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The Online Travel business

The Online Travel business

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The Online Travel business

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  1. The Online Travel business By : Bhaskar-Jyoti Baruah Mathieu Dubé Laurent Lebard Ricardo Moretti

  2. The Airline Industry-A Little History The structure - simplified Airlines Intermediaries Travel agents Customers • The 70s’ an era of deregulations • Airline set prices and schedules as per market demand • Price wars erupt • Airlines differentiate through the use of technology • Known as the Computer Reservation System (CRS) • Legacy systems

  3. The Airline Industry-A Little History Airlines CRS Intermediaries Travel agents • Airlines equipped travel agents with CRS • Signed long-term contracts • Personnel had to be trained to understand display • Exclusively list CRS Airline’s flights • This produced favouritism “the halo effect” • Agencies favoured airlines with whom they had a CRS contract with

  4. The Airline Industry-A Little History Airlines CRS Intermediaries Travel agents Government orders to list other airlines - at a fee of course

  5. The Airline Industry-A Little History • Airline further controlled market through screen bias “the act of purposely positioning information on-screen to influence specific purchase behaviours that are beneficial to the vendor, but unfair to other airline suppliers.” • 50% of all consumers selected the flight shown on the first line • 90% chose a flight from the first screen • Airlines must list other airlines but charge a fee • Fees are determined by airlines • Premium fee to be place in first pages

  6. The Airline Industry-A Little History Airlines CRS Intermediaries Travel agents • CRS become a critical asset • In 1983, 80% of tickets were sold by a travel agency via a CRS • In the 1990’s, the airlines expand their CRS globally • called Global Distribution System (GDS) • e.g. American Airlines’ GDS • Government intervenes again • This forces airlines to divest their GDS – some remain at arms length • e.g. American Airlines’ GDS into “Sabre”

  7. The Airline Industry-A Little History Informational Asymmetries = expropriation of value Informational Asymmetries = expropriation of value Airlines Intermediaries Travel agents Customers Transaction costs Transaction costs The result of CRS, GDS, Halo effect & screen biases

  8. The Airline Industry & The Internet • 1995, the first travel site by International travel network • In 1996, is launched using Sabre GDS • More entered the Online Travel Agency (OTA) market • Worldspan GDS (Microsoft) • GDS • GDS • Airlines introduced their portals using their CRS technology • • •

  9. The OTA – New Developments • Since 2001, a wave of new entrants using ITA software • Created by MIT • The software decreases costs • Avoids reliance on Legacy systems & their infrastructures • No more CRS and GDS fees • Collects fares and schedules direct from the Airline Tariff Publication Company ( • Unbiased search engine - no more screen biases • Examples • / Air Canada, • , and • by American, Continental, Delta, Northwest and United Airlines • Tendency towards industry • Members include ITA, Expedia, Sabre, Worldspan

  10. The New Airline Industry & Internet Airlines Intermediaries Travel agents OTA (includes alliances) Customers The new structure • Reduced Halo effect & reduced Bias effect • No more informational asymmetries • No more expropriation of value • Reduced Transaction cost

  11. EXPEDIA… A Little History ... • Travel and Airlines industry relies a lot on IT.. • Travel is seen as the Online Business with the fastest growth in the future !!! • That ’s why Microsoft entered the Business in 1996 + =

  12. EXPEDIA... A Little History … • Expedia is the leader online travel agency worldwide leader • Located in the US, Canada, Great Britain, Germany and France. • Its mother company Interactive Corp also owns and Ticketmaster. • Interactive Corp travel subsidiaries turnover last trimester 2003 : 667 millions $!!! • Net income = 14%

  13. EXPEDIA… A Little History ... • It belongs no more to Microsoft, as Vivendi Universal acquired it through its US subsidiary, USA , in 2001. It could become a Star and even a Jewel!!! • According to Expedia:

  14. Before Transaction • A pull strategy to offer you the package you want: The substitution process is key !!! • Through a selection screen: • In one or two clicks the • package is offered to you. • It’s fast and efficient!!! Or trough a process that tries to imitate an agent speech in a travel agency

  15. Before Transaction • A push strategy to offer the product they want you to buy: • On the first screen special offer, packaged or not, are smartly proposed to you!!! • When you registered they try to know you in order to be able to send you travel proposals that fulfill your needs.

  16. Before Transaction • A push strategy to offer the product they want you to buy: • They try to enter the virtuous circle: the better they know you, the better they can propose you the right travel at the right moment at the right price. • BUT THEY ONLY TRY!!! • Companies that want to promote their packages on the first page have to pay for advertising!!! It does not work so well! • They have to go through the critical .. From one to many, to one to few, to one to one (see Amazon).

  17. Before Transaction • There are two models for setting the price: • Expedia as Travel Agency: The price is given by the Hotels, Tour Operators or Airlines. • Expedia as Tour Operator: It manages and optimizes a block of resources that Hotels entrust to Expedia’s care! • Yield and Revenue Management are key! • As a Tour Operator it could enter auctions and • takes Ebay as a model or partner !!!

  18. During Transaction • How does Expedia manage the transaction process? • The transaction must go fast in order to save time: • for the customer • for Expedia = = • Payment is only offered through Credit Card! • Is it enough??? • Expedia has a negative • Working Capital Requirement. • It can sustain its growth and • could even use the cash to make some more!!!

  19. After Transaction • Delivery is due within 48 hours. • Trust is managed thanks to: • Secured payment and information transfer via the net (security standards of Microsoft Internet Explorer). • Support online pages where there are a lot of tips available • A call center 24/24, 7/7.

  20. After Transaction • Cancellation and refund policy are the ones of hotels and companies. You don’t have so much information about it when booking • Quality . They can’t check that all products are high quality! • Law and refund and/or compensation if problems arise during holidays ??? What about complaints?

  21. After Transaction • There is a support and feedback form that you can fill in online. • Expedia does not use a systematic rating of products quality as Amazon or Ebay do.

  22. Assets • Customer databases, brand value and IT. • According to Mediametrix 16 millions of potential customers visited the site during January 2004! And it grows fast!!! • Huge potential Brand value • IT • Worldspan GDS provides access to resources • Complex mapping coding enables to propose package • Yield and Revenue Management software optimize the resource network • Data mining should enable to create a true relationship between Expedia and each customer and among customers! + + =

  23. Future • Consolidation in the industry. • Volume is key success factor for both airlines and TO. • Only the big will remain! • Consolidation on the net??? • The winner takes it all! • Will it be Expedia? • It could, provided it succeeds to : • improve its data-mining abilities • create a relationship between Expedia and each customer • create a true relationship among customers (network effect).

  24. TRAVELOCITY Who are they ? • Travelocity is an wing of travel innovator Sabre, the world’s largest travel agent. • They pioneered on line travel space and their service is one of the most popular travel service in the web. • A database driven travel, marketing transaction company. • It is an American company with the corporate office in Dallas, USA.

  25. What is their business model? • CUSTOMERS • They operate travel business through On-line in order to cater to the fast paced corporate traveler • They furnish all information pertaining to travels through their website that help the prospective customers to make an optimum decision. • Their online services provide customized services that roll out a wide variety of options to the travelers. These options can be purchased on line. B. SUPPLIERS • Their business model emphasizes partnerships with their suppliers ie hotels, airlines and offers the best possible packages to the customers. They have access to the database of the suppliers through internet and this allows the customers to formulate the best package for themselves online instantly. • They pay their suppliers by credit card and this enable them to secure the cheapest rate from the suppliers.

  26. Site • Interactive website offering personalized services. • Contains information on the five main services provided to the customers. • Contains special window on the home page from which travelers can secure instant prices by mentioning departures, flight no, destination. • An special section on customer care that helps the customers to secure answers to queries.

  27. Who are their customers? PRIME FOCUS • Travelocity is basically focusing on the corporate travelers who are required to travel frequently on their official works. SECONDARY FOCUS • Holiday seekers who want a guided tour without any hassles.

  28. How are they marketing their services? • POSITIONING : They have positioned themselves as an on line tour operator. • PROMOTING OF SERVICES: • Alliances with leading E- Business sites. It is the exclusive travel booking provider for American on line services and for several US and Canadian Yahoo sites. • Services of specialized marketing firms to aggrandize online and offline marketing: They have tied up with specialized marketing firms like Range Online Media to increase their sales. • Search Engine marketing: They are boosting their online presence through search engine marketing. Range online is specially carrying out a campaign by resorting to advertising in Google. • Commercial advertisement in TV: • Delineating the company as a more than a travel site. • Commercial Videos. • Customer service centre.

  29. What are their services? Travelocity offers five prime services. • Reservation of transportation: They enable the customers to have access to the services of more than 700 airlines, 50 car rental companies. • Reservation of accommodation: They have established network with 55000 Hotels worldwide for arranging reservations. • Arrangement of pleasure trips for busy corporate travelers: They have 6500 cruise and vacation packages. • Helpful information and Travel reservations: flight status, online flight check in, passport & visa information, destination guides, traveler advice. • Last minute deals: Packages offered as deals to people who forget to plan their holidays (week end) in advance. Source: Comtex

  30. How are they creating value? • Personalized online services providing easy access to the information suitably stored for the corporate travelers. • Corporate travelers can book their travel with travel policies and preferred supplier discounts applied automatically • Full-service expert help is available 24/7 online or offline, by phone or by email • Robust reporting and policy management tools to evaluate corporate travel expenses • Service in 60 seconds or less. Guaranteed. • Significant savings in costs for the customer who can make his selection out of wide variety of customized services . • The wide number of customized services can provide various options to a customer to meet his needs.

  31. Benefits in Financial terms • Savings on Transaction fees upto 82% Average service fee for Travelocity business is $20/ booking against industry average of $31/booking • Saving on Airfare up to 26% The average price of air ticket for Travelocity business travel was $393 against industry average of $542. • Average trip savings up to $100

  32. How are they generating these savings? • By providing access to web fares and negotiated rates. Customers can purchase web fares that can be as much as 20% lower than published rate OR they can negotiate on their own. • Sophisticated travel policy control. The customers can find a fit between their requirements and the wide number of travel policies thrown to them. They can strike the best bargain easily. • The integration of technology with the services. The costs saved by integrating the technology with the service are passed on to the customers. Their alliances with the suppliers coupled with the technology enable them to compute the most attractive packages for customers belonging to any income bracket.

  33. Orbitz… an overview ... • Founded in November 1999 by some of the world's leading airlines • American Airlines • Continental Airlines • Delta Airlines • Northwest Airlines • United Airlines

  34. Orbitz… an overview ... • Orbitz website officially launched on June 4, 2001 • Giving customers access to 450 airlines, over 39,000 hotels, and 25 car rental companies • Gross bookings of more than $1 million on its first day and more than $3.3 million by its third day • Within 90 days, Orbitz was the 3rd largest travel website Initial Mission Statement: “Develop a travel website that would serve people better.”

  35. Orbitz… an overview ... • Orbitz Objectives • Expand customer base through efficient marketing • Increase the mix of non-air travel products • Retain customers through superior buying experience and customer care activities • Establish and maintain the lowest cost structure in the industry • Pursue new business opportunities

  36. Some sucess… Forbes"Best of the Web" for online travel in 2002; "Best Cruise Site" for 2003 Business Traveler Magazine"Best Business Travel Website 2002“ Massachusetts Institute of Technology Sloan eBusiness Award2002 Rookie of the Year Award (Web Site) Wired MagazineFinalist, 2001 Readers RAVE Awards, Best Service Site Nielsen Net RatingsLargest e-commerce launch on record PC MagazineEditors' Choice Award, April 20, 2004 Travel Site, August 2003 Customer Respect Group#1 in online customer experience, 2004 and 2003 Online Customer Respect Study of Airline, Travel and Hotel/Resort Casino Companies Time MagazineOne of the top 50 sites of 2002 PC MagazineOne of the top 100 sites of 2004, 2003, 2002 and 2001

  37. The site Functionalities similar to competitors • Flights, Hotels, Cars, Cruises & Vacations sections • Information and bookings • Travel tips • Electronic Travel magazine/news • Fare comparisons • Currency conversion calculators • Deal detector • Major international and travel news • Driving maps and directions • Frequent flier reward program • Personalized account • Corporate section • Efficient search engine • …

  38. The backbone of the website • Linux-based servers (vs. mainframes) • 750 computers in data center and still growing… • Provides : • Flexibility • Capability to bypass the usual channels to directly link customers with air schedules via Internet • Speed and cost savings over GDS sites

  39. Additional support • Supplier Link • Direct reservation system with airlines companies • Bypasses fee-charging global distribution systems (GDS) • Pegasus • Hotel industry's largest third-party marketing and reservations provider • Connects more than 45,000 hotels to the Internet and to the global distribution systems

  40. Marketing • Promotion • Pop-under ads (ex: Times online) • Online storefront • Partnerships • Print, TV & radio • Sweepstakes • Emails

  41. Marketing Their online travel buyer 60% male 32% 18-34 years of age 23% have incomes over $100,000 33% have children 80% use Internet daily Orbitz Target Population Median age = 39 Median household income = $60,000 51% have a college or post college degree Average 3 leisure trips per year Purchasers of family vacations, romantic getaways, guided tours, cruises, etc. Over 2.5 years of online experience

  42. Pioneers in marketing First to launch its gay microsite (2002) Gay travel-rewards programs Ads on Bravo's “Queer Eye for the Straight Guy”

  43. Services • Offer the widest selection of low airfares • Efficient search engine that scans more than 455 airlines • Orbitz Matrix Display: provides an unbiased listing of airfares and other rates • Corporate services (ex: ) • Bonus airline mile awards • Credit Card Reward Program(Orbitz Platinum MasterCard)

  44. Value creation • Customers • Decrease of searching costs through mediation of the information • Enables price transparency • Provides better prices to the consumer • Empowers consumers in their buying process • Provides a new purchasing channel • Reduces power & costs of traditional intermediaries • Reduces the transaction costs

  45. Value creation • “Suppliers” • Allows some savings related to the reservation system(savings near to $2 million in GDS fees in less than 1 year at Northwest) • Reduces commission and distribution costs

  46. “When Buying On-line, Does Price Really Matter?”Joan Morris MIT & Paul P. Maglio IBM Almaden Research Center (06/12/2000) • “when a parameter is ranked more important than price, its value is considered to be a requirement for purchase. • “If the parameter is ranked less important than price, the acceptable ranges can be seen as preferences rather than requirements.”

  47. OTA – Expenditures • Online bookers spent $300 more on travel during 2003 than they did in 2002. • 2003 average expenditures = $2,600 each • 75% buying airline tickets • 71% buying accommodations (up 57% from 2002) • 42% for car rentals Source: www.clickz.comstats/markets/travel/print.php/3304691