Summary
The PhoCusWright report that spawned this article reports that the online travel distribution market has shifted to 61% being sold via supplier sites (otherwise known as consumer direct) and 39% is sold via online travel agents. Suppliers are trying to wring more dollars out of frequent, loyal bookers, which means increased focus on personalization, loyalty and community. OTAs, by comparison, are trying to wring any dollars out of their mass of unconverted lookers, as the almighty transaction gives ground to eyeballs and emerging advertising-based lines of business.
Analysis
What PhoCusWright neglects to say is that this is still just a fraction
of the overall travel market. 18.5% of the market to be exact.
According to the travel industry association, the US travel market
yields $740b in annual revenues and PhoCusWright states that just $137b
of that is sold online. Supplier Direct accounts for 11.3% of the
total and the OTAs just 7.2% of the total. Just over $129b is sold
through travel agencies, which accounts for another 17.4% of the total
US market.
What is blurred here is where the opportunity in the travel sector really lies. Should we fixate on the channel shift from online travel agents to supplier direct, or should we look at the 64.1% that is not sold electronically at all and talk about how to get it to run through an online travel agency or through a GDS?
This huge piece of the pie is driven (pardon the pun) by the drive market, which is not addressed at all by the travel industry today. Without the appropriate tools, the travel agency community and the online travel community cannot sell hotel rooms to those that are not flying or going just point to point. Since less than 15% of all spending in the US is by air travelers, the other 85% represents a substantial opportunity.
“From 2003-2006, a period of strong overall growth for travel and the
online market in particular, suppliers aggressively grew their online
share through relentless marketing and incentives to drive consumers to
book direct on their websites. But as the economy began to sputter in
the second half of 2007, consumer demand slackened and OTAs started to
benefit from a limited countercyclical lift,” PhoCusWright says.
PCW predicts that the balance between supplier direct and OTAs will hold constant through 2010. I'm not sure that I agree, as I believe that suppliers will still be relentless in their pursuit of driving traffic to their own sites, trying to reduce their commission and GDS booking fee expenses.
Unfortunately, they will throw out the baby with the bathwater and also tryi to move business from the traditional travel agent channel to their own online sites, even to the detriment of their bottom line. I have written on this subject extensively in my distribution blog.
Bottom line is that if business continues to shift from OTAs to Supplier Direct, then the OTA's value will deteriorate long term if they can't find a new way to bring value to the supplier community. If business shifts from the traditional travel agency channel to supplier direct or to OTAs, then the GDSs will suffer.
If the industry as a whole remains focused on the air traveler, versus acknowledging the needs of the drive traveler, then it will miss out on playing a part in the next big thing - handling over the mechanics to the likes of GoogleMaps and Mapquest and fragmenting the experience for the traveler.
