Travel Sector Analysis

1. INTRODUCTION

Hundreds of millions of people make billions of trips each year, making travel one of the world's largest industries. This industry includes a broad range of businesses such as airlines, hotels, cruise lines, rail lines, car rentals but also travel agencies, tour operators and other travel suppliers that are part of a chain supply of products and services.

Initially, travel supply chain was linear, involving travel providers who supplied Tour Operators who turned to Travel Agents who sold to travelers. With the emergence of new technologies, all the players of the supply chain now have direct access to travelers.

With direct access to thousands of travel suppliers, the travelers can now compare different sources, and check prices and availability for their trip at anytime without the help of a travel agent. While they are getting used to booking basic travel (air+hotel+car) online, travel web sites are now offering more and more complex products such as cruises, vacation packages, travel insurances, passes, excursions and other local activities.

In this paper, online travel sector is analyzed by considering business models that is used for this sector in the online environment, evaluating some major businesses in the sector and also by discussing the past, current and future state of the online travel industry. Additionally, a new business idea is created for the sector and it is described in detail with its business scope, target market, customer segment, business model, short and long term objectives, market analysis and marketing strategies.

2. TRAVEL SECTOR ANALYSIS

a) BUSINESS MODELS IN TRAVEL SECTOR

The Brokerage Model, which brings buyers and sellers together and facilitate transactions. Usually a broker charges a fee or commission for each transaction it enables. Brokerage models include:

• Marketplace Exchange: offers a full range of services covering the transaction process, from market assessment to negotiation and fulfillment. Exchange operates independently or is backed by an industry consortium. Expedia, Travelocity, Orbitz are included in this category. They are major businesses in travel sector offering variety of trips, vacation packages, flight tickets, cruises and car rentals to travelers.

• Demand Collection System (Reverse Auction): the patented “name-your-price” model pioneered by Priceline.com. prospective buyer makes a final (bidding) bid for a specified good or service, and the broker arranges fulfillment. Priceline collects the price offers from customers and from travel companies separately. It tries the found the best match of the customer offer among alternative company offers. Priceline lets customers name the amount they are willing to pay but reveal the details of their itinerary only after they have punched in their credit card number.

• Auction Broker: conducts auctions for sellers. Broker charges the seller a listing fee and commission scaled with the value of transaction. Hotwire is an example of auction broker in online travel market. Hotwire's partners allow this web site access to their unsold inventory - empty seats on flights, empty hotel rooms, and unrented cars - at big savings. Customers make deals to be able to purchase these products and services. They can see the travel partner name after they book; but they can get travel deals that are significantly below published prices. Hotwire aims to offer unbeatable low prices on airline tickets, hotel reservations, car rentals, vacation packages and cruises.

• Search Agent: a software agent or "robot" used to search-out the price and availability for a good or service specified by the buyer, or to locate hard to find information. FareChase, CheapFlights, Kayak, Mobissimo, Sidestep etc. These travel search engines search hundreds of travel sites from all over the world to provide the information to the customers and provide options that suit customer criteria. Once customers make the choice, the search engine directs them to the travel sites to make their purchase. These search engines can find all kinds of travel productsвЂ" from flights and hotels to rental cars and cruises. Their aim is helping customer to find the best flight, hotel, cruise, or rental car among alternatives.

According to Forrester Research in December 2004, these are the usage reasons of travel search engines by US online travelers:

The Advertising Model, providing valuable travel information whilst generating revenue through various adverts. The significant advantage of this model is its low cost base. A website in this business model that provides information on the UK is TREKtheUK.com. The web site advertises popular places to go and popular things to do as well as contains a lot of links to external travel web sites in order to help customers plan their trips around the UK. This information is free for the customers; but TREKtheUK.com gains profit from advertisement of other travel companies.

The Direct (Manufacturer) Model, allows the service provider themselves to deal directly with the general public. First of all, British Airways is the longest established and has a large market share and conventional competitive advantage. British Airways is the UK's largest international scheduled airline, flying to over 550 destinations. It directly sells its flight tickets to its customers through the Internet. Secondly, EasyJet has established the Internet as being a key to their core competency. It offers booking cheap tickets through its web site.

Merchant model, serves as a wholesaler or retailer of goods and services. Sales may be made based on list prices or through auctions. For example, Travelocity is a virtual merchant which is also called as e-tailer. It’s online store selling products featuring the company mascot, the Travelocity roaming gnome.

Affiliate Model, provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point