Travel

Online travel agencies compete with supplier sites

CHICAGO (Reuters) Internet travel agencies like Expedia and Orbitz still rule the online travel business, but sites run by airlines, hotels and car rental services are luring travelers seeking better prices by avoiding the middle man.

Analysts say the competition from supplier sites is unlikely to topple any of the big three online travel agencies Expedia, Travelocity and Orbitz. But it may erode their profits even as the agencies remain dominant.

"The struggle between the intermediaries and the suppliers is reaching a head," said Lorraine Sileo, analyst at PhoCusWright, a travel research company. "I think that we're at the point where technology is the differentiator."

PhoCusWright data show that consumer perceptions of supplier-direct sites have improved in recent years. In 2004, 45% of online travelers said Internet agencies have the lowest prices. That's down from 59% in 2002. Meanwhile, 38% of online travelers said suppliers offer the lowest prices, up from just 14% two years ago.

To some degree, that's true, because agencies charge a booking fee for some services. For example, Expedia charges a $5 booking fee for plane tickets. A traveler could buy the same ticket on the airline's Web site without paying that fee.

"In terms of the airlines, it's very much skewed to the airlines' Web sites," Sileo said. "Airlines have been more successful than hotels at inspiring loyalty."

PhoCusWright estimated in 2004 that 61% of online airline tickets sales were on carriers' Web sites. Several airlines have boosted traffic to their Web sites by offering low-fare guarantees.

"We still rely on travel agencies and new emerging Internet sites for our business, but there is a cost to us," said Roger Frizzell, spokesman for AMR's American Airlines. "Our most effective distribution channel is actually ourselves because the cost is such that we don't have to pay additional fees."

The increased direct sales are a glimmer of good news for an industry which has posted billions of dollars in losses because of high fuel costs. Distribution through their sites saves carriers from having to pay an agency to sell tickets.

The hotel industry, which is in much better financial shape, has also been pushing its own Web sites.

But while it may be a little cheaper to buy tickets directly from the travel supplier, customers may prefer the convenience of a travel agency if they also need to book a hotel room and a rental car for the same trip. Furthermore, the agencies often can bundle flights, hotel rooms and car rentals into one package and offer a discount.

Online travel sites

The top three online travel agencies, Expedia, a subsidiary of IAC/InterActiveCorp, Travelocity, a unit of Sabre Holdings, and Orbitz, owned by Cendant, comprise about 77 of the market share.

Industry watchers generally agree that successful sites offer technology and deals superior to supplier sites.

"There are certain types of consumers that like to go supplier direct because they are brand loyal," said David Dennis, a spokesman for Expedia. "But the types of consumers that would shop an online agency such as Expedia are consumers that are just shopping."

Dennis said it is not surprising that supplier sites are gaining traction, but he said customers are willing to pay fees for packages and other conveniences.

Aside from supplier direct sites, online travel agencies also must compete with travel search engines like Sidestep and Kayak, which sift through all published bookings information for fares and reservation prices.

Customers cannot make reservations through search sites. Instead, they are directed to the supplier sites where they book tickets and rooms. Its a growing industry that helps travelers connect directly with airlines and hotels.

"It's like mushrooms in the spring. They just keep popping up," said Phil Carpenter, spokesman for Sidestep.

The key to survival in the travel search business is for a company to anticipate a traveler's every need, said Harold Stevens, president of Portals2TheWorld, a recently launched travel search engine.

Portals2TheWorld, for example, can help a traveler find ATM's, calculate currency conversions and locate U.S. embassies around the world.

"You've got to maximize the ease of use," said Stevens said. "You've got to make it easy."