Forecast: changes ahead

What is the future for online travel? Will the role of search engines change and what’s the impact on the agent community? Travolution’s executive editorial board met to ponder these and a host of other taxing questions.


Who’s who

BRENT HOBERMAN: Chief executive officer, and Travelocity Europe
SIMON BREAKWELL: President, InterActive Corporation Travel Europe
TIFFANY HALL: Head of global sales and distribution, British Airways
WAYNE PEARCE: Group managing director, Gold Medal Travel
TIM FRANKCOM: General manager, Yahoo! Travel Europe
ANDREW BOTTERILL: Chief executive, Global Travel Group
RONEN STAUBER: President and CEO, online consumer travel and GTA hotels, international markets, Cendant travel Distribution Serices
MIKE ASHTON:Senior vice-president marketing, Hilton International
MANNY FONTENLA-NOVA: Chief executive, Thomas Cook UK and Ireland
ESTEBAN WALTHER: Head of travel, Google Europe

Travolution: Where is the online travel market in terms of its development and what sort of change is on the way?

Brent Hoberman ( Internet is still at the beginning. If you look at the buzz on ‘Internet 2.0’, travel certainly is still at the end of phase one.

Broadband, voiceover IP and online community are the three big phases, and in the travel sector, nobody is meeting those effectively. Local services are something we’re obsessed with too. Put them together and you’ve got some interesting innovations for online travel.

Esteban Walther (Google): We are looking closely at what’s going on in travel. We are seeing now how much more time people spend online and are interested in how that translates in the marketing spend of the big travel players.

Wayne Pearce (Gold Medal): Wireless is interesting. At some point consumers will be able to purchase off wireless and that will mean Internet providers having a more personal relationship with the consumer.

“From an airline perspective, the internet has huge potential benefits, not just for selling but also on the servicing side”

Tiffany Hall (British Airways): From an airline perspective, the Internet has huge potential benefits, not just for selling but also on the servicing side. We’ve introduced online check-in. It’s only a tiny proportion of our [current] customers, but we see it growing rapidly. So it’s not just about doing your booking on the web, but also a whole range of servicing activities. You can bring a load of processes forward on the web, so passengers have less to do when they get to the airport.

Simon Breakwell (Expedia): Is the world going to be fundamentally different three years from now? Not really. But if you look 15 years into the future, it absolutely will be. The Internet will be unimaginably more powerful than it is now, in ways that we can’t know.

Hall: If you have a global perspective you hit very different issues. In Nigeria, for example, only 0.5% of the population has Internet access. If you’re a global company, it’s not just what you are doing in the UK but how you adapt to what’s going on and the different speeds things are happening in other parts of the world.

manny fontenla-novoa
Manny Fontenla-Novoa
Manny Fontenla-Novoa (Thomas Cook): The interesting question is what the growth of the Internet does to your business model and how you participate. Do you own assets or just content? Are you just a retailer? We have a multi-channel strategy, and that’s the issue for traditional businesses.

Andrew Botterill (Global Travel Group): For agents, web take-up hasn’t been great. The learning curve is still steep and the opportunities for the agent community are absolutely massive. Pearce: Travel agents haven’t had the ‘productivity gain’ from the Internet that consumers have. What shops have failed to do is blend the Internet with their expertise, so they’ve lost ground. The real trick is taking the seller’s experience and training and combining it with an Internet tool to add value over a pure commodity purchase.

andrew botterill
Andrew Botterill
Botterill: The web also allows us to share business and experiences that we wouldn’t have five years ago. We never would have envisaged manufacturing holidays for to sell, but today we do. The world is a different place as far as relationships are concerned and that can only be positive.

Travolution: Is the Internet a good business to be in?

Fontenla-Novoa: You have to determine who’s a web player. Everyone is. Expedia, Lastminute and Ebookers are retailers on the Internet. But so are Thomson, First Choice and us.

Hoberman: If you look at the value creation of the top five online travel players over a five-year period, it’s enormous. Markets are always looking for the next growth opportunity. In online travel it depends on some step changes – cost reductions on one side and a greater value-add for the consumer to enable margins to increase rather than diminish. Both of those things should happen, but require even more innovation before a few players break away from the pack.

Travolution: Many travel businesses operate mixed distribution channels. Will that carry on going forward?

Fontenla-Novoa: Expedia and Lastminute look at the market purely as online retailers. But there’s huge growth by traditional players in the use of the Internet. If you measure it by hits, last month the most-visited company in this country wasn’t Lastminute or Expedia, it was Thomson if you total its sites together.

Pearce:  For companies, the overall growth rate might not be astronomical, but what’s going on inside those businesses is a real step change.

Fontenla-Novoa:  It’s made us look as an organisation at how we take ourselves to market, and our challenge is balance – how many shops we have on the high street, how much money we spend promoting shops as opposed to dot-com. The opportunities for us are huge. To own assets or not is a key question. For BA, which totally owns the asset, it’s got to get the product to market. Thomson has used the Internet to set up a low-cost operation, while other people will say they just want to be fantastic at retailing.

ronen stauber
Ronen Stauber
Ronen Stauber (Cendant): Where people start and stop can be determined by where they are historically. Acquisitions make up a lot of that, whether it’s corporate travel or distribution. You’ve then got to decide where to invest and grow. Cendant has seen tremendous pick-up in web capability by agents, whether it be flights, hotel-only or sightseeing and transfers. We are very confident that commanding a great seat at the distribution table, providing choice to suppliers and depth to consumers, is the way that we will continue our leading position in the marketplace.

Hoberman: What we are talking about is ‘commoditisation’ again. Where will the differentiation happen? All tour operators should distribute as much as they can online, but they’ll all have good websites. That’s not going to differentiate them. Is it owning the assets or something else? As online intermediaries, we can do it with more focus.

Fontenla-Novoa: It depends what you want to become. Thomas Cook has a different opportunity than Thomson. Thomas Cook is seen as a retail brand so we can take what’s going on in the online world as a retailer. Thomson’s approach to online retailing is about selling its product at the lowest cost.

Breakwell:  There are good reasons why operators have taken time to enter the online market. But there’s no value judgment in whether they came in late or not.

“What shops have failed to do is blend the internet with their expertise, so they’ve lost a tremendous amount of ground”

Travolution:  The BA brand online will encompass dynamic packaging, an area that previously was the provision of online agents. How will that trend affect relationships?

Hall: Picking up Brent’s point about differentiation, if you do own assets you’ve got to look beyond the retail experience of the booking. We’re looking at the servicing you do online – check-in, giving APIS details, managing disruption better – looking at the whole process and not just the booking. Business travel online is in its infancy. Small businesses are booking on the web but large corporates are slow.

Stauber: That’s an exciting aspect in terms of opportunity over the next two or three years. By deeper work with suppliers and distributors, you can deliver the services Tiffany mentioned. Distributors will be able to support all the things suppliers want through improved technology. In the US, through Orbitz’ ‘Customer Cares’, we have touched the customer in the same manner as the person who owns the assets through really sophisticated automation. A key investment in customer care has been the differentiator in the marketplace.

Travolution: What’s the role of search engines? Will they effectively become GDSs?

Tim Frankcom (Yahoo!):  We want to provide users with the ability to update their own information and build a platform where there are people talking to each other through reviews, message boards and points of interest. It’s not about being a GDS, but providing a way for suppliers, such as an online travel agent or BA, to get their product in front of users at an advanced stage of the buying process. They might be looking for a certain flight at a certain time of day, not necessarily the cheapest. It can be used by the business user and the leisure traveller. There are lots of people in the B2B arena using travel search to find the itinerary that suits their needs. People use travel search to sort by time, brand, agent or supplier. You’d be surprised, but the number of people sorting by price is actually quite small.

Hoberman: To commoditise the industry is quite dangerous. The role of comparison engines will be interesting because the intermediaries will want to know they really add value. Walther: Google’s approach to travel going forward is not to develop a specific travel search product but trying to deliver better results. We are usability focused.

Travolution: The meta-search comparison engines look customer efficient, but are they supplier efficient? Is it in your interests to participate and under what terms?

tiffany hall
Tiffany Hall

Hall:  We want to lead people in on a low price and then upsell them, either to a different time of day or an upgraded product. If you work with companies that just show the lowest price, it might be good for Ryanair, but it’s not so great for us. The challenge is balancing the reach. You work with your own website and a number of partners and get the benefits of control over the client environment. But you have to get the reach.

Breakwell: For Expedia, the question is, can you make it stand up economically? You are trading customers and price. What is your approach to the brand and your brand investment? You want the investment you make in your brand to accrue to you, not somebody else. [Using comparison engines] makes sense economically, but not strategically. I don’t see why we should build our brand and somebody build a brand on top of it. Some clients are happy buying travel that way, but these sites can’t enhance the consumer experience.

Hoberman:  In the US, most of the major players are not in those engines.

Frankcom: It can make sense. The bigger brands using travel search, like BA, have a very strong conversion rate. The stronger the brand, the better the conversion. Smaller brands can get decent conversion because consumers might be looking for a product, but stronger brands are doing well out of search. If you spend money reinforcing the brand with display media and couple it with search, it enhances your clicks and your response rate.

Breakwell:  I get the reasons, but I don’t buy it. For some brands it makes sense, but not for me.

brent hoberman

Hoberman: The true cost of distribution is the thing to look at. The problem we find with meta-search is that our conversion rate can be awful. That puts a strain on your GDS relationship.

Hall: We are very focused on looking at the true cost of and comparing it to trade distribution. It’s not just about the cost of each transaction, but also about how much you have to invest upfront and ongoing costs.

Frankcom: You can’t lump all meta-searches together. Yahoo! and Kelkoo took the decision some time ago to work with people who sign marketing agreements, so everyone who appears is paying to be there.

Travolution: What’s been the impact on the traditional travel agent community?

Botterill: Travel agents had a similar problem 10 years ago with Teletext. It was the Yahoo! of its time. A lot of small leisure agents are becoming reliant on search engines. They’ve migrated from Teletext to Google, Kelkoo and Yahoo!, and rather than invest that money in building a brand online they have become dependent on search engines. We are looking at building a portal to take away some of that reliance.

Fontenla-Novoa:  We are very clear about what we want to do as a retailer and how we retail our own products online. There’s no question the Internet is having a dramatic impact on the high street and it’s been accelerated in the past six months. All of us with a large number of high-street shops are taking a good look at the size of our networks. There’s no question there’ll be less shops in three years’ time. It’s about deciding if you want to be all things to all men or to focus on certain parts of the market. We want to be a retailer operating through multiple channels. We’ve done some research that shows people are much more loyal to a website than to a high-street shop. Lots of people have touched Thomas Cook first through the web and then gone to a shop. It works both ways round. But it does depend on what people are buying, and for us it’s package holidays.

Breakwell: It’s important to understand the brand value of retail.

Stauber: We see a 45% increase in net revenues in areas we have stores in. We see the value in having joint promotions executed well.

wayne pearce
 Wayne Pearce
Pearce: One of the great questions is whether consumers doing price searches rely on one or two trusted sites, go to them and believe what’s available. In some markets there is a very high sensitivity to price and people search for a long time. It could be they know and love a brand and buy from it in the same way they have traditionally had their preferred retailer on the high street.

Travolution:  As brand becomes more important, will non-traditional retailers, such as the supermarkets, come in to travel?

Breakwell: Are people going to go to Tesco and think ‘I’m going to buy my package holiday here?’ In the short term that’s a stretch, but in the medium to long term, maybe. But I doubt Tesco will get into travel; it’s more likely it’ll form a partnership with someone else.

Botterill: It’s very channel dependent. The traditional high-street brands have tried implants like Asda and people don’t come in with 15 bags of shopping because that customer experience isn’t a good one. But selling holidays on is different.

Stauber: The supermarket just becomes another affiliate.

Travolution: But Tesco knows an awful lot about its customers and their buying habits, which can be a great advantage.

Breakwell: That’s the same as Google, which knows what the world is doing and thinking. But that highlights the problem – information is everywhere. Could Tesco get into travel? Certainly. Has it got other fish to fry? Absolutely.

Travolution: How will changing customer habits effect the online industry?

Hoberman: More and more people are happy to buy expensive items online. Everyone has strong city-break trade, but increasingly people will make long-haul purchases.

Stauber: A key development will be the ability to change a schedule as we become more automated – to modify or rebook by text once a booking is made.

Botterill:  Converging technology in B2B relationships will add value to the high-street experience and assist agents in having a 24/7 relationship with client.

Breakwell: Technology will become integrated a great deal more – it’s still an adjunct to the way we live. We’ve got loads of technology in its early days, but in five years it’ll be woven into the way we think, operate and behave. Bringing the technology together, that’s where the money is.

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