Online Travel 2005 – rough ride for many
Fewer rooms, growing supplier direct sales with help from travel search engines, continuation of global expansion…crowed market and lower earnings. GDS is endangered.
According to Standard & Poor’s “For many in this sector, 2005 will be a year to forget — even before it really starts.” 2004 was not a good year for online travel companies and shares they tracked. IAC/InterActiveCorp, priceline.com, and Sabre ended 2004 significantly lower from their year highs.
In regards to online hotel sales, S&P says, “Intense, ever-mounting competition and reduced access to inventory remain notable concerns, in our view.”
While JupiterResearch has forecasted 10% average annual growth for US online travel sales from 2005 to 2009, increased competition is expected to push profits down.
Online travel companies have relied on merchant hotel sales for the majority of their profits over the past few years as hotel chains needed help following 9-11, SAR, and Golf War. As travel demand is reaching pre 9-11 levels and hotels have gotten better at selling direct, they have taken greater control of their inventories and controlled pricing, adversely affecting profits at the online travel companies.
Of the established online companies Cheap Tickets, Expedia, Hotels.com, Hotwire.com, Orbitz, priceline.com, and Travelocity, S&P expect Orbitz to be a more formidable competitor following its November, 2004, acquisition by Cendant. And, Expedia and its sister companies, Hotels.com and Hotwire, should be strengthened by their upcoming spin-off (under the Expedia moniker) from IAC.
Further competition for the online agencies come from airlines and hoteliers who are expected to continue their foray using the Internet as a channel for sales, marketing, and customer communications and service. And, help from travel-search services such as those provided by FareChase, Kayak Software, Mobissimo, QIXO, and SideStep who continue to be popular for consumers who search multiple online agencies and supplier prices and go directly to the Web sites of their choice, often of the suppliers.
”With better-known brands and offers of loyalty benefits, we believe the travel suppliers pose a substantial threat to the online travel agencies. Remember, you can’t get American Airlines Aadvantage miles or Marriott Rewards points by booking on Expedia, Orbitz, or Travelocity. Moreover, we expect suppliers to promote their Web sites more aggressively through mass marketing, targeted advertising, and personalized incentives. We also expect travel-search services to gain momentum and capture material traffic and transactions from the Internet agencies.”, further predicted S&P.
Improved technology for searching and booking air travel, specially those provided by G2 Switchworks and ITA Software are expected to give the GDS great competition, which is likely to result in disappointing earnings growth. Regarding Sabre S&P believes this new competition could make it “largely irrelevant”.
Reported by Charles Kao
Charles Kao
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