NEW YORK -- Like brick-and-mortar travel agencies, their on-line
counterparts are turning to new strategies, a wider range of
products and direct inventory deals with suppliers to counteract
what they see as the continuing deterioration of airline
commissions as a reliable source of revenue.
That was the recurring theme in remarks from dot-com travel
executives who addressed a PhoCusWright investor conference
here.
Even Sabre's Travelocity.com, the giant agency that controls more
than half of all on-line travel sales following its recent merger
with Preview Travel, is hoping to boost its sales of nonair
products and services, said Terrell Jones, president.
In the future, he said, Travelocity expects to increase sales of
higher-margin products like cruises and vacation packages, and to
boost its sales of rental cars and hotel rooms to on-line
purchasers of air tickets.
Direct on-line consumer bookings of more complicated products
like cruises "is definitely in our future," Jones said.
Travelocity already has 19 million registered customers, and
expects to add more now that it has a partnership with America
Online, Jones said.
In June, he said, the company will roll out a new Web site that
will "combine the best of Preview Travel with the nest of
Travelocity."
The company will use "aggressive" e-mail promotions to members
to broaden its sales, said Jones.
"There's a lot more share-of-wallet to get from these people --
not just air, but cars and hotels," he said. "And we're in a
position to sell lots of things to these people because we know
where they're going 21 days before they get there."
Travelocity is still losing money, but it is on track to start
earning a profit within the next two years, said chief financial
officer Ramesh Punwani.
Microsoft's Expedia.com is plotting a similar "business model
shift," said chief financial officer Greg Stanger: "We're out
negotiating unique supply to bring to our customers," turning to
more negotiated-rate deals with suppliers so that "we can set the
price, control the margins and shift share to the higher
margins."
As an example, he cited Expedia's recent purchase of
Travelscape.com, a hotel rooms consolidator that also markets
discount air-hotel packages; and Vacationspot.com, an on line
booking site for non-hotel vacation rental properties.
"We're now both a retailer and a wholesaler," he said, noting
that Expedia sees significant opportunity for growth in on-line
lodging sales since 80% of hotel rooms are still booked by
phone.
By using negotiated hotel rates and adding its own markup,
Stanger noted, the company's revenue per transaction is five to six
times more than it would be from a straight percentage commission
on the sale.
Cheap
Tickets, Inc., which heretofore has concentrated on selling
off-tariff fares through deals with several major airlines, plans
to expand its product base this year, said Sam Galeotos, the former
Delta and Worldspan executive who recently became the company's new
president.
"We see a very big opportunity for Cheap Tickets to move into
car rentals, hotels, cruises and tours," he said. "We'll begin
rolling out those products in 60 to 90 days."
The company still takes in the bulk of its bookings by
telephone, but will continue trying to shift more business to the
Internet, which in the first quarter accounted for 38 percent of
its business, up from 23% a year earlier, Galeotos said.
TravelNow.com started out as a hotel booking site, but
recently added airlines and rental cars as well, said co-chief
executive officer Jeff Watson.
"We're looking at combating the commission trends with
consolidated rates" from suppliers, he added. "Now that we have
enough volume to talk to them, a lot of doors have opened for
us."
By taking "inventory positions," the company won't have to
depend on commissions, Watson said.
He predicted that commissions will continue "trending down," but
added that might benefit incumbent travel dot-coms because it could
effectively serve as a "barrier to entry," discouraging more
start-ups from joining the competition for on-line business.
Even the service fee concept is taking hold at some travel
dot-coms, like LowAirfare.com, the on-line booking operation of 800
Travel Systems, which sells discounts off published fares and
charges customers $5 to $25.
That amount could increase in the future, said Peter Sontag,
president, because "in my view, commissions are going to go by the
wayside completely."
Sontag predicted that among the travel dot-coms that exist
today, "you're going to see very rapid consolidation," adding that
"we're in discussions to acquire some."
Galileo is planning some changes at its new acquisition, the
business travel-oriented siteTrip.com, because "we believe a business model
that relies strictly on commissions is not viable in the long
term," said Jim Lubinski, Galileo's executive vice
president-operations.
Consequently, he said that in the months ahead, the four million
registered users of Trip.com will start to see "new fee-for-service and
subscription models" as the company seeks out new revenue
sources.
The company will also approach vendors, offering them "a
lower-cost method of distribution in exchange for some of their
best inventory," he added, and will broaden its product line so it
can sell leisure trips to its business-traveler customers.
Uniglobe.com, the Web affiliate of the travel agency
franchise chain, currently sells air, cars and hotels, but its
major thrust is on cruise sales, said Martin Charlwood,
president-because the profit margin is three times that of air
sales.
Uniglobe.com's technology permits the consumer to enter into a
real-time chat with a sales agent -- something that should help it
to close cruise transactions by being able to answer client
questions as they occur, he said.
The company is depending on its existing relationships with
suppliers to give it preferred pricing for cruises and for tours,
which Uniglobe.com also expects to start selling online by the end
of this year, Charlwood said.