Global Experience Industries. Jens Christensen
distribution.
The online travel agencies are expanding immensely, first in the US, then in Western Europe, followed by Asia Pacific, Eastern Europe and Latin America. The Atlantic community remains the core of this business sector. In North America, Expedia, Sabre/Travelocity and Travelport/Orbitz quickly conquered a large share of the market. Expedia, Travelocity, Travelport/ebookers and Amadeus/Opodo took the lead in Western Europe. The online intermediaries expanded so rapidly that they began to overtake traditional agencies. By 2005 in the US, Expedia ranked three, behind the industry leaders based on business travel American Express Business Travel and Carlson Wagonlit Travel, and BCD Travel and Travelocity ranking four and five. By 2005, the global online travel market was an estimated $15 billion, probably half of all travel agencies’ revenues. Gross’ sales were up to five times higher. The largest market was the US, followed by Western Europe. Online developments in the United States were about two years ahead of Western Europe.
The new online intermediaries have mainly used two business strategies, the merchant model and dynamic packaging. In the merchant model, the intermediary receives an inventory of products and services from suppliers at negotiated rates. The online intermediary then determines the price of the final product and service by including costs and a profit. Dynamic packaging is the term for a user-centerd, cheaper and more flexible way of assembling and booking a personalised holiday through the Web. In other words, the Internet has allowed for a radical retransformation and recombination of all links in the travel value chain.
The breakthrough of online travel agencies and the upgrading of global distribution systems as well as the interrelated ownership and cooperation between the wholesale and retail level of travel intermediaries have led to a consolidation of this industry around a few distribution companies and their included online travel agencies. Within a few years since the turn of the millennium, they have come to dominate global travel distribution and sales.
Sabre
Being the reservation system of American Airlines since the 1960s, Sabre has for decades been the trend-setter for airline reservations and distribution systems.37 Sabre provides IT solutions to its mother company and other airlines, too. As a consequence of deregulation and liberalization, Sabre Holdings Corporation was formed in the 1990s. With the breakthrough of the Internet, Sabre added Travelocity, an online travel agency, to its distribution system. Past the turn of the millennium, it starts to become increasingly obvious that the Internet opens for radical changes in the travel and tourism industry. The central point is moving upwards to online systems giving consumers direct access to book and buy almost any travel service. Just as the global distribution systems of the 1990s reduced the airlines’ reservation systems to mere internal information warehouses, the online travel agencies of the 2000s are about to turn the distribution systems into simple transaction bases. In order to avoid being left behind, Sabre invested heavily in making a strong position in the expanding online business as well as in upgrading its distribution system. Like many other corporations, Sabre was taken over by an investment company at the end of 2006, having no influence on its strategy, however.
In 2005, Sabre had total revenues of $2.5 billion and in 2006, $2.7 billion. 60 percent stemmed from its distribution system, 30 percent from Travelocity and 10 percent from its IT solutions.38 Following the sluggish years of 2001 to 2004, revenues take off from 2005. The online business expands strongly, and by merging with lastminute.com, Travelocity almost doubles its income and moves into a position as one of the world’s leading travel agencies. It provides travel information, booking and sales to holiday and business travelers as well as travel producers. Furthermore, Travelocity extends its business to include almost every kind of travel service to holiday and business travelers.
The distribution system of Sabre Travel Network is upgraded, too. On the one hand, this network works as the wholesale of travel information for Travelocity, the retailer. On the other hand, Sabre Travel Network provides similar information to several airlines, railway companies, cruise ships, car rental companies, hotels, tour operators, travel agencies, insurance companies, etc. By upgrading and extending its services, Sabre Travel Network penetrates further into the value chain of its customers, paving the way for airlines and others to outsource their booking portals. By 2007 in addition to numerous travel producers, more than 50000 thousand travel agencies in plus one hundred countries on all continents use Sabre Travel Network.
TABLE 5 Revenues of Global Travel Agencies and Distribution Companies in $bn, 2007
Source: www.sabre-holding.com. www.amadeus.com. www.travelport.com. www.worldspan.com. www.priceline.com. Estimates, excluding IT solutions for airlines.
In 2006, Sabre Travel Network had an estimated 30 percent global market share of travel distribution, leaving the remaining market share to its three competitors Amadeus, Travelport (Galileo) and Worldspan (Table 5). All four companies provide almost the same services. Sabre Travel Network competes by upgrading its products to more comprehensive solutions, in cooperation with Travelocity, too. New competitors have entered the travel distribution market, however, which have made this market more complex and marked by intensive competition. For example, strong search companies such as Google and Yahoo offer combined searching across travel producers, travel agencies and other travel related websites. As countermeasures towards this blurring of industry boundaries, Sabre Travel Network has partnered with Yahoo!, AOL and American Express. Finally, new alternative distribution system providers covering more narrow market segments and with limited functionality competed by way of low prices, for example ITA Software, G2 Switchworks and Farelogix.
Sabre Travel Network also competes with airlines that have developed web-based consumer booking systems and sales channels of their own. Simultaneously, the airlines put pressure on the global distribution systems by requiring reduced prices. A reverse development is seen, too, as some airlines begin outsourcing the operation of their sales channels to Sabre, for example US Airways and Delta.39 Business men and holiday travelers are not really interested in shopping from one airline website to another.
The direct marketing and sales of travel services take place through Travelocity. Buying lastminute.comis an important part of Travelocity’s expansion plan. But it includes much more than that. Several other online travel agencies are bought, including Scandinavian Rejsefeber, and the global car rental firm HolidayAutos.com. Through subsidiary companies and acquisition of other companies and brands outside its main basis in the USA, Travelocity has positioned itself in, for example, Canada, Mexico, UK, Germany, France, Scandinavia, Japan, and Australia.
Travelocity’s main competitors are Expedia, Orbitz and ebookers, Priceline, the leading US and world travel agencies, as well as Opodo in Europe.40 A new group of competitors are emerging based on information consolidators and consumer generated content (see below: Social Travel Networking). To meet these challenges Travelocity will have to upgrade to a higher level of competitiveness based on consumer interaction.
Travelport/Galileo and Worldspan
Just like Sabre was disengaged from American Airlines during the 1990s, the distribution system Galileo was separated from its mother companies United Airlines, British Airways and KLM, as was Worldspan from Delta Air Lines and Northwest Airlines.41 Galileo was taken over by investor companies, first Cendant and renamed Travelport.42 Travelport includes the distribution system Galileo, the online travel agencies Orbitz and eBookers as well as the wholesale travel provider Gulliver’s Travel Associates. By the end of 2006, the travel and tourism activities of Cendant were