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After the dotcom crash of 2000, few industries were able to embrace the internet confident that the new technology would help them prosper.
But while the internet was clearly not suitable for the online pet food shops and fashion retailers that folded five years ago, it found a perfect match in the travel industry.
The sector has been transformed by the internet, which has moved power to consumers. This has heralded a big change in the way operators distribute and sell products.
Holidaymakers are no longer reliant on their travel agent for information about destinations and are becoming adventurous when planning itineraries. The internet gives them more choice and forces operators to be creative.
“The internet puts customers in control,” says Brent Hoberman, chief executive of Lastminute.com, the online travel and entertainment group that came to the London stock market at the peak of the dotcom boom. “It creates transparency and it has led to the unbundling of the package holiday.”
Traditional package tour operators have been forced to rethink their approach to selling holidays. The internet has accelerated the growth of independent travel: research from World Tourism Organisation Independent shows it is growing more quickly than the package holiday market.
In the US, for example, which has set the pace for most online phenomena in the web age, internet travel has been whole-heartedly embraced by business people and consumers and grew from an industry worth $5bn in sales in 1999 to more than $20bn in 2003, a number that continues to rise quickly.
Meanwhile, the UK’s Office of National Statistics revealed in its latest travel survey that 68 per cent of people using the internet looked for information on travel and accommodation, with 50 per cent of people likely to book a holiday using the internet over the next two years.
With consumers increasingly using the internet to buy flights, accommodation and car hire separately, rather than bundled in a package, tour operators have had to respond. First Choice, one of the largest UK operators, has diversified into specialist holidays and upscale breaks, whereas Thomas Cook has followed Lastminute.com’s lead in creating an internet site that allows customers to choose component parts of holidays.
The internet has spawned a generation of travel companies. Lastminute.com, Expedia and Travelocity buy travel products, such as hotel rooms, and use the internet to find buyers. Holidaymakers used to be limited to a seven-day or two-week break but the internet has changed that.
“If you look at our summer sun destinations, the average length of stay is 4.8 days,” says Henrik Kjellberg, vice president of supply for Europe, Middle East and Africa at Expedia.
The internet, he says, has made companies such as Expedia more efficient because it can process large numbers of orders and inquiries. “Our business is more efficient than it would be if we had to have people working behind every booking,” he says. “It also allows us to collect a lot of data on every customer. We can take this data, utilise it and create a better product.”
Expedia is also one of a growing number of companies to offer “white label” services. In markets where it does not have a presence it will sell its hotel rooms and other travel services on websites run by competitors, such as Ebookers, and share the profits. It also sells its hotel rooms on websites run by travel suppliers, such as Virgin Atlantic and Eurostar. “It provides us with incremental demand,” says David Roche, vice president for Europe of Hotels.com, an Expedia business.
“We couldn’t run a business in this way without the internet. It means you are taking advantage of the host company brand and the most successful way to do that is with the internet.”
Airlines have benefited from the boom in internet use. British Airways sells almost five times as many tickets via ba.com as over the telephone in the UK. Revenue from ba.com has tripled to £15m a week in 18 months and more than 17 per cent of total bookings, premium and non-premium, were made online in the past year.
Meanwhile, the internet has also fuelled the growth of low-cost carriers. The internet initially appeared to pose a threat to the business models of travel companies, especially those operators that rely on old IT systems. However, it has also forced many operators to reshape. Amadeus, the Spain-based travel technology group, provides IT systems and distributes travel data to airlines and travel agents but has created revenues by using the internet to reach a wider audience.
“The internet has given travel providers the opportunity to sell directly to customers. Before [customers] were limited by the number of call centres they contacted and could not get the amount of data they do now,” says Ian Wheeler, vice president of marketing for Amadeus.
The internet has allowed the group to increase its IT services division, building processing systems that allow airlines, such as BMI, Qantas and Air Canada, to take bookings from their websites. The internet has also forced travel agents to change the way they operate. In the UK, for example, 100 agencies are closing every year and with big tour operators increasingly selling directly to customers, the 1,500 remaining agents are being encouraged to become more specialised.
For providers of business travel services the internet poses a different kind of problem.
“Fundamentally it’s given us a real challenge,” says Bob Govan, director of marketing and development at Portman Travel, one of the UK’s largest travel management companies. Portman specialises in business travel and with the internet opening up cheaper routes and destinations Mr Govan says the company has to “buy more effectively than our customers can”. Despite a slow start, tour operators have begun to recognise the potential of the internet.
The largest operators in Europe, such as Tui, Thomas Cook, MyTravel and First Choice, are using the internet to speed up the processing of holidays, using a software system that removes the need for confirmation letters to be sent to customers. That system has been developed by AXS-One, a Nasdaq-listed US software company.
The group has created an electronic archive that stores booking details entered by a travel agent when a customer purchases a holiday.
Before, holidaymakers would have to wait for written confirmation from the tour operator that their booking had been received.
But with the AXS-One system, all confirmation and processing is done online in seconds when the customer books a holiday with the agent. The moment a tour operator confirms a booking or makes changes to an existing booking, the details are sent to the AXS-One electronic archive. The system then automatically sends a message back to the agent confirming the details.
While the internet has undoubtedly reshaped the industry, consumers have been the biggest beneficiaries of the technology. With so many sites to search, though, the issue is how to find the best deal.
A new generation of companies claim to have the answer.
“Meta-search” websites that trawl the web looking for the best prices and availability of flights and hotel rooms are a relatively new entrant to the online travel sector but have caused a stir because they allow consumers to pick the best deals.
Travelsupermarket.com, one of the largest travel price-comparison websites, allows holidaymakers to submit their holiday requirements and then search through the results from all the operators on the web. “The online travel environment is becoming a minefield for the consumer as new start-up sites launch daily,” says Simon Nixon, chief executive of Travelsupermarket.com.
“We believe the future has to be delivering a fast and effective way of cutting through this environment to deliver what the customer really wants and at the very best price.”
The group processed 15,000 searches a day in January which has since increased to more than 50,000 a day. The sharp increase is symptomatic of the internet’s impact on travel but few would have predicted these changes five years ago.