The big travel portals are responding to the slim margins in some parts of their business by branching out into new areas, such as selling tickets for entertainment and activities at the destination, as NMA reported last week.
This move is partly because their traditional hotel and airline partners are getting increasingly picky about which sites they work with and how they do so. But just how tough are the hotels and other companies going to get with major sites like Travelocity, Lastminute, Ebookers and Expedia? Are these travel sites really getting squeezed by suppliers, or is it the other way around? Have they been trying to take advantage of the hotels and airlines, which are now fighting back?
Direct flights
Airlines have been eating away at the strong position of the portals with ever more savvy marketing of their own Web sites. There can't be many planes these days that don't have a 'www' on their side, often displacing more traditional airline logos. The margins available to Web sites and other distributors have at the same time been getting thinner and thinner. In the US, NorthWest Airlines has gone a step further and promised that tickets bought anywhere other than its Web site will be more expensive.
Hotels are increasingly following a similar policy. The first to do so was Intercontinental Hotels Group, owner of Holiday Inn and Crowne Plaza, which said it will sell only through authorised distributors. Travelocity was in, Expedia and Hotels.com were out. At the same time, it launched a marketing campaign promising the cheapest prices at its own site.
Dermot Halpin, MD of Expedia, wasn't too worried by the breakdown in relations with Intercontinental. "It's an interesting case but not the harbinger of doom," he said.
Last week Hilton international followed suit, CEO David Michels saying it will cut ties with Web sites and other distributors that it deems are guilty of offering misleading prices or demanding conditions it thinks too harsh. This time Lastminute and Travelocity have both passed the test, although Hilton won't say who hasn't.
Tim Davis, senior VP of distribution and ecommerce for Hilton, says some travel sites have been demanding commission rates two or three times the size given to traditional travel agents, and that's why it decided to act. "If they can get away with it I don't blame them, but with Hilton they won't," he says. "The Internet has created and enabled bad practices. We want to nip that in the bud."
Ned Booth, MD of Travelocity, says, "The tide is certainly turning a bit. Those with supplier-friendly models are benefiting." But he warns that as things change, "it could end up in increased prices for consumers."
You won't find hotel groups agreeing with that last statement. They're wrapping all this up as an exercise in making things easier for consumers. They say they want to stop practices which confuse customers or limit the choice available to them. It reckons travel sites are sometimes guilty of promoting hotel rooms that have the highest margin for the site, rather than the best price for the consumer. Of course, there's also the obvious benefit of being able to keep more money for themselves and not have to share commission with any travel portals.
On the other hand, supplier relations are crucial for all the travel sites. Without being able to offer seats on flights people want to take or beds in hotels they want to stay in, they simply don't have a business.
Branching out
But alongside trying to keep all these suppliers happy, travel sites are recognising the importance of other services they might sell. Flights aren't a great way to make money any more. Margins are tight and likely to worsen.
This is why travel sites are increasingly trying to push customers towards new items. In the same way they all try to sell a hotel room, hire car and travel insurance when you book a flight, they're now starting to offer tickets to theatres and clubs, or maybe a helicopter ride too.
So while the airlines and hotel groups are changing the way they operate to deal with the challenge from the travel portals, the latter are shifting their businesses as well, to deal with these tougher attitudes.
"The way to profitable growth in this sector is lots of interaction with customers," says Brent Hoberman, CEO of Lastminute. He points to dynamic packaging--where customers put together their own flight, hotel and car hire deal online as one key area for the future.
So it looks likely that consumers will get offered far more through the main travel sites. However, if the emerging battle between distributors and suppliers continues, those same consumers may find they're having to look around several places to get a full view of what's available.
MAJOR TRAVEL GROUPS
* Amadeus
* Cendant: Avis, Orbitz, Ramada Inn, Travelodge
* Ebookers: Bridge the World, Travelbag
* InterActive Corp: Expedia, Hotels.com
* Lastminute: Holidayautos, Onlinetravel.com
* Priceline: Active Hotels
* Sabre: Travelocity
US TAKES SECTOR TOWARDS CONSOLIDATION
US consolidation is also liable to change the landscape for travel portals in the near future. Travel group Cendant was forced into an explicit denial after a report linked it to a takeover of rival Amadeus, although someone is likely to de that deal soon. Cendant is, however, buying Orbitz for $1.25bn.
The European market is still rather more fragmented. The US has three or four major carriers, for example, whereas Europe has at least one per country, sometimes with several strong smaller players keen to punch above their weight.
Brent Hoberman thinks it's the big US players that will be increasingly muscling their way into the European market. When they do, it's likely to be via takeovers rather than by developing their own new brands. Ned Booth of Sabre-owned Travelocity says that when it looks to expand it will be buying rather than building. "I think we'd always acquire to enter new markets," he says.
Indeed, Ebookers is in takeover talks at the moment. Whether it's a US player or someone else has yet to be revealed, but both Sabre and Interactive Corp have been spoken of as possible suitors.
No comments:
Post a Comment