Which Way Is the Travel Industry Headed?
Monday, 14th November 2005
Travel planning and booking are among the most popular online activities and online travel sales are booming.

"Without question, the Internet has shaken up the status quo in the travel industry," says Jeffrey Grau, Senior Analyst at eMarketer and author of the Online Travel Worldwide report. "Traditional travel agencies are struggling to stay relevant, online travel agencies are trying to instill loyalty among their customers, travel search engines are the new upstarts, travel suppliers are flexing their muscles and global distribution systems are looking for ways to reverse their waning influence."

Only two things are certain in the travel industry today: the stakes are high and the competition is intense.

The World Travel & Tourism Council (WTTC), a London-based business leaders' forum that promotes the travel and tourism industry, estimates that worldwide spending for personal travel will reach $2.8 trillion in 2005.

The online portion of those sales is growing at an explosive rate in the US, Europe and the Asia-Pacific region.

According to PhoCusWright, combined online travel sales in the three regions will be over $115 billion this year.

But where is the business going?

 "As they effortlessly shop across multiple sites in search of bargains," says Mr. Grau, "online traveler shoppers show little loyalty to travel providers."

The main online competition is between online travel agencies (also referred to as portals or aggregators), which currently draw the highest volume of visitor traffic, and direct suppliers, such as airlines and hotels, that draw customers to their Web sites with aggressive lowest-price guarantees and loyalty promotions.

The latest entry into the competition: travel search engines that are ideal for comparing prices in a commodity market.

"As of now, online travel agencies are losing ground to direct suppliers," says Mr. Grau. "Merrill Lynch estimates that direct travel suppliers will have a 54% share and online travel agencies a 46% share of the $62 billion US online travel market in 2005."

Over the last year, Merrill Lynch reported that direct travel supplier sales increased 27% compared to 19% for online travel agencies. The Merrill Lynch report also noted that travel search engines were driving direct supplier sales, and accounted for $600 million in direct bookings last year.

PhoCusWright also observed the rise of direct suppliers; however, from its point of view the race is much tighter. According to PhoCusWright, direct suppliers increased their market share from 46% in 2002 to 48% by 2004.

"With so much in flux, so much competition and so much crossover," says Mr. Grau, "It is still too early to tell what the new order will look like."

Keep up with the changes in this fast-moving industry. Read eMarketer's new Online Travel Worldwide report today. 


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