The rapid move of web portals into the travel market, and strategic moves at Cendant, bring a set of new challenges to carriers in the online world
In December 1995, an Alaska Airlines ticket sale to a Washington state family over their home computer was the first instance of the US industry making an online sale. Since then, internet transactions have reached about 42% of a $224 billion travel market, consultancy PhocusWright estimates. By 2010, the market for air, hotel, car rentals and other US travel will hit $104 billion, of which 56% will be sold online, predicts rival forecaster Jupiter Research.
In the decade following that first internet sale, there has been a tectonic shift in the online world. In short, airlines are discovering that the web, which was once so dependent on their goodwill, is now their most formidable competitor. The web is no longer simply a distribution channel, it is the seller that outweighs the product supplier.
And now consolidation and “deglomeration” in internet travel make it clear that distributors are becoming sharper competitors. Nowhere is this more of a threat to airlines than in the coming division of travel giant Cendant into four highly focused units. The largest – Cendant’s travel distribution core – has already gained critical mass.
Moreover, Cendant’s travel services unit is about to become even stronger as a standalone player. This unit houses a strangely amorphous collection of real-estate, financial, car rental and distribution services. It has decided it will disaggregate itself or deglomerate into four separate public companies. One of these is to be the travel technology collection that houses Orbitz, Galileo, Apollo, e-bookers, Shepherd Systems and a wide, if eclectic, portfolio of other airline services. Henry Silverman, the architect of Cendant’s growth, will run the unit, and, given Silverman’s record of squeezing profit and personal rewards from everything he touches, this suggests that the Cendant armada will be even more aggressive.
Market realignment
This unit will stand on its own at a time when some of the most trusted brand names – Google, Yahoo, Expedia, and even AOL – increase their penetration into the marketplace for air travel. Expedia, spun off this year from conglomerate InterActiveCorp, is on the move. Yahoo is re-energised as it transitions from a portal into an active merchant, while AOL, the former America OnLine, is poised to leave the conglomerate shell of media giant Time Warner.
The Cendant dynamos enter the fray at a time when the large web “portals” and well-known search engines are bursting into the travel marketplace. Portals have long been popular as easy-to-access points of entry to the web. They were often just large collections of links to commonly used sites and to widely sought-after products.
For some, such as Yahoo, the foray into travel is a natural extension of their established weight in retail sales. For Google, fresh from crushing most other search-engine rivals, it is also a natural transition from search to its latest venture, the unannounced testing of a travel tool, a silent move that has caught the web’s attention. Google as a brand is simply too powerful to be ignored.
The Yahoo portal is expanding its travel selling with a renewed vigour, including travel planning tools that can be used by several members of a group or family separately. As they add value and depth, these brand names, already well established and in the homes of most US families with personal computers, have even more power because of their near-ubiquity.
That is enough to give pause even to Cendant. According to a recent Forrester research survey, 14% of leisure travellers use portals for planning and research, up from less than 10% a year ago. That means the online agents such as Orbitz, which as a group attract 44% of travel researchers, face a challenge with the web portals. The portals could eventually evolve into fully fledged competitors, according to Forrester analyst Henry Harteveldt.
So Cendant needs all the strength it can muster. It long faced suspicion from some travel sellers that it was favouring its sister subsidiaries and using travel agents to generate sales leads for them. Silverman said in announcing the four-way split that the move should help ensure the trust it will need in the frantically competitive online marketplace. But Cendant, like its rivals, will have less than a decade to prove itself. And the airlines, unlike those pioneers of a decade ago, will have even less time to fend off these new digital rivals.
DAVID FIELD/WASHINGTON
Source: Airline Business
