their normal rates.
Occupancy is the lowest its been in years, hoteliers
continue to work with leading online retailers to move
inventory at lower price.
The
$6.3 billion in online hotel sales (2002) with are split
roughly evenly between discount agency sites and hotel
Web sites. PhoCusWright projects that around 75% of discount
agency hotel site sales are via the merchant model, where
the agency typically takes a 20-30% “margin” on the hotel
net rate (instead of the usual 10% commission). This approach
has helped profits at Expedia and Hotels.com, who have
roughly 60% of online discount agency hotel sales. Travelocity
and Orbitz are instituting the same successful approach.
Other notable players thriving in this arena are Hotwire.com,
HDN.com, Lodging.com and Travelweb.com.
What is the Future?
Online travel growth will continue to grow in 2003-2005,
but it will slow down year by year compared to the record
gains see so far. However millions of travelers haven’t
yet made their first purchase so the market is not near
saturation. Technological improvements will soon make
it possible to more easily dynamically package vacation
deals including air, hotel and car leading to even lower
prices but higher average sales. So growth is projected
to come from customers buying more, higher-ticketed
products online.
The growth of the online distribution channel will prove
beneficial to the end user when the suppler finds it
easier and more cost-effective to distribute their inventory
there than over the traditional distribution channels.
As technology becomes mature in the online distribution
sector, it will become more effective and user friendly
for the Buyers and thus will attract more Suppliers.
Due to its low cost of distribution and emerging ability
to package and cross sell inventory, prices will be
attractive for years to come, until this channel eventually
becomes a commodity.
By Yatin Patel
Published in http://www.siliconindia.com
July 2003
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