Ticket to success

Guide to E-Commerce Technology

Travelocity, one of the first online travel agents, has been effective at offering the usual travel site menu: flights, hotel rooms, rental cars, cruises. It has done well in package deals, too, allowing travelers to save by buying all the basic pieces of their trip at once. They can even add frills like theater tickets or city tours. Now, the company is moving in on the only remaining turf of the human travel agent: selling complete travel experiences with one easy booking.

An “experience finder,” now in testing, offers entire theme trips—romance, adventure, indulgence, entertainment. The test destination is Las Vegas, where travelers can book such things as a wedding chapel or a tour of the desert on a Harley.

“Travel is not about getting the best price in an aisle seat on United,” says Victoria Treyger, vice president of merchandising and product marketing. “That’s not what you remember—it’s what happens on that vacation. We’re focusing on how to deliver the absolute best travel experience.”

Southwest Airlines also is focused on delivering not just airline seats but convenient and practical web tools. Many Southwest flyers have downloaded Ding, a desktop widget that alerts them to special deals on flights to or from up to 10 airports they select. A click on the widget takes them directly to a deals web page, where prices often drop into two figures. “The intention is to offer a fare so low that you just have to go,” says Kelly Shoenfelt, manager of online customer marketing. “It’s a privilege when customers give us desktop real estate, and because it’s not mass advertising, we can price their deals lower.”

And at BeHospitable.com, visitors can upload tales of helpfulness: a wallet returned intact, a car dragged out of a ditch by kindly passersby, a human roadblock formed to let a family of ducks cross a busy street. Some submissions are accompanied by videos, photos or audio. In its first month, the site received more than 1,000 stories. Few of them mention hotels, even though the whole enterprise is nominally a brand-promotion effort by The Hilton Family, a group of nine hotel chains.

Whether pitching enriched experiences, rock-bottom prices, or warm and fuzzy branding, online travel sites are discovering new and ingenious ways to harness the power of the Internet, which already has utterly transformed their industry.

Transformation

The shift was inevitable, many experts say, given that travel is an intangible product with no warehouses or shipping costs, and customers pay almost exclusively with credit cards. About $96 billion—or 32% of all annual travel-related revenue—comes from online sales, according to JupiterResearch, a firm specializing in the impact of the Internet and emerging technologies on businesses.

“It’s massive compared to other retail,” says JupiterResearch travel analyst Diane Clarkson, who expects online travel sales to jump to 38% of the total in 2008 and keep climbing. She says 54% of car rental reservations will be made online this year and 38% of plane tickets, either through online travel agencies or directly from airline web sites. Shoenfelt says Southwest now books 74% of its tickets through Southwest.com.

Back in the day

While there was rudimentary online travel selling in the early 1990s on Compuserve and America Online, things really began to take off in the mid-‘90s when the world wide web arrived. First came Travelocity, owned by Sabre Holdings, whose reservation system has been used for decades by travel agents and airlines, and Expedia, originally a Microsoft division that was sold to Interactive Corp. in 2001 and spun off as a separate company in 2005.

The turn of the century saw the launch of Orbitz, which started as a joint venture of five major airlines and a consortium of other travel suppliers. After an initial public offering in 2003, Orbitz was acquired by Cendant Corp. in 2004 and sold to a private equity firm in 2006. The company now is contemplating its second IPO.

Additionally, specialized agents quickly began cropping up, like Cheaptickets.com and the name-your-own-fare service Priceline. Travel advice also has proliferated, with sites like IgoUgo (owned by Travelocity) and TripAdvisor (now owned by Expedia), which has gathered millions of opinions and reviews since its founding in 2000. There’s even a place to view other people’s travel videos: Travelistic.com.

As online travel agents developed, travel suppliers moved away from brochureware and toward commerce-enabled sites. The competition/cooperation between the two groups continues to be a key dynamic in the space.

“Unlike most traditional retail, in the travel industry some of your biggest competition is from suppliers,” Clarkson says. “Everyone’s trying to cut costs, and the easiest way to do that is not to pay commissions to a travel agent.”

Some airlines, like Southwest and JetBlue, sell online only through their own web sites, spurning the online agencies entirely. Hotel companies sell rooms to online travel agencies at a fixed rate to resell for whatever the market will bear. But when hotels have rooms to fill, their web sites can undercut agencies.

As a result, customers are more likely to buy from suppliers than online travel agents. “We’re seeing a slow shift toward booking direct because there’s a perception that supplier sites are more flexible and have a broader inventory,” says Sara Stevens, who analyzes the travel segment for online audience measurement firm comScore Media Metrix. A 2006 comScore Media Metrix study showed supplier sites reaped 57% of online travel dollars. For the car rental segment, that figure jumped to 74%.

But that doesn’t mean online agencies are hurting, Stevens says, adding their overall revenue still grew almost 20% between 2004 and 2005. The whole segment still is growing, and there’s room for seemingly everyone.

Metasearching low fares

For price shoppers, buying travel online has never been easier. In the early days, they had to slog through all three of the major agencies, visit the sites of airlines and hotels, or maybe take their chances bidding on Priceline, where victory was not assured and a flight itinerary and exact identity of a hotel remained secret until after purchase.

Enter the metasearch engines: Kayak, Sidestep, Travelzoo and Mobissimo, to name just a few. These do for travel what comparison shopping sites do for retail products: compile search results from online travel agents, airlines, and other travel supplier sites to offer side-by-side comparisons of prices for a given route or room.

“Online travel agencies provided tremendous value when they came into the market because there wasn’t a lot of information then. But the world has moved on and consumers recognize they need to shop around to get better deals,” says Drew Patterson, vice president of marketing at Kayak.com, which launched in early 2005 and is in the top 20 most-visited travel sites, according to comScore Media Metrix.

Of the larger online travel agencies, only Orbitz has agreed to link directly to Kayak; its other information comes mostly from combing supplier sites. The site pays Kayak for leads—under a dollar for each clickthrough, traffic for which is boasting a conversion rate of 12% to 17%, according to Patterson, compared with 1% or 2% for clickthroughs from general search engines. Kayak also sells keyword ads a la Google.

Another twist on metasearch is recent entrant Farecast, which not only pulls airfares from other travel sites but uses historical data to predict whether they’re on their way up or down so travelers can quickly decide whether to grab a deal or wait for a better one. If Farecast predicts a stable or lower price within seven days and recommends postponing a purchase, travelers can buy Farecast “insurance” for $10. If they buy their ticket within a week and the price has gone up in defiance of predictions, Farecast will pay the difference.

“Farecast can be very empowering for consumers,” says JupiterResearch’s Clarkson. “Not a lot of people know about it, but they will.”

The traveler’s voice

Travelers aren’t shy about sharing their opinions, whether it’s where to find the most awesome waves or exactly how bad their Edinburgh bed-and-breakfast turned out to be. Just as retailers are turning Web 2.0 social developments to their advantage, travel sites are trying to harness this input to their benefit.

Hilton’s “Be Hospitable” ad campaign began in early 2006, and a new web site, built with anecdotes from the public, debuted in March. It’s an outgrowth of company founder Conrad Hilton’s philosophy of business, says Jeff Diskin, senior vice president of brand management. “Our sector has the obligation to spread the light and warmth of hospitality,” he says. “This site is not about the guest experience but about how everyday life is an extension of what happens in our hotel space. The site gives people a reason to look for acts of kindness.” A map tracks the location of the kindly acts, and a “Be Hospitable” streaming-video highlights selected stories.

Sheraton.com is taking a more direct approach by allowing guests to upload photos and stories about their travels, sometimes including nice things that happened to them at a Sheraton hotel. The guest gallery has been up for about a year and has gathered more than 10,000 submissions, says Jeff Mirman, director of interactive marketing. Some Sheratons generate more than their share of contributions, like the property in Asia that keeps an elephant on the premises.

While the company can track some incremental sales resulting from guest gallery viewers who go on to book a room, direct revenue growth isn’t the point, Mirman says. “It’s about creating a brand experience, and making people feel connected and comfortable. What better way to do that than to create a community?”

While he hasn’t yet ventured to put up a site featuring direct guest feedback, Hilton’s Jeff Diskin sees potential in aggregating the opinions of Hilton customers who like to travel to the same places and do the same things. “We can do a lot around creating a community where people can share their experiences,” he says, “not about the hotel necessarily, but about the area—so they can see what people like themselves recommend and what they found valuable.”

User-generated content, JupiterResearch’s Clarkson predicts, will become a key strategic resource for travel sites—as soon as they figure out who should be in charge of it. “No one owns it yet in most companies,” she says. “It’s like search engine optimization was five years ago—is it a tech function or a marketing function?”

However ownership plays out, Sara Stevens of comScore Media Metrix expects more sites to embrace their customers’ impulse to share their experiences. “Many travel companies are discussing how they’ll use all those people,” she says.