Update: Reports Predict Online Travel Shakeout

FRAMINGHAM (04/21/2000) - The still-booming online travel market is headed for a shakeout of smaller players, two separate reports predicted this week.

New York-based investment brokerage Bear Stearns & Co. estimated that 80 percent of the approximately 1,000 travel-related Web sites will disappear in the next few years.

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

"You've either got to get really 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."

Competition in the online travel field is certainly intensifying.

Expedia Inc., the Bellevue, Washington, online travel agency spun off from Microsoft Corp. this week unveiled a flight pricing engine that will offer customers hundreds of choices by drawing information directly from the central reservation systems of air carriers.

Meanwhile, the air carriers themselves plan to launch their own collective Web site this summer, code-named T2. The consortium is hoping to topple the No.1 travel Web site, run by Travelocity.com in Fort Worth, Texas.

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

"But having special fares alone does not guarantee success," warned Shore. She said the site must be easy to navigate, be 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?" said Suzi Levine, Expedia's marketing manager.

Bear, Stearns expects airline sites like T2 and online travel agencies like Expedia to share equal parts of the market.

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

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

"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.

He 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's flight pricing engine will be phased in over 18 months, but ultimately customers will have a choice of up to 1,200 itineraries on two screens, instead of 10 to 15 itineraries in its current model.

The company will use in-house technology that plugs directly into the Worldspan L.P. global reservations network. The T2 Web site will also use Worldspan.

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