Nov 9th 2010, 15:51 by The Economist online | SINGAPORE
TAKING a flight may be a trying experience these days, but booking one online
has never been easier. A few clicks, and travellers can scan a wide variety of
websites for flight and hotel deals. Perhaps it s no surprise, then, that
nearly half of worldwide travel bookings have shifted online, or that some of
the largest internet travel firms are reaping heady rewards. Priceline recently
earned the accolade of being the S&P s best performer over the last five years,
its stock having risen more than 900%. On November 8th it announced a 55% rise
in third-quarter profits after stripping out special items, and a 37% rise in
revenues, which hit the $1 billion mark for the first time. Priceline s main
competitors, Orbitz and Expedia, have also seen a rapid increase in bookings
since last year.
Although the travel portals ascent has been smooth so far, the skies ahead are
cloudy. The first sign of turbulence came in July when Google announced plans
to buy ITA Software, a service that organises online flight information. ITA is
the backbone of websites like Kayak and Orbitz, and its algorithm is used in
two-thirds of online flight searches in the United States. Analysts don t think
Google s goal is to grapple for low margins in the travel-booking business, but
rather to use ITA s technology as a platform for advertising. All the same, the
venture could displace meta-search services like Kayak, which spare
travellers the effort of trawling several portals.
The $700m merger is likely to go through in the next few months, making it one
of Google s largest acquisitions since it went public in 2004. The mortal
threat to Kayak notwithstanding, the industry s response to the deal has been
mixed. Priceline, which relies mainly on international hotel bookings for its
profits, has expressed optimism that the deal will help to expand the online
travel industry and make it more efficient. Firms including Expedia,
TripAdvisor, and Travelocity, in contrast, have formed a consortium called
Fairsearch.org to lobby Congress to block the deal on anti-trust grounds.
The industry s worries may be overblown. Not only is Google thought to be
mostly interested in ITA s general data-sifting technologies, it will also be
wary of disrupting its good relationships with the travel portals: A leaked
memo revealed in September that Expedia is one of Google s biggest clients when
it comes to advertising spending, so it might think twice about alienating it.
Cutting out the middleman
Perhaps more troubling for the industry was a separate announcement last week,
when American Airlines announced plans to pull its flights from Orbitz, saying
the existing arrangement isn t cost-effective. AA s goal is to lure more
customers to its own website, cutting out the middleman. Analysts have long
said that airlines business model of selling via online travel agencies is
unsustainable, though there is a danger that the first airline to quit the
portals will lose business to rivals, and thus wind up cutting off their nose
to spite their face, says Douglas Quinby of PhoCusWright, a travel
consultancy.
If airlines do start removing their flights from the portals, it may prompt the
portals to put more emphasis on selling hotel rooms, which anyway is more
profitable than selling flights. Jeffrey Boyd, Priceline s chief executive,
argues that his company would not suffer much if the airlines quit his portal,
because it already makes about three-quarters of its profits from hotel
bookings. Expedia, likewise, already gets about two-thirds of its revenue from
hotels and only 12% from flights. However, whereas airline bookings do not make
the portals much money, they do lure in customers, some of whom then make
lucrative hotel bookings.
The online travel industry is growing strongly worldwide, but I don t see it
being a peaceful industry over the next five years, says Henry Harteveldt of
Forrester Research. He says that hotels, as well as airlines, will try to cut
out the portals and get more direct bookings from travellers. This should mean
a wider choice of online offerings and thus be good news for consumers, even
though it may be tough for the travel portals.
To keep flying high, in the face of rising competition, the portals need to
work harder at providing a distinctive service. At the moment, Expedia,
Priceline, Travelocity and the rest all offer travellers a pretty similar
experience and do little to build long-term relationships with them. Yet
Forrester Research has found that 17% of travellers in America, and 30% in
Europe, haven t actually decided where they want to go when they start
searching for trips on the internet. What this shows is that there is great
scope to win customers not just by selling travel, but by inspiring it.