Travel suppliers widen share of online sales

By Danny King
Travel suppliers such as hotels and airlines are gaining greater sales control of a decelerating online U.S. travel industry, while mobile-device booking is accelerating at a rate reminiscent of the early days of the Internet.

Those are two of the primary findings in the 2012 edition of PhoCusWright’s annual U.S. Online Travel Overview, which was released last week.

Supplier websites will account for 66% of online bookings in the U.S. in 2014, up from 61% in 2010, while the online travel agencies’ (OTA) share of online travel will shrink accordingly, PhoCusWright found.

(PhoCusWright is owned by Northstar Travel Media, which publishes Travel Weekly.)

In the airline sector, carrier websites account for about three-quarters of online ticket sales, partly because it is easier for consumers to purchase ancillary services like onboard meals and preferred seating through the carriers than through OTAs.

Cruise lines, meanwhile, have flipped what used to be OTA online sales dominance on its head and will control 59% of Internet sales by 2014.

As for hotels, the progression toward supplier control over online bookings has been more gradual, inching up from 55% in 2010 to a projected 59% in 2014. Such control has been a major issue for the U.S. lodging industry, which largely depended on OTAs to help boost sales a decade ago in the wake of the 9/11 terrorist attacks, but which is chafing at the relatively high distribution costs associated with sales through OTAs.

Lorraine Sileo“It seemed that in 2011 and early 2012, hotels would take back online distribution from the OTAs,” wrote Lorraine Sileo, vice president, research, in the report. “But the recovery sputtered, and although hotels have enjoyed solid gains, they are in no position to dismiss a channel that represents 14% of their total sales.”

Suppliers and OTAs are wrestling for greater control over an online travel market that’s expanded rapidly as the U.S. economy has rebounded but whose growth is forecast to slow substantially as the online industry matures and questions remain over the U.S. and Chinese economies and on the European debt crisis.

Online U.S. bookings, which jumped 27% between 2009 and 2011, will rise 11% this year, to $126.3 billion, led by a 21% jump in cruise bookings through the Internet. Still, year-over-year online booking growth will slow to 7% for each of the next two years, according to PhoCusWright.

With U.S. online booking growth slowing and suppliers gaining a greater foothold of that channel, OTAs are increasingly looking overseas as a way to maintain growth. Expedia, for example, grew about four times as fast overseas as it did in the U.S. Priceline overtook Expedia in annual revenue in 2010 specifically because of its overseas growth.

What may stand in the way of suppliers gaining more control of the slowing U.S. online travel market is the rapid expansion of mobile.

Annual mobile bookings from U.S. travelers, which were tracked for the first time this year by PhoCusWright, will more than double this year, to $6.69 billion and will more than triple to $22.9 billion by 2014, when mobile will account for 7% of the total U.S. travel market and about a sixth of the online market.

To put that in perspective, the entire U.S. car rental market will generate $16.6 billion in revenue this year.

“Most suppliers are seizing the opportunity to facilitate mobile transactions, either via apps or mobile-optimized websites, or both,” said PhoCusWright. “However, OTAs have a clear advantage, as most mobile bookings are made by last-minute hotel travelers with little brand affinity.”

Additionally, the growth of mobile may require suppliers and intermediaries to further splinter their marketing efforts because of the increased use of smartphones and tablet computers, which PhoCusWright combines for its mobile projections.

“You cannot lump mobile and tablet together anymore, as tablet is becoming the desktop replacement and is not really as ‘mobile’ as the smartphone,” said Chris Anderson, associate professor at the Cornell School of Hotel Administration. “Hotels are going to need separate smartphone and tablet strategies.”

Henry HarteveldtAs for a clear winner in the tug-of-war for online hotel-booking dollars, the jury is still out, said Henry Harteveldt, principal analyst at Atmosphere Research Group.

“Hotels plan to reduce the number of merchant-model inventory they make available to OTAs, and they intend to work to reduce the margins they have to pay the OTAs,” said Harteveldt, adding that OTAs would be progressively more dependent on selling inventory outside of the major chains at independent hotels.

“It would be wrong to write off the OTAs, however. Travelers are more likely to feel OTAs have the best prices and offer the widest selection of choices. As they are increasingly used for shopping, rather than booking, I expect to see OTAs take more steps to further remake themselves into media companies, including new advertising-based solutions and other initiatives.”

According to PhoCusWright, overall U.S. travel spending will increase 8% this year to a record $303 billion. Travel-spending growth will slow to 5% for 2013 and 2014.

Follow Danny King on Twitter @dktravelweekly. 
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