If you’ve ever been a road warrior, you know that the following is true. Spending hours upon hours on a plane several times a week, every week of the year, even the smallest benefits can make a profound difference. It’s sad but true that happiness is measured in on-time arrivals and exit rows, but such is the nature of frequent business travel.
According to the latest Orbitz for Business / Busienss Traveler Magazine Quarterly Trend Report, what business travelers want is changing. During the recession, cost was paramount, as cash-strapped businesses put pressure on employees to keep expenses under control in a bid to protect profit margins. Now that economic conditions are changing, travel priorities are too.
Ancillary services are gaining importance, as passengers are looking for ways to be comfortable again, especially if looser travel budgets are resulting in more time on the road. According to IATA, the airline industry is likely to pull in an aggregate $8.9 billion in profits from ancillary services this year, indicating that the money is likely to come from somewhere.
Let’s take a look at the five things the white collar travel folks are beginning to crave:1. A seat in the aisle: this isn’t surprising; everyone wants the chance to stretch out, even if it means the risk of getting slammed by the beverage cart.
2. Priority access at the security line and early boarding: hey, nobody wants to wait, right?
3. Airline lounge or club access: if you’re going to be stuck in an airport, you might as well enjoy it.
4. A seat at the front of the plane: boarding isn’t the only priority – business travelers want to get off quickly, too.
5. Extra leg room in coach: sense a theme here?
Like the opportunity to keep one’s dignity while flying, baggage check didn’t make the top five. Though among the most used ancillary services for leisure travelers, it came in sixth for business travelers, likely because frequent fliers have learned to avoid checking their bags at all costs. Interestingly, the least-used ancillary services are priority standby for an alternative flight and internet access, though I expect the latter to increase as it becomes more widely available.
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!
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).
“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.”