24, 2002 - eTourismNewsletter.com - e-FOCUS (Print
Of course, in order to play that little game, it is better to be called Orbitz.com, Travelocity.com or even Expedia.com
Nevertheless, it seems that even this now has to be paid.
The most recent experiment concerns Travelocity that started, at the end of March 2002, increasing United Airlines tickets by $10, thus following the decision by the company to suppress commissions.
On April 4, Travelocity cancelled such increase because of some "global negotiations" with United that aimed at reaching a general marketing agreement between these two companies
What you need to understand from that is that Travelocity will get preferential rates from United, whether it is in a direct or indirect way, when its competitors will have no choice left but to try and do the same thing.
We already witnessed the same thing, which only got the same results, when Northwest Airlines brought into fashion the cancellation of commissions for eTourism web sites. At the time, Travelocity managed to get away rather easily from this type of scenario that aimed at increasing the price of the company's plane tickets before negotiating a disguised "general agreement".
The latest experiment, that came just after Travelocity's one, was made by Orbitz.com that decided at the beginning of April to increase the price of tickets sold by America West and Air Canada by $5, following the decision of both these companies to cancel commissions for online travel agents. On April 6, this increase was already cancelled on Orbitz.com web site after a marketing agreement was made between these two companies!
It looks as if this little game "we change prices" and then we make an agreement has become particularly well institutionalised lately. We can even wonder if this is not just a way for companies to fight against a commercial discrimination in the online distribution of their products, without having to face any legal problem.
In May 2001, I interviewed Sam Galeotos, Cheaptickets.com president and CEO, and told him that I was convinced that, in less than a year, most American airline companies would follow Northwest's example and stop paying commissions to online travel agents.
Unfortunately for the smallest web sites, what I forecasted a while ago came true, as non-American companies such as Air Canada no longer hesitate to follow the lead of their American counterparts.
The consequences of the attitude adopted by airline companies, which I think should soon be followed by car rental companies (see to that matter the latest decisions taken by Hertz, Avis and Dollar Rent a Car), regarding the cancellation of the commissions paid, on the basis of contract rates, for car rental within the bounds of companies and states' accounts, will prove especially heavy in the eTourism sector, and in the eTravel world in general.
Indeed, what this means is that only the largest travel agents will be prove big enough to be able to negotiate with companies as equals and force them to maintain the commissions they used to give them, in the name of disguised "marketing agreements".
What is more, one might be tempted to think that this tendency, which is mostly online for the time being, could well reach offline travel agents in some time.
Airline companies, as their own Internet web sites grew and as they got together (Orbitz.com, Hotwire.com, Opodo.com in Europe and Zuji.com in Asia), have now started regaining control over their distribution networks and the next step will probably be a sharp decrease of the GDS prices.
The arrival of Web services, even if they do not represent a threat for GDSs for a few years still, are bound to question their current supremacy in the long term.
I am not saying that web services will force the GDSs to disappear as the latter are presently growing so fast that I am convinced that they will find some other way to survive but, without any major strategic change in their current method of payment, they might well be sentenced to death.
Sabre already started an indirect reconversion by investing in Travelocity again... and buying 26% of Travelocity's shares for $491 million, which brings its share interest to 96%.
The future impact held by Web services can be illustrated by both Southwest.com and Dollar Rent a Car.
The Internet user who now buys his ticket on Southwest can already rent a car with Dollar Rent a Car without having to leave Southwest web site and what is more, without any of these two companies needing to resort to a GDS.
If for the user, nothing has changed, these two partners'margins have greatly improved.
In my opinion, Web Services' future will be secured by the multiple applications they will provide to mobile services.
The m-commerce, that still barely exits because of the wap deficiencies, should be one of the main beneficiaries but also one of the driving forces of the development of these Web Services.
To get back to airline companies, their reasoning seems rather simple: as they are presently convinced that will not manage to rule out online giants such as Travelocity or Expedia, they are now trying to stop selling their tickets on smaller web sites, thus hoping to get hold of these sales, in a direct or indirect way, via their own web sites and/or gatherings of online companies.
The future of eTourism distributors, already strongly affected by the Internet crisis and even more strongly affected by the September attacks, is becoming clearer every day: only a few actors will remain: some Asian and European ones (often the same ones), a few specialised American ones, some niche markets and that is it.
Indeed, how could we possibly imagine that some small isolated companies could withstand the biggest actors in the eTourism sector?
The Internet bubble is closing at a quick pace and alliances will be the only way to survive for many actors that still prove too fragile in a sector where margins are extremely small.
The future of eTourism seems to belong mostly to producers-distributors who, because they control all or part of the products sold, can hope and resist such integrations tomorrow.
But even for them, the future will mostly depend on their ability to reach a sufficient critical size through merging and purchases, and to sell their products together through strong alliances able to preserve their interests in front of worldwide predators.
Extract from site www.eTourismNewsletter.com