In the past few years travel has well and truly made its mark on the web. Euromonitor global travel analyst Helen Roberts looks at its meteoric rise and future growth areas
The e-travel revolution was initially fuelled by two key events: the arrival of low-cost carriers, which encouraged travellers to book direct via the web; and the economic slump that followed the terrorist acts of September 11 2001, which caused the travel industry to turn to the Internet as a clearing house for overcapacity.
The development of online travel agencies, such as Expedia, Travelocity and Orbitz, meant consumers were able to compare prices of different airlines and hotels side-by-side to find the best deals. At the same time, other key factors over the past decade have been essential for the rapid success of Internet travel retail, such as:
- The continued buoyancy of the global travel market thanks to the strengthening economic climate since 2002 – Euromonitor estimates overall growth of 24% in the number of international arrivals from 2001-06.
- The rise of Internet usage worldwide.
- The growing use of credit cards – and the success of financial institutions in developing more secure payment methods.
- Above all else, technology has contributed to the rapid evolution of e-travel in the past two years.
E-ticketing and online check-in have speeded up the booking process; while Web 2.0 applications have introduced new functionalities such as video, podcasts, 360-degree panoramic images and 3D mapping, as well as tools such as blogs and wikis.
All this has encouraged consumers to turn to the web rather than visit their local agency.
Furthermore, aggregating technology and screen-scraping techniques have allowed for the development of meta-search engines, such as Kayak, Yahoo!’s FareChase and SideStep, which are saving consumers even more surfing time.
As a result, the past few years have seen the balance of power shift from OTAs towards consumers and direct suppliers. While the latter have been beefing up their website capabilities, the emergence of user-generated sites such as TripAdvisor means consumers are moving from being the recipients of data to becoming active participants in the spreading of knowledge.
As well as meta-search sites, OTAs face a number of other rivals for online business, including giants such as Yahoo!, AOL and eBay. Faced with these challenges, traditional OTAs have had to become highly innovative in order to survive. Some of the key OTA strategies Euromonitor has identified include:
- Dynamic packaging functionality.
- International expansion.
- Partnering with environmental groups to offer travellers the chance to contribute to carbon emission reductions.
- The sale of private label products to third parties.
- Improvements in customer service and transparency.
In an increasingly competitive environment, online players have also stepped up their marketing. This includes using innovative tactics to reach consumers, such as ‘top deal’ e-mails. This move has not only served to make companies such as TravelZoo a household name, but have also helped travel suppliers offload spare inventory.
There are no hard and fast global statistics for the e-travel market.
However, the US is the most developed, with an estimated 38% of travel-related sales made online in 2006. South Korea also has a very highly developed e-travel market with online travel retail sales taking a 32% share.
However, Euromonitor estimates the share in neighbouring Japan is much lower, at just 7%. While the Internet is frequently used by the Japanese for researching travel and making bookings, it is rarely used for actual payments, which they prefer to make in person. Other significant e-travel markets include the UK, France and Germany, the former two with shares of around 22% each in 2006, and Germany with 18.5%. [Chart 1]
All sectors of the global e-travel market experienced rapid growth in sales and market share from 2001-06.
By 2006, Euromonitor’s latest research shows shares were highest in the airline and car-rental sectors, at 24.5% and 24% respectively. Within the air travel sector, the largest share of online transactions were made direct with suppliers, since most low-costs do not use third-party sellers. Carriers are increasingly enticing customers to their websites by offering promotional online fares and loyalty points; whereas search engines have the advantage of allowing consumers to compare fares and timetables from many different airlines.
The growth of e-travel has caused competition for bricks and mortar agents, although a certain proportion of consumers still prefer the personal contact and expertise offered by these companies. The online share reached 19.5% in the global travel retail sector in 2006, with most of these sales made via OTAs. However, the major integrated travel groups such as TUI and Thomas Cook – and even long-haul operator Kuoni – have responded by stepping up their own web offerings. Euromonitor predicts these companies will provide an ever-more significant challenge to the OTAs, given their established brand names and level of vertical integration.
The online share of accommodation sales was much lower than in other sectors at less than 11%. Most online sales in this sector are made direct with suppliers, with proprietary websites tending to provide a more detailed list of properties and rates than those available through intermediaries, sometimes at lower prices. [Chart 2].
However, e-travel offers excellent growth prospects for OTAs and direct suppliers alike, as long as they remain innovative and are able to offer a high level of customer service, as well as value. Euromonitor predicts the key drivers of growth in all sectors will be:
- Further usage of broadband Internet connections and developments in card payment security.
- The evolution of e-travel from being price to product driven as consumers demand choice and flexibility.
- Further developments in dynamic packaging technology.
- Growth of consumer content sites.
- Further development of mobile phones as a medium for bookings.
Over the next five years, air travel will remain the most advanced sector in terms of web sales, with the online share expected to reach 40% by 2011; while the share of travel retail could amount to 30%. The gap will narrow between direct suppliers and intermediaries, as operators move increasingly into the online arena. This will further impact high-street retailers, whose role may be reduced to that of giving specialist advice. [Chart 3].
To obtain a copy of the full report, Global E-Travel Habits Strategy Briefing Report, contact Jonathan Larrad on +44 (0) 20 7251 8024.
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