Nine European airlines have finally set a launch date - and a name - for their online travel portal. Opodo is set to shake up the European online travel scene
It has been some time coming, but the travel website owned by European airlines has finally received its official launch. Dubbed Opodo - a made-up word chosen because it is inoffensive in any European language - the site will not actually go live until December this year, when it is unveiled in Germany.
Opodo's management team gave an outline of its vision for the portal at a press briefing in London's swanky IMAX cinema at the end of June. As expected, Amadeus has been chosen as global distribution system (GDS) provider and there will be distinct web sites for different countries. GDS provider Galileo will be used in certain countries.
Former Alitalia head Giovanni Bisignani has been named as chief executive for the site and has been given a sizeable budget to play with ($110 million until the end of the year alone). With 480 airlines already signed up, Opodo could potentially upset the status quo in the European travel industry. Its success, however, is not guaranteed.
Much will depend on the extent that the airline shareholders are willing to back the venture. For instance, observers are asking whether the airline backers will be so keen on what is essentially a non-core business if they themselves suffer a prolonged period of economic hardship.
IPO expectations
It is widely perceived that a prime motivation behind the airlines' decision to go ahead with the venture was the possibility of an initial public offering (IPO). Niklas Andreen, vice-president at consultancy Adcore Strategy, believes that airlines were impressed by the huge values being put on web companies before the Internet bubble burst last year. Clearly an IPOis not as lucrative now as it was in the first quarter of 2000, when the project was on the drawing board.
However, cashing in on an IPO was not the only motivation behind Opodo. European airlines were keen to fend off a challenge from US-owned travel portals, such as Travelocity, Expedia and e-bookers, which are establishing a presence in Europe, selling discounted tickets. Observers point out that Opodo puts the airlines back in the driving seat. "Airlines will have control, unlike the current system," notes Andrew Light, airline analyst at Schroder Salomon Smith Barney.
It also prevents the online portals from building up bargaining power and forcing prices down, and there are distribution costs to be saved as airlines increasingly bypass the global distribution systems (GDSs) with direct sales.
In the meantime, regulatory concerns are being looked into by the European Commission (EC), which is expected to report back with its findings later this year. According to Jaap Favier, analyst at Internet research specialist Forrester Research, Brussels is likely to draw up a similar code of conduct to that which it created for the GDS providers in the late 1980s.
This would mean that Opodo's shareholding airlines would be forced to offer discounted fares on an equal basis (not just to Opodo) and that non-shareholder airlines would be treated the same as shareholder carriers. This is aimed at mollifying concerns from the likes of Travelocity and Expedia that the best airline deals will be reserved for Opodo once it is up and running. If this proves to be the case, "an envelope will be on Mario Monti's desk the next morning," says Favier, referring to the EC competition commissioner.
Opodo's management insist that antitrust concerns are unfounded. "The airlines will set prices independently," says Eifrion Evans, director of business development. "There will be an arm's-length relationship with each airline." Bisignani says the portal voluntarily notified Brussels of how it intended to answer competition concerns. "On this point we have been very open," he claims.
However, Favier believes that price is not the key issue. "Competition will not be on fares," he predicts, pointing to the shareholders backing Opodo and its main competitors. Its ownership structure, he says, will afford it competitive advantages. For instance, the airlines will be able to put their close relationships with airports to good advantage, offering duty free vouchers, something that other online sites will find hard to match.
"The airlines will be less concerned about profitability than the likes of Travelocity and Expedia, which must make money for their shareholders," Favier adds. "It is never going to be a level playing field."
That said, the two online travel agents obviously have first-to-market advantage, having had the European sector more or less to themselves from 1996 to 2000. Accordingly, the two sites have been able to build up brand awareness and establish revenue streams.
Opodo is aware of the need to overcome any disadvantages from late entry. It has amassed considerable funds for marketing itself - an initial £30 million - ($42 million) including an advertising campaign timed to coincide with December's rollout of the service.
Time lapse
As Opodo will not begin to generate revenue until roll out, some observers puzzle at the length of time it has taken to launch the service, given that the shareholders originally got together in March last year - a lead time of around 18 months. "I was surprised that it was launched as an empty shell," says Favier. "That was a big disappointment."
Bisignani argues that the time has been well spent, enabling the company to carry out thorough research (including pan-European focus groups) and prepare a country-specific web service. Favier, for one, believes that "endless discussions" between the shareholders may have added to the delays, and also believes that the shareholders should have gone for an earlier rollout - which would at least have started to generate cash flows - and gradually refine the product over time.
He also expresses surprise at the decision to launch in Germany, given that the UK is Europe's most developed web travel market. Bisignani puts this down to the fact that Germany is the continent's largest travel market, while Favier believes that the site's management may have shied from the more challenging option. However, Opodo's UK launch is planned just one month after that in Germany.
Opodo's management hopes that the extra time will ensure that it can reap the benefits of being second-to-market. "We have learnt the lessons of our competitors," says Bisignani, pointing to the country-by-country approach, a new front-engine and partnerships with a number of big names in the Internet industry, including consultants Sapient, e-commerce specialist BroadVision and online map provider MapQuest.
Crowded market
Bisignani clearly believes that by biding its time Opodo has come up with a superior product, and that it will be able to muscle in on what some see as a crowded market. "By 2005, around 10% of travel in Europe will be online. We want a large slice of that market," says Bisignani. He states ambitiously: "Our target is to be the number one travel portal in Europe by 2004," although he hedges his bets somewhat by adding, "this is a tough target; there is strong competition." This is also the year, incidentally, that the company hopes to become profitable.
If Bisignani is ready to concede that becoming number one in an industry just three years after launch is an ambitious target, he also points out that it is entering a market which is expected to see rapid expansion in the next four or five years. "Europe has for some time lagged behind the USA in online travel bookings and we believe it is about to witness an explosion in demand for online travel services surpassing US growth by as early as 2004."
He believes that the European market for online travel will grow substantially from €6.2 billion ($5.3 billion) in 2001 to c40.9 billion in 2005. It is also an area which has seen little consolidation. "There is a lack of leadership. There is no particular brand which consumers are loyal to," claims Nicolas De Santis, Opodo's marketing director. "There is a lot of clutter. The market is very fragmented."
The market is also fragmented on the consumer side, and observers advise that Opodo should strictly focus on its natural target audience. Forrester's Favier warns: "Not addressing different needs will mean you fail. Being everything to everyone will mean you are nothing to no one." He is also adamant about the market segment that Opodo should target: backpackers. "They are price-sensitive and don't care about brand," he explains.
Target audience
Interestingly, Bisignani believes that Opodo can effectively target both the backpackers - or "small buyers" as he terms them - and "unmanaged business travellers" (mainly those from small businesses). Most observers, however, believe, like Favier, that Opodo will mainly cater for the price-sensitive "smart-buyer" market.
Another issue is whether Opodo can differentiate itself from the airline web sites of its shareholders. Some industry observers have been sceptical of the ability of Opodo and its shareholders to set clear boundaries between the two products, and say that there is a risk that the consumer will be confused by yet another sales point.
Analyst Light believes that the airlines are likely to offer the same discounted deals on both Opodo and their own web sites, ensuring that they do not alienate their brand-loyal customers. Of course, Opodo will give users the opportunity to shop around for the best deal. Bisignani, for one, is confident that the relationship between the airline sites and Opodo can be managed successfully. "The airline sites cater for passengers who are loyal to that airline. It is a different segment of the market," he says.
Bisignani firmly believes that Opodo can build on what he perceives as weak customer service standards in the European online travel industry. "Booking frustrations are very common," he says, claiming that a number of people have "disappeared" from the market and returned to traditional travel agents due to their dissatisfaction with service levels. "Older people in particular get frustrated," he says.
Opodo aims to counteract these types of problems by using a team of "travel advisers" to assist customers over the telephone, and aims to provide a more user-specific service. For instance, the user will be able to type in search terms such as skiing, sun or romance, and view offers in each category. A personalised service, described by the company as a "smart, self-learning customer relationship management platform" will also be offered.
This basically means that if you have used the service once, Opodo will remember your details and build up a customer profile. Other features include maps, travel guides and weather reports.
Undoubtedly one of the key strengths of the portal, and one that was very much anticipated, is the link with other travel providers. These include 54,500 hotel properties, 23,500 car rental locations and travel insurance vendors.
| US Orbitz shareholding structure | |
| Shareholder | Approx share* |
| American Airlines | 20% |
| Continental Airlines | 20% |
| Delta Air Lines | 20% |
| Northwest Airlines | 20% |
| United Airlines | 20% |
| Note: *Shares are said to be "roughly equal" but vary according to the "size" of the airline. | |
| Europe Opodo shareholding structure | |
| Shareholders | Share* |
| Air France | 22.8% |
| British Airways | 22.8% |
| Lufthansa | 22.8% |
| Alitalia | 9.14% |
| Iberia | 9.14% |
| KLM | 9.14% |
| Finnair | 1.7% |
| Aer Lingus | 1.1% |
| Australian Airlines | 1.1% |
| Asian website shareholding structures | |
| Shareholders | Share |
| Air New Zealand | N/A |
| Ansett Australia | N/A |
| Cathay Pacific | N/A |
| China Airlines | N/A |
| Malaysia Airlines | N/A |
| Royal Brunei | N/A |
| Singapore Airlines | N/A |
| EVA Air | N/A |
| Garuda Indonesia | N/A |
| Note: This site has yet to be named and shares are not yet firm. A Japen-focused joint-venture between All Nippon Airways, Japan Airlines, Northwest Airlines and United Airlines also holds a stake in the venture through a joint equity arrangement. Travelocity has a shareholding and will co-brand the web service. | |
Price is key
Impressive as this may be, observers are quick to point out that price will be the key to success. "Features such as maps are nice to have, but they are not a need have," notes Favier. "It is not what drives the backpacker market. Price is the key. You have to get the basics right." He reiterates that Opodo should have been quicker off the blocks and established revenue streams before concentrating on tangential services.
If price is the key, then Opodo's claim that its distribution costs will be 25% lower than the European average should serve them well. Favier believes that Opodo is probably aiming at a 50-50 split between GDSs and direct airline deals to achieve this target, saving considerably on the commission costs associated with distribution. Bisignani is keen to point out that these savings "will be available from day one, even when our volumes are low."
Undoubtedly there are still a lots of questions for Opodo to answer. The EC's response is still awaited, there is still nearly six months until launch and the price differential with its competitors remains to be seen. Bisignani sees the possibility of an IPO after the portal has started generating profits in 2004. Whether Opodo will be the market leader at this stage, or just another travel website, is a question the industry will be asking itself in the interim.
Source: Airline Business
