Reports Predict Online Travel Shakeout by 2005

FRAMINGHAM (04/28/2000) - The still-booming online travel market is headed for a shakeout that will eliminate many smaller players, say two reports released this month.

New York-based investment brokerage Bear, Stearns & Co. estimated that 80 percent of theapproximately 1,000 travel-related Web sites will disappear by 2005.

Jupiter Communications Inc. in New York reported that travel will continue to be a leading e-commerce sector but that the industry's current triple-digit growth will slow to between 10 percent and 20 percent by 2003.

"You've either got to getreally big or you've got to get really specialized," said Melissa Shore, a senior analyst at Jupiter. "People aren't going to want to buy travel from companies who don't know what they're doing."

The Heat Is On

The reports coincide with intensified competition among major players in the travelindustry. Expedia Inc., the Bellevue, Wash., online travel agency spun off by Microsoft Corp. last year, just unveiled a flight pricing engine that will offer customers choices by drawing information directly from the central reservation systems of air carriers.

Meanwhile, four air carriers plan to launch their own collective Web site, code-named T2, this summer. The consortium is hoping to topple the leading travel Web site, runby Travelocity.com Inc. in Fort Worth, Texas.

T2, started by United Air Lines Inc., Delta Air Lines Inc., Northwest Airlines Inc. and Continental Airlines Inc., will feature special fares from those carriers plus another 23 carriers in the program.

"But having special fares alone does not guarantee success," warned Shore.

She said the site must be easy to navigate and well-marketed, and have a broad product line.

Another question is whether the T2 airlines can work well together. For example, "who gets to offer the lowest fare?" asked Suzi Levine, Expedia's marketing manager.

Analysts at Bear, Stearns said they expect airline sites such as T2 and online travel agencies such as Expedia to share the market equally.

At a recent air-travel conference in San Jose, Travelocity CEO Terrell B. Jones said that although airlines own and schedule the planes, the online agencies can maintain their positions using the massive databases they have built to target customers.

Travelocity brings in customers by allowing them to seek flights according to fare, not schedule, and by offering virtual vacation brochures.

"If they can see their vacation before they go, they'll make a very different choice, and they can do that with broadband," Jones said.

Jones said he isn't concerned about being undersold by the airlines' T2 site.

"If they have the prices that are on airlines' sites today, I'm not worried," Jones said. "I compete against that now."

Expedia will phase in its flight-pricing engine over 18 months, so customers will have a choice of up to 1,200 itineraries on two screens, instead of the 10 to 15 itineraries in the current model.

The company will use in-house technology that plugs directly into the Atlanta-based Worldspan LP global reservations network. The T2 Web site will use Worldspan as well.

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