Which BIG airline just pulled out of three booking sites?

As you’ve read here on Gadling, the battle between airlines and online travel agencies is poised to heat up. For the past few years, a dismal economy has sent many bargain-hunters to online travel sites with the hopes of finding fantastic deals and minimizing the pain in their wallets. Yet, with the travel market and the broader economy showing signs of recovery, airlines‘ brand power will gain momentum, and customers with more cash at their disposal will favor convenience and recognition over saving a couple of dollars. A battle for your money and your loyalty is brewing.

And, it’s just intensified.

Last month, American Airlines and Orbitz tangled over fees and the booking process, with the airline threatening to yank its inventory from the travel site, a threat on which it made good. After a temporary restraining order was issued, a judge ruled yesterday that American could pull its inventory from the online travel agency and ordered Orbitz to stop selling American Airlines tickets and displaying its fares.

Now, Delta‘s getting in on the action.

The airline has yanked its inventory from a handful of smaller online travel agencies, Aviation Week reports, including CheapOair, OneTravel and Bookit as of last Friday. So, if you’re hunting for cheap tickets on these sites, you won’t run into Delta any more. Aviation Week observes that it appears to be “part of a partial shift in its distribution strategy,” and notes that it seems different from American’s move with Orbitz.For Delta, the decision looks like it’s part of an effort to consolidate around larger online travel agencies, while American is targeting agencies directly, rather than using an intermediary to reach another intermediary.

While the means may be different, the objective appears to be the same. With a shift in the economy, airlines have a bolstered position in the marketplace, and this is likely to give them a bit more weight in dealing with online travel agencies and in reaching consumers directly. For American, it seems like a play to reduce costs and increase efficiency – as it is for Delta (though through different means). Ultimately, however, Delta wants more direct action from consumers, which reduces its sales costs and increases profits, which is what differentiates its decision from that of American.

According to a statement by Delta in Aviation Week, “Delta is being more selective in our use of online travel sites in the future as we continually work to improve our online distribution strategy.” The company adds, “We continue to make significant investments in delta.com to make it an industry-leading travel site, and we believe that delta.com will become the preferred online site to book travel on Delta.”

A representative from CheapOair was not available for comment.

I asked Douglas Quinby, Sr. Director, Research, at travel industry research firm PhoCusWright, his thoughts on Delta’s decision, and his reply was pretty striaghtforward: “The only surprising thing about this move is that it has taken this long.” He explained, “U.S. airlines have impressively restrained their appetite for growth (i.e. capacity) on the back of a (more or less) recovering economy. With clear control of their inventory, airlines have already started rationalizing distribution, and the weakest links are first to get snipped. American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!”

So, what’s the net effect of all this? Do the actions of Delta and American suggest that we’ll be paying higher fares in the future because of behavior that doesn’t benefit the consumer? My bet is that the average fare buyer won’t see a whole lot of difference, especially given the share of sales already owned by the airlines via their own websites. The infrequent leisure traveler, especially, is losing an alternative … though it’s one that won’t be as important in a recovering economy.

[photo by boeingdreamscape]

Exclusive Insight: Why hotels lost ground online

Yesterday, you probably saw that hotels are getting hit pretty hard by online travel agencies, as customers have been hunting for deals aggressively. The latest data from PhoCusWright puts branded hotel websites at 54 percent of the online channel, down from 59 percent two years ago. And a few weeks ago, we took a look at the competition between online travel agent and airline brands as we head into a travel market recovery.

Well, it looks like hotels are going to stage a similar comeback as the economy improves.

I reached out to Douglas Quinby, Senior Director, Research, at PhoCusWright yesterday to find out a bit more about the supplier/online travel agent dynamic in the hotel space.

Quinby wrote to me by email, “The interesting thing about this shift away from branded hotel websites to OTAs over the course of the recession – and this has happened with airline sites too – is not that hotel brands are not important, but that those travelers who care most about hotel brands, the frequent leisure and business travelers and true brand loyalists, were the ones that pulled back the most.”Essentially, hotels’ best customers started to stray, as cost became increasingly important given prevailing economic conditions. It isn’t surprising, of course: when you have fewer dollars, each comes with greater gravity.

Quinby continued, “When money is tight, price becomes more important, and the OTAs have deftly outflanked the recession by focusing on that infrequent leisure travel and what they care about most: deals!”

As business travelers come back into the market, it seems, the share of total travel spending going to the suppliers will again increase, as corporate travel budgets get a little looser and those making the buying decisions get a bit more freedom again. Quinby notes that this goes for frequent leisure travelers as well, with both categories leading to “improving performance in supplier websites.”

There’s no doubt that online travel agencies will need to increase their brand investments to compete effectively with hotel suppliers in 2011. Let the games begin!

So, how do you book hotels: with a branded hotel website or an online travel agent? Leave a comment to let us know!

Hotels get beat up on the web as online travel agencies score deals

Hotels were doing a great job of selling online before the recession hit. But, thanks to a healthy dose of innovation and greed, the global economy has been in rough shape, forcing those still traveling to hunt for deeper discounts and bigger deals. Unsurprisingly, this led to relatively strong market conditions for the online travel agent sector, particularly in the hotel space. For the hotel companies themselves, however, it’s been a bit rough.

According to travel industry research firm PhoCusWright:

The economic downturn has erased prerecession gains for hotel branded websites, as market pressures increase reliance on online travel agencies (OTAs). With occupancy still below 2007 levels and sluggish ADR [average daily rate] growth, OTAs will grow at twice the rate of hotel websites in 2010.

This follows proactive measures by hotels to improve their websites, with noticeable improvements leading to a 59 percent share of the online channel, according to PhoCusWright. Now, the suppliers are looking at a drop in share to 54 percent for 2010, with “similar growth patterns in 2011 and 2012 as hotels gain more control over OTA inventory.”

The battle of the brands, involving travel agents and their suppliers, is being engaged in the hospitality industry as well as the airline sector, it seems.

So, where do you think you’ll find your next hotel deal? Take the poll below to let us know!

Brand Wars: The Airline Booking Battle Will Be Televised

Online travel agencies have had a solid run over the past two years. They picked up some market share as would-be travelers were willing to poke around a little more to score cheap tickets. High rates of unemployment and under-employment and general economic uncertainty, of course, were enough to make consumers value every dollar a little more. This opened an opportunity for online travel agencies to advance in the marketplace, and chip away at the dominance of their suppliers (i.e., the airlines) on the web.

Yet, the market is turning. Next year is expected to be a strong one for the air travel industry relative to 2010, and 2010 was a vast improvement over 2009. For online travel agencies, this provides some benefit as a rising tide, but it’s likely to favor their suppliers, as customers are more likely to go with what they know over putting in some effort to find the largest discounts.

Online travel agencies will have to overcome this tendency by investing smartly and substantially in their own brands. This is what we’re seeing in the latest move by CheapOair, the one of the 10 largest online travel agencies in the sector, in its recent announcement of a marketing mix change, which teases a broader strategic shift given changing market conditions.


A Changing Travel Market
From 2008 to 2010, online travel agencies were able to chip away at the online market share of their suppliers, reducing the suppliers from owning 62 percent of the online business in 2008 to 59 percent in 2010, according to travel industry research firm PhoCusWright. Bargain hunters drove the market, which eroded the importance of brand loyalty.

From 2009 to 2010, PhoCusWright notes a “strong countercyclical performance for the OTA category.” In 2009, sales fell only 1 percent for the sector, compared to 5 percent for the total online leisure/unmanaged business travel market. And, online travel agencies have posted double-digit gains in 2010.

Stronger industry conditions, however, are better for the suppliers, and PhoCusWright observes, “With the rebound continuing, supplier websites will likely regain momentum as the OTA fight to hold on to their share gains.”

In regards to the actual travel experience, ostensibly, the airline’s brand matters most. When a passenger books through an online travel agency, the brand associated with the transaction lasts for a few minutes – or a few hours, depending on the diligence of the buyer’s search. Meanwhile, interaction with the airline’s brand starts during the search for a ticket, persists through the flight and ends sometime after the passenger hops into a town car to get to his ultimate destination. To register in the customer consciousness, online travel agencies need to develop the sort of presences that will keep them top of mind.

This runs counter to the traditional online customer acquisition models associated with the online travel agency business, which involve a combination of search engine optimization, online ads, affiliate programs and social media. These are transaction-oriented tactics, which speak directly to the brand-barrenness of big discounting.

More Than the Transaction
The largest online travel agencies have already moved past transaction myopia: everybody knows the Travelocity gnome, Priceline‘s William Shatner and the likes of “Cooper” from Expedia. For all but the top players, however, investments in mass media brand development (such as television) have generally been eschewed in favor of what’s been known to work. Speaking at Business Insider’s IGNITION conference last week, Buddy Media CEO Michael Lazerow noted that Travelocity grew to $4 billion in revenue through online means before it moved to television to get to the next level.

Yet, for the online travel agency sector to hold its ground – and even grow – in 2011, brand has to matter more, and this means casting a wider media net. This, plus the size of CheapOair relative to its competitors, is what caught my attention about its recent media diversification. The company is launching its first television ad campaign, “Get More for Less,” in an aggressive move to get out in front of the imminent online travel market shift.

The move to television is an aggressive one, and it comes a bit ahead of “schedule” for CheapOair, if you use the Travelocity number as a reference point. Expedia pulled in close to $3 billion in revenue last year, for example, and Priceline at $2.3 billion. Travelong/CheapOair generated $825 million in revenue in 2009 and has grown at a year-over-year rate of 45 percent this year, resulting in forecasted 2010 revenues of $1.2 billion.

The company’s CEO, Sam Jain, says, “TV is a new strategy for CheapOair and as we head into our 6th year we believe this is the right time to expand our marketing efforts. TV is a natural evolution from our current digital marketing and will help build awareness among a larger audience and introduce more people to the brand.” The countercyclical tendencies of the online travel agency market relative to travel as a whole reinforce this point.

Pointing to the potential for a virtuous cycle, CheapOair’s Sr. Vice President of Strategic Partnerships, Bill Miller, adds, “This new TV campaign should draw in more customers for us which in turn will bring more value to our supplier partners. Our suppliers — airlines, hotels, car rentals —- want valuable and efficient distribution partners. I believe we are all that and more and this TV campaign is just another example of how we can extend our marketing reach on the behalf of our supplier partners.”

Fashion versus Reality
It’s been fashionable among the digerati to claim the death of other forms of media, and I’m as guilty as the rest. But, the reality is that SEO and online ads (a la Google’s pay-per-click model) are becoming increasingly crowded and competitive. Since they are focused on the transaction rather than the brand, they don’t provide for a relationship with the customer that results in a gradual reduction in cost per revenue over time. It’s strictly “pay by the drink,” and that can get pricey.

With the travel market starting to tip in favor of the travel suppliers over the online travel agencies, the costs associated with traditional online marketing will become even higher, as brand brings customers back to the suppliers and online travel agencies chase a shrinking share of bargain hunters. For online travel agencies to compete effectively, they have to make their own investments in branding – a commitment that lacks the predictability of other forms of marketing.

Strangely, television may become the key to winning on the web in the travel industry in 2011. A better market translates to the amplification of the importance of brand, and commercials are still a critical aspect of this in the consumer world.

A battle of the brands is about to break out. The good news is that it’s for your benefit … and you’ll get to watch it on TV!

[photo by Do u remember via Flickr]

Europeans love online travel agencies, up 10% this year

It looks like the internet is no longer a fad … at least not in Europe. Forecasts from travel market research firm PhoCusWright put 2010 growth in the European online travel industry at 10 percent, a smile-inducing turn from the 1 percent gain posted last year, not to mention 11 percent decline in 2009 for the entire European travel market (which is up only 2 percent this year, it appears).

This makes sense, given the data recently released by the U.S. Department of Commerce, which shows a hefty increase in travel to the United States from foreign markets.

“For travelers who may have been hesitant to book online, the recession provided the extra push they needed,” says Carroll Rheem, director, research at PhoCusWright. “Deal seekers turned to the Internet, and online travel agencies in particular, to find affordable options.”

The strength of the online travel agency sector was noted as a reason for last year’s resilience, according to a statement from PhoCusWright, “The buoyancy of the online market is due largely to the strength of the online travel agency channel, which grew in 2009, while supplier websites slipped.”

Rheem adds, “Hotel bookings are fueling online travel agency growth in Europe, with brands like Priceline‘s Booking.com maintaining extraordinarily high growth rates.” Further, it looks like online travel agency action is “on track for strong double-digit growth in 2010.”

[photo by Trodel via Flickr]