Report suggests shakeout in online booking industry

Wednesday, April 19, 2000 | 10:49 a.m.

Vegas.com

Hotel Reservations Network Inc., a publicly traded majority-owned subsidiary of USA Networks Inc., signed an agreement to be the exclusive discount hotel room provider for the Internet site Vegas.com.

The alliance enables visitors to the Vegas.com website direct access to HRN's negotiated rates on Las Vegas hotel rooms.

Vegas.com is owned by the Greenspun family, which also owns the Las Vegas Sun and the Greenspun Media Group of four publications.

Bryan Allison, general manager of Vegas.com, said the website has had a business relationship with HRN for more than a year, but the agreement signed last month gives the company exclusive positioning on the site.

Financial details of the agreement were not disclosed.

A report on the Internet travel industry predicts 80 percent of 1,000 travel websites are destined for failure, but a quarter of all travel agents could still lose their jobs within three years because sites such as Travelscape.com are so popular.

Local travel agents disagree, saying they will survive by building specialized travel niches and going online themselves. They add that machines won't be able to beat personalized customer service.

Bear Stearns & Co. initiated coverage of the Internet travel industry Monday, issuing a 100-page report called "Point, Click, Trip -- An Introduction to the Online Travel Industry" at the e-Travelworld conference in San Francisco.

Jason Ader, best known in Las Vegas as Bear Stearns' top gaming analyst, was one of the authors of the report.

"We've had overwhelming response and a tremendous amount of requests for the report," Ader said during a flight delay at a Los Angeles airport. "We've found that it (Internet travel) is a business that's not well understood and not well researched by the broker community."

Online travel still commands a tiny percentage of the industry pie. Jupiter Communications, a technology research company, said only 4.3 percent of all airline bookings were done online in 1999. Only 1.5 percent of hotel rooms, 2.3 percent of rental cars and 0.5 percent of cruises were booked via home computer.

Jupiter projects the percentage of airline bookings online will increase to 11.1 percent by 2003.

The report says travel agencies will have to specialize with packages, adventure travel, safaris and special student and senior travel deals to stand out in the market.

The report also said in the first half of 1999 about 1,800 travel agencies went out of business in the United States due in part to their inability to generate revenue.

But a leading travel agency executive in Las Vegas said that isn't the case in Southern Nevada.

Kathy Falkensammer, a certified travel consultant who is president of Prestige Travel-American Express in Las Vegas, said the report is premature to predict such a downturn for the travel industry in some markets because travel agents are adjusting to the competition that online companies are providing.

She said cuts in commissions from airlines are having a bigger impact on the industry than the proliferation of travel websites. But Las Vegas is fortunate to have Dallas-based Southwest Airlines as its market leader, she said, because Southwest has promised to maintain 10 percent commissions on ticket sales to travel agents at least through 2000.

Las Vegas-based National Airlines also is guaranteeing a 10 percent commission to travel agents. Most other carriers have chopped their commissions to 5 percent to a maximum of $25 per one-way ticket.

Commissions always have been low for Las Vegas travel agencies, Falkensammer said, because fares generally are lower to and from Las Vegas, a leisure market. She said cuts in commissions have forced local travel agencies to develop niches and many local companies have begun specializing in cruise trips, which pay them more.

National Airlines considers travel agencies to be a vital link to sales.

"We don't necessarily agree that online travel will be dominant in the immediate future," said Dik Shimizu, a spokesman for National.

Shimizu said National, which has been in operation since May 1999 and served its 1 millionth customer earlier this month, books about 70 percent of its customers through travel agencies.

"We also think travel agents will adapt to the ever-changing technologies that are out there," Shimizu said. "It will be survival of the fittest, so to speak."

Shimizu said National remains committed to 10 percent commissions to travel agents, "but I can't speak to whether that would ever go away."

But with such a high percentage of its bookings through agents, Shimizu said he doesn't expect online travel to play a dominant position anytime soon. He compared the industry to online investing.

"Are brokerage houses going to die? I don't know. That's kind of hard for me to imagine," Shimizu said.

Southwest Airlines, the market leader at McCarran International Airport, was so surprised by its own website results that it conducted a special press conference last month to ballyhoo the results.

Southwest officials said the company booked more than $300 million in Internet ticket sales in the first quarter of 2000, an increase of more than 100 percent over the same period a year earlier. The company said it is on track to book more than $1 billion in Internet ticket sales this year.

Beth Harbin, a spokeswoman for Southwest in Dallas, said 27 percent of the airline's tickets are booked through its Internet site, while 34 percent still ticket through travel agents. The rest buy at ticket counters or call the airline's reservation center.

Of the top 10 airline websites, Southwest operates two with a nearly 3 million unique visits a month estimated between them, according to Media Metrix, a research firm. The leading site is www.southwest.com, which attracts about 2 million unique visits a month. A second site, www.iflyswa.com, attracts about 1 million visits a month. The data were based on February statistics.

The top 10 sites are produced by airlines that serve McCarran.

One of the primary reasons the Southwest websites have become so popular is that the airline offers an incentive: Frequent fliers can collect free tickets twice as fast by booking on the Internet.

"Some customers insist on buying at the ticket counter," Harbin said. "Some of our newer customers insist on doing it through the website. The key to good customer service is to provide an easy way (to buy tickets) for everybody."

But Harbin said her company also knows that the Internet is only going to get more popular and "those who don't have a presence are missing out."

"Southwest and National have a strong commitment to the travel agent," Ader said. "Las Vegas is in a unique situation in that aspect, but in general in the nation and world, travel agency commissions are in decline."

Ader said he doesn't expect travel agencies to completely disappear because many customers still want the human interaction offered by an agency.

"We're only saying 25 percent less," Ader said. "We're talking about clicks and mortar, not bricks and mortar. There's always something that seems to go wrong and people are going to want to talk to a real person and not a computer screen to fix it."

The two companies identified in the Bear Stearns report as market leaders in the online travel industry are Travelocity, with 3.8 million monthly visits, and Expedia.com, the travel spinoff of Microsoft Inc., with 4 million visits. Expedia recently acquired Las Vegas-based Travelscape.com, which makes most of its money in hotel bookings.

Tom Breitling, one of the co-founders of the company, said the online industry will flourish because of the convenience it offers.

"You can't always make time between 9 and 5 to make travel arrangements, so the convenience of online booking is what makes it so appealing," Breitling said.

Travelscape started as a telephone-based hotel room reservation service that eventually branched out into other travel and an Internet base. Breitling said because the hotel industry is so fragmented, Travelscape will always have an advantage in booking rooms for vacationers.

Breitling said there will be 60 million Internet users by 2003, about double the amount currently online. The challenge for companies like his, he said, is to turn visitors from lookers to bookers.

That, he said, can be accomplished by taking advantage of the name brand -- and its relationship with Microsoft -- and to develop value that will yank in buyers over the home computer.

Meanwhile, a separate report issued by Credit Suisse First Boston last month suggests that the hotel industry could increase price competition and lower distribution costs if a consortium of hotel companies banded together to develop its own website to sell rooms at discounted rates.

David Anders of Credit Suisse First Boston said customers would have a greater comfort level with a website controlled by hotel companies and the cost savings could be shared by the hotel and the consumer.

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