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Online Travel Agents May Emerge Stronger From Downturn

09/09/2009| 9:28:04 AM| 中文

Airline ticket sales and hotel bookings have fallen sharply because of the worst recession in generations. But the leading online travel agencies could emerge from the downturn stronger than they entered it.

The three big online travel agencies - Priceline.com Inc. (PCLN), Expedia Inc. (EXPE) and Orbitz?Worldwide?Inc. (OWW) - have responded to the downturn by cutting booking fees, providing some price guarantees and offering more flight- and-hotel packages. Those moves have helped them increase market share and report better-than-expected results.

The performance of the online travel agencies during the downturn seems to be reversing years of market share erosion. Now, some industry observers are suggesting a trend that was only recently unlikely: Online travel agencies could continue gaining once the economy rebounds.

"Online travel agencies are redirecting consumer attention toward themselves as a result of the travel slump in a way that will be irreversible," said Frederick Moran, an analyst at Benchmark Company.

This was not the way 2009 was seen shaping up for the online agencies. Already bleeding market share to hotel and airline booking Web sites for several years, the agencies were expected to be hammered by plummeting demand for travel. Fearful investors sent Priceline and Expedia tumbling late last year; Orbitz bottomed out in March.

But the travel agencies responded with a series of booking fee cuts, price guarantees, cross-selling package deals and international expansion efforts that have made them more attractive to bargain-hunting travelers.

For example, Orbitz and Expedia followed Priceline in eliminating airline booking charges and reducing some hotel reservation fees, enabling them to boost traffic, improve conversion rates and sell more higher-margin hotel rooms and package deals. Meanwhile, smaller Priceline is growing faster than its rivals, in part because of its "Name Your Own Price" promotion and its international hotel business.

Lorraine Sileo, an analyst at travel industry research group PhoCusWright, said these moves could boost the trio´s share of the online travel market from 39% in 2008 to perhaps 41% by 2010, a gain that would come at the expense of Web sites run by airlines and hotel chains.

Hopeful investors have taken notice. They´ve bid Priceline shares up more than 105% this year, to $151.63, while Expedia has soared more than 168%, to $22.15 over the same period. Shares in Orbitz have increased more than five-fold since their March low, closing Thursday at $5.84.

Forecasts for the rest of the year are encouraging, but it is unclear whether online travel agents can maintain momentum once the economy improves. Some observers are quick to point out that aggressive competition from airline and hotel sites eroded the travel agents´ market share over the last several years. As recently as 2003, they accounted for 50% of U.S. online gross travel bookings.

A key reason the agencies appear to be reclaiming share during the recession is that airlines and hotels have been making more unused inventory available to agencies at lower prices, said Marianne Wolk, an analyst at Susquehanna?Financial?Group.

That trend could reverse if suppliers hoard their inventory when the economy rebounds, she said, preventing online travel agencies from offering the type of flight and hotel options that have attracted cost-conscious consumers.

An Orbitz spokesman said his company would continue to offer special deals after the economy rebounds. Priceline and Expedia declined to comment for this article.
A return of business travelers could also tilt demand back to airline and hotel sites, which entice well-heeled customers with loyalty points, upgrades and ancillary services, said PhoCusWright´s Sileo.

Still, Benchmark´s Moran believes the agencies will maintain their momentum as the market recovers because pricing has become increasingly competitive and consumers will demand more choices while remaining cost-conscious.

"The removal of booking fees has assured the consumer that you will always get the best price on (the online travel agencies) like Expedia, Orbitz or Priceline," says Moran. "That basically seals the potential for (online travel agencies) to be the search engines of choice for U.S. travelers."
TAGS: Priceline | Expedia | Orbitz
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