Report by Dennis Blank in Orlando
US airlines are not only being encouraged to use Internet technologies but to "think big" about the way they can exploit this new, potentially low-cost sales tool. Wall Street analysts are already eagerly adding up the potential gains on offer to those who succeed. The numbers are, as ever, truly impressive.
Investment house Bear Stearns suggests that spending as much as $30 million to develop a single, powerful e-commerce platform would still represent a good investment for the airlines, more than paying for itself through savings on distribution, while also helping to solidify relationships with customers along the way. "This growing concentration on e-commerce by the airlines will have a meaningful impact on their goal of diverting core bookings to direct channels so they can continue to reduce their level of travel agent commission pay-out," says Bear Stearns.
Jupiter Communications, one of the new breed of online market researchers, predicts that US consumers will be spending around $28 billion on online travel bookings by 2005 - more than four times the current total (see table). Forrester Research goes on to estimate that by around the same time, US corporations will require at least 77% of their $20 billion travel budget to be booked online. The lure will be the cost savings on offer from online booking engines, says Henry Harteveldt, a senior analyst at Forrester. "These engines achieve savings through directed use of a company's negotiated fares with their preferred suppliers, as well as reduced service charges for making employee travel reservations," he says.
And the online game may be one that the airlines are well-placed to dominate. Melissa Shore, an analyst with Jupiter, says: "Airlines have the upper hand because they own assets - loyal customers, long-standing brand awareness, well-run call centres - that travel agencies do not." But she warns against complacency: "Airlines and travel agencies must focus on leveraging their most loyal customers by giving them a reason to book online. Traditional programmes, recognition and tiered servicing - not just bonus miles - should keep frequent customers satisfied."
Some 30 US carriers have indeed signed up to the T2 industry web site, now officially named as Orbitz. That will be run as a booking engine, featuring all flights as well as discounted specials. Eventually, it will also handle bookings for thousands of hotel rooms and rental cars. So far, the airlines have not said how much it is costing, but contracts with six software and technology suppliers are said to run to $125 million.
"We believe this will be the most powerful fare and searching technology on the web today," says Alex Zoglin, chief technology officer for Orbitz. "It will be able to search through billions of fare and schedule options per second, ensuring that consumers will find the Internet's widest range of schedule and fare choices and consumers will see the information displayed in an absolutely unbiased way." There are also reports of six US majors joining forces to create the Hotwire.com sale site for distressed inventory. It would apparently rival auction sites but based on fixed prices.
Europe's majors have followed suit with 11 airlines, led by British Airways, burying their differences to join in the T3 venture. Asia-Pacific has most recently joined the trend with nine carriers linking to create an "online travel exchange", which, like its counterparts will operate with its own independent management team and brand.
Loyalty tools
Airlines are also learning that their web sites can be good marketing tools and several have spent extra money to reduce the number of "clicks" it takes to negotiate a transaction and make the system more user-friendly. Low-fares operator Southwest Airlines remains the runaway web leader, taking 25% of all of its flight bookings online. Media Metrix, which tracks the new media sites and is in the process of merging with Jupiter, says that its research so far this year shows that Southwest is hosting around 3 million individual visitors a month across its two web sites.
Others too are sharpening up their web presence. Delta Air Lines' site allows users to go into a detachable window for flight-tracking information so they can see a flight's status even though they are at another web address. Delta has decided to spin off a separate web site that caters only for small business travellers, enabling it to tailor marketing for that market.
American Airlines is among those to pioneer niche sites, for example, catering for college students or the gay and lesbian community. It has also created aavactions.com, a site that links vacation packages with its routes. American will offer incentives to frequent flier customers by offering bonus miles if they also book an affiliated hotel or rental car partner. "It is not necessary to have everybody loyal to our industry," says John Samuel, American's vice-president of interactive marketing. He questions how far customers will go in staying loyal for its own sake. "It is an exchange of value between you and the customer," he says, citing the airline's new deal with America online to set up a rewards programme that allows frequent flier miles to be redeemed for a range of other products: consumer goods, free online service and travel buys. This also has its own web site, AOLAAdvantage.com.
Northwest Airlines has 30 people working on e-commerce development. "The $3-5 million we spend a year is very modest given the return we are getting," says Al Lenza, vice-president of distribution planning for Northwest. Online bookings from the web site are worth $350 million, reprocessing about 5% of all ticket sales. Lenza expects more customers to book online as they become comfortable with it and Northwest is already providing incentives with electronic discounts to members of its NWA.com club, who pay a $35 annual membership fee. With web-site booking now its "fastest-growing sales channel", Northwest is exploring all other opportunities to expand that business, including a link to Disney travel sites
US Airways sees the Internet as a time-saver for business and frequent travellers. "Time means everything to customers," says David Castelveter. "We have streamlined the process of making reservations, and our bookings continue to grow." He adds that the airline is getting 5.2% of all bookings from its web site, whose number of "hits" each day now exceeds the number of boardings.
Jupiter's Shore agrees that consumers return to sites where they receive tangible value for being loyal, whether the value is priority service, personalised offers or e-mail updates. "Commerce players must create an online experience for users in which their customers see transacting on the Internet as a benefit, not a deficit."
Technology breakthroughs
As carriers begin fine-tuning their web sites, they must also consider breakthroughs in wireless technology which allow direct customer contact. American and United Airlines both provide flight scheduling and information to the Palm VII palm pilot. United can notify customers of flight delays and cancellations via numeric pagers, text-enabled cellular phones and personal computers. American has also signed a contract with MobileStar Network to provide high-speed wireless Internet access to its Admiral Clubs. Passengers at these lounges can use their laptop computers to connect to the Internet at speeds 40 times faster than the normal modem hookup.
"More and more of our business passengers carry laptops, and they are looking for ways to increase their productivity while using that equipment on the road," says Scott Nason, vice-president of IT for American.For certain, the pace of technological change is not yet showing any signs of receding.
| Growth for selected US travel company sites | |||
| Individual visitors in June (000) | |||
| Sites | 1999 | 1998 | Change |
| Expedia.com | 4,203 | 2,145 | 95.9% |
| Travelocity.com | 4.118 | 2,093 | 96.8% |
| Priceline.com | 2,012 | 896 | 124.6% |
| American Airlines | 1,530 | 1,304 | 17.3% |
| United Airlines | 1,250 | 640 | 95.3% |
| Delta Air Lines | 1,152 | 1,093 | 5.4% |
| Southwest Airlines | 1,151 | 315 | 265.4% |
| Source: Jupiter Communications | |||
| US online travel spend forecasts | ||
| Online travel spend $ billion | Percent of total spend | |
| 1996 | 0.3 | 0.2% |
| 1997 | 0.9 | 0.7% |
| 1998 | 2.2 | 1.6% |
| 1999 | 6.5 | 4.5% |
| 2000 | 11.0 | 7.2% |
| 2001 | 14.8 | 9.2% |
| 2002 | 18.3 | 10.8% |
| 2003 | 21.7 | 12.2% |
| 2004 | 25.0 | 13.3% |
| 2005 | 28.2 | 14.2% |
| NOTE: Shows US consumer online travel spend in $ billion and as a percentage of total US travel spend. | ||
| Source: Jupiter Communications | ||
| Air ticket bookings per web site 1999 | |
| Site/company | $ million |
| Southwest Airlines | 877 |
| Expedia.com | 750 |
| Travelocity.com | 725 |
| American Airlines | 575 |
| United Airlines | 475 |
| Preview Travel | 435 |
| ITN.com | 260 |
| US Airways | 250 |
| Travel Web | 110 |
| Alaska Airlines | 100 |
| Source: PhocusWright and Industry Standard | |
| Top 15 US travel sites - March 2000 | |
| Site/company | Individual visitors (000) |
| Expedia.com | 5,429 |
| Travelocity.com | 5,117 |
| Priceline.com | 4,967 |
| Preview.com | 3,501 |
| Southwest Airlines | 2,889 |
| American Airlines | 1,904 |
| ITN.net | 1,895 |
| Delta Air Lines | 1,693 |
| Lowestfare.com | 1,602 |
| Travelscape.com | 1,585 |
| US Airways | 1,498 |
| Northwest Airlines | 1,476 |
| United Airlines | 1,188 |
| Continental Airlines | 1,160 |
| Cheaptickets.com | 1,103 |
| NOTE: Travelocity and Preview plan to merge within Sabre. Southwest has two sites. | |
| Source: Media Metrix | |
Source: Airline Business
