This year, the customary late summer round of airfare bargains across the USA has come with a new twist - the deepest discounts are available only on Internet Web sites. While that might not be a problem for the computer-savvy traveller, it has caused travel agents to spit back.
"No matter how the airlines dance around it, this is an attempt to put travel agents out of business," says John Hawks, president of the US Association of Retail Travel Agents. Although travel agents book 80% of reservations and their sales in the USA last year totalled $127 billion, fears are running deep that the rate at which on-line booking is growing will ultimately leave no place for the travel agent.
The Air Transport Association (ATA) is keen to sooth such fears, claiming that the US majors are trying to take away business from anybody, despite the focus on Internet reservations in the latest round of fare wars. But David Swierenga, chief economist at the ATA, admits: "Now we have a new technology that bypasses a big part of the labour component of writing tickets. Obviously, that's hard for agents to deal with."
But as more consumers are attracted by the ease of booking on-line travel, combined with the savings offered by airlines for electronic ticketing, travel agents face a threat from on-line booking at the same time as airlines have an opportunity, provided they exploit it wisely. By 2003, on-line leisure travel bookings, including hotels and airlines, will exceed $29 billion and account for 12% of all business, according to the latest market report by Forrester Research.
Another Internet research firm, Jupiter Communications of New York, estimates on-line travel will grow to $11 billion by 2002 from $2.1 billion in 1998. "The internet radically changes the leisure travel industry," the Forrester report concludes. It adds, however, that "intermediaries like Preview Travel and Expedia will win business back from airlines and hotels."
Another study, by Giga Information Group, predicts that Internet business transactions will save corporations worldwide up to $1.25 billion by 2002. "The Internet is more than just a new way to sell products and services," says Andrew Bartels, a vice-president with Giga. "It's a way to efficiently run a business, resulting in significant cost savings that add to an organisation's bottom line." One airline told Forrester that it is booking nearly $5 million of tickets direct a week. "Suppliers find impressive cost saving benefits to direct sales," the researcher says. "They achieve new efficiencies, either through internal cost reduction or by cutting out existing distribution intermediaries."
Mike Pingrey, owner of ACT Travel in Washington DC agrees, but he also warns of the downsides. "The excitement about doing business over the Internet has a lot of bells and whistles, much the same as when the toll free 800 numbers were introduced several years ago," he says. "The Internet is exceptionally good for shopping, but it is not good for buying. People are seeing the dollar signs but not the reality. You get what you pay for. I have had a lot of disappointed clients asking me 'what can you do to fix this?' In some cases, you are saving a bundle and in some you are not. A travel agent has the expertise to make the arrangements for extended vacation travel and most people don't have the spare time to plan a trip. A customer has someone to blame if something goes wrong. On the Internet, it's very hard to find someone to scream at."
Forrester concedes that Web-based fare pricing has been confusing at all the major US carriers. As an example, a flight from Boston to San Francisco on American Airlines is listed on seven different sites with fares varying by several dollars. "This inconsistency leads to frustration," Forrester says. "This problem must be fixed before consumers can confidently embrace Web booking."
Fleeing to the Net
However, e-commerce industry experts quickly point to the success of on-line booking leader, Travelocity.com which is owned by Sabre and which posted revenues of $301 million for the first half of the year, exceeding the $285 million in sales for all of 1998. "Our success stems from implementing innovative services that have a clear focus on providing our members with a simple, fast and secure way to make their travel plans on-line," says Terrell Jones, president of Travelocity.com.
The Forrester report says that what is causing traditional travel agent customers - especially technologically hip 18- to 25-year-olds - to desert them is their lack of accommodation. "The rise of e-ticketing and the surge in [the travel agents] irritating $15 fees to book air travel will cause even their best customers to flee to the Net," Forrester points out.
But as this new scenario begins to unfold, travel agents are not sitting on their hands. One of the largest, Rosenbluth International of Philadelphia, Pennsylvania, has acquired Biztravel.com, a business travel website. This and similar moves by other large agents puts them in direct competition with Travelocity and Microsoft's Expedia Travel. "This is a growth strategy for us," says Hal Rosenbluth, president of the agency. "We want to be an oasis in the sea of information confronting on-line travellers." As part of the plan, Rosenbluth will reorganise the website to include its proprietary technology for monitoring and booking air fares and add a site for leisure and personal travel.
More airlines are finding new revenues by selling available seats with special e-mail offers. "When you consider it costs them $50 to send out a mass e-mail distribution to several million subscribers, it's a great use of cheap technology to fill seats that otherwise would fly empty," says Kemp Otto, an analyst for KPMG. As an example, an airline might see that it has chunks of seating available on the Dallas to Miami route for a four-day weekend and so it e-mails its special $100 fare and fills the seats, Otto says. "The airlines are not going to reach as many people by sitting back at home and letting people knock on their doors," adds James McQuivery, an analyst with Forrester. "They need to push the inventory out to where the customer wants it."
Airlines go on-line
United Airlines is selling 3% of all its tickets on-line, but expects that to increase to 20% by 2003. With its recent acquisition of BuyTravel.com, United will feature its deeply discounted fares that are not available from other third party websites. United says its "E-Fares" will enable customers with flexible travel plans to find cost-saving alternatives for their flights. The airline received over 800,000 hits on its website in July. "BuyTravel.com will provide customers with an on-line one-stop shop where they can obtain travel information, book reservations and purchase airline tickets on United and other carriers," says Michael Cavanaugh, United's director of strategic partner development.
Corporate travel managers, however, are angered that they have been left out of the loop on Internet discounts because they say their clientele is the core of the airlines' customers. "This issue has reached a level of white hot intensity with many travel managers," says Mark Johnson, president of the National Business Travel Association (NBTA). "They are distressed to see the current volatile environment concerning internet fares." In a letter to James Goodwin, the new president of United, Johnson complains that when discounted inventory is sold, major corporations lose the benefit of the cheaper seats. "There is the need to make individual Internet fares available through the 'customer first' initiatives to corporate travel managers so they can take advantage of them and get credit for the volume of traffic they deliver to you as an air carrier," Johnson says. Negotiating with corporate travel managers, Johnson adds, would go a long way in "removing the thorn in the side" of that group. United is talking with NBTA, but has not made any overtures to expand the discounted offerings.
Delta Air Lines, however, says that by the end of the year, it will able to offer Internet discounts to companies that have sales agreements with the airline. "It has become clear to us that Internet technology is not just a simple means to an end, but represents a terrific opportunity for us to deliver on those things customers want and need," says Vince Caminiti, Delta's senior vice-president for sales and distribution.
In response to the NBTA, he says corporate travellers will have access to all Delta Web fares. "The travel business must look to the future and the new E-commerce revolution to examine just how new technology can chug our world, and how we can harness that technology to be benefit all concerned," says Caminiti. Delta is also putting together alliances with several third party on-line booking vendors.
It may not be enough just to placate the corporate travel managers, however. In August, the American Society of Travel Agents (ASTA) fired off a protest letter to Department of Transportation Secretary Rodney Slater calling for a formal investigation of airline Internet fare wars. ASTA members charge that such discount fares might constitute unfair and deceptive competitive practice by discriminating against "unwired" customers. But the protest letter underlines the travel agents' increasing wariness of on-line ticketing and the industry's determination to make this a political battle.
Seamless service packages
Despite the differing views over the "fairness" of Internet sales, the concept of airlines partnering with rental car agencies and hotels chains to offer Internet package deals is expected to grow. KPMG's Otto predicts that "seamless service" bookings will be the next step. For example, a traveller could book a three day trip from Chicago to Los Angeles and use the Internet to E-ticket the flight, reserve a rental car and book two nights at an hotel and the E-ticket return flight.
The traveller would check-in at a self-service kiosk by swiping a premium level frequent flier car and be issued with a boarding pass and an itinerary receipt. The receipt would be a mini-itinerary, complete with room number. On entering the jetway, the traveller swipes the card again, confirming presence on the aircraft. On landing at Los Angeles, the partner rental car company and hotel are notified automatically. The rental car is started and an agent puts a map with directions to the hotel on the seat. After showing identification, the traveller can start moving. A change in plans now requires attendance at a meeting in Dallas on the way back to Chicago. The traveller goes into the airline's website, makes the changes and repeats the card procedure.
In such a situation, there is great value in this kind of booking, says Otto. "It simplifies his planning, giving rebooking flexibility over the Internet, and provides a consolidated record for any post-trip time and expense report. It also removes a lot of the hassles of waiting in lines to check-in and delays about different segments of the trip."
The Forrester study predicts that airlines, hotels and car rental agencies will start doing more alignment deals and speed up their Web site access development. The researcher also believes that while some travel agencies will be adversely affected, others that embrace on-line booking, such as Rosenbluth, will avoid losing market share. "By 2001, consumers will leave the comfort of suppliers for the comparison shopping benefits offered by on-line travel agencies," Forrester reports.
Global distribution systems (GDS), meanwhile, will focus on providing information technology services to airlines, just as Sabre has done with US Airways "As leisure travellers develop a preference for on-line travel agencies, GDSs that service those agencies, like Worldspan and Galileo, will win back reservations," Forrester predicts. "Finally, to fight back against alternative distribution systems, GDSs will have to reconfigure their databases to support descriptions and photographs of destinations across all leisure segments - especially tours and cruises." Delta's Caminiti says his airline plans to involve itself in more alliances and to produce more user friendly products.
"You could even go as far as to say that the Internet should benefit suppliers, travellers, agencies and travel managers alike," he says. "The Internet technology can be a win for us all."
But there are warnings too for airlines over the impact that too much deep discounting could have on the bottom line. "Benefits from incremental leisure traffic may be offset if they erode pricing discipline and empower bargain hunters," says Brian Harris, a financial analyst at Salomon Smith Barney in New York.
Source: Airline Business
