Online Travel Market

According to PhoCusWright's Consumer Travel Report Second Edition, the top reason U.S. travelers give for booking offline is that they were seeking personal service. On the other hand, security concerns and technology issues, once a significant deterrent of online bookings, are no longer a major factor. Just 7% of offline bookers say they do not want to submit credit card information online, and roughly the same percantage do not feel the information they see online is accurate. Only 9% of those who book online cite technical issues or frustration with the Internet as the reason.

While discomfort with technology and the internet is no longer the main driver of offline bookings, a number of other perceptions appear to be preventing some transactions from moving to the online channel. The number two and three reasons for booking offline relate to perceptions-or perhaps, misperceptions-about differences between online and offline booking. Specifically, 21% of travelers who book offline feel they can get a better deal when they call or visit a travel agent or supplier. In addition, 16% believe they would get better customer service (when booking offline) if something goes wrong.

Clearly, an opportunity exists for any travel company that wants to shift transactions from their call center to their website. The challenge is to dispel the notion (which may or may not be accurate) that there are significant differences in pricing and/or customer service between online and offline channels. By communicating a clear and consistent pricing policy, and establishing messaging that instills greater confidence in customer service, travel companies may convince resistant consumers to shift their bookings online.

(HOTELMARKETING.COM, June 2010)

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While too-high prices were the main driver to booking abandonment, a litany of site-related complaints followed, including not wanting to register, slow loading times, and general frustration or confusion, according to a January 2010 survey of US online travel bookers by PhoCusWright.

Reasons that US online travel bookers do not complete online transactions, January 2010 (% of respondents):
- Final product price and/or fees were higher than I was willing to pay: 43%
- I did not want to register with the Website: 11%
- Not enough inventory (What I wanted to purchase was not available): 11%
- Website was too slow/took too long: 11%
- Website was asking for too much information: 9%
- Website was frustrating/confusing to use: 9%
- Checkout process was too long or confusing: 6%
- I was unwilling/unable to give my credit card information online: 6%
- Website crashed/Webpage froze/received error page: 5%
- Other 3%
- Have never abandoned site from which intended to make purchase: 30%

These problems can also prevent travel bookers from returning in future. More than a third of all travellers told PhoCusWright that site problems would make them less likely to shop again. Business travellers, who are more likely than leisure travellers to book a trip on any given travel site visit, were especially harsh in their condemnation. They were more likely than average to say they would immediately turn to a competing travel site (23%) and tell friends, family and co-workers about their bad experience (14%).

Website performance monitoring firm Gomez found in December 2009 that nearly a fifth of US online buyers had experienced slow load times on travel sites, and 11% had had problems completing transactions. A majority of respondents would give up after just one or two bad experiences on a site.

The "Hospitality & Tourism Industry Report, Q4 2009" from customer satisfaction measurement firm iPerceptions also indicated that after price considerations, convenient, hassle-free Websites with high measures of responsiveness led to the most completed bookings. (eMarketer, May 2010)

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Usage of the internet for researching, discussing and booking leisure and unmanaged business travel in the US has shown surprising resilience during the global recession, terrorism scares, flu-pandemic fears and continued economic uncertainty. Though sales declined 6.7% in 2009, US online leisure and unmanaged business travel sales growth will begin to accelerate in 2010, peaking at 7% in 2012, when sales will hit $105.4 billion, according to eMarketer.

eMarkter believes that online will grow to make up an even greater percentage of the total travel market in the post-recessionary environment.

US online leisure/unmanaged business travel sales, 2008-2014:
- 2008: $94.7 billion (+7.1%)
- 2009: $88.4 billion (-6.7%)
- 2010: $92.5 billion (+4.6%)
- 2011: $98.5 billion (+6.5%)
- 2012: $105.4 billion (+7.0%)
- 2013: $112.2 billion (+6.5%)
- 2014: $119.0 billion (+6.0%)

Amid the sales recovery, six key trends will be critical to online travel companies seeking to break away from the increasingly crowded yet fragmented pack:

1. Value takes centre stage: Amid the economic rubble, travellers have adopted a back-to-basics mentality, seeking quality at the right price.

2. Social media gives rise to new ways of sharing: Online reviews and user-generated content are being combined with social networking, increasing their influence on travel-buying decisions.

3. Mobile takes travel on the go: A growing number of travellers now use mobile devices to plan and book trips and access location-specific content.

4. Personalized micro-niche travel takes off: Growing dissatisfaction with one-size-fits-all travel is driving demand for customized offerings.

5. Online travel spans new horizons: Growth in online booking is shifting overseas, while US travellers who book online are looking for more international options.

6. Sustainable is becoming attainable: Suppliers who deploy green practices are enjoying favoured status among acutely aware consumers.

(eMarketer, April 2010)

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Hotel internet bookings increased by 6.6% in 2009 compared to 2008 and now account for 54% of all bookings, according to TRAVELCLICK's eTRAK report. This represents $2 billion in hotel revenue, according to PhoCusWright. This is the third year of consecutive growth in the online channel since eTRAK reporting began in 2006.

Driving the proliferation of Web bookings are such new and evolving online channels as mobile applications, social media, and behavioral networks.  The mobile channel generated nearly $80 million in revenue in 2008 and 2009, according to PhoCusWright. This number is significantly higher than the revenue from booking air travel (around $60 million) or rental cars (around $20 million) through the mobile channel.

Social networking sites have emerged with similar speed. According to Gartner, networking will be the most popular online activity by 2012, overtaking shopping and surpassing communication and entertainment.

Alongside these emerging technologies, the Global Distribution System (GDS) continues to be important for many buyers and contributes significantly to hotel distribution revenue - about 24% in 2009, according to eTRAK. Also, GDS hotel promotions, appearing when agents search the air, car, and hotel availability screens within their GDS, still have an influence on bookings. Research has found that the more useful, accurate, and visually engaging the information provided by hotels in the GDS environment, the more agents will rely on the system to book travel for their clients. (HOTELMARKETING.COM, March 2010)

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US travel industry bookings are expected to total US$291 billion in 2010 while online transactions will reach US$90 billion, according to PhoCusWright. Mobile bookings are to reach US$160 million during the same period, according to PhoCusWright's Mobile: The Next Platform for Travel report.

While mobile booking is still in its infancy, there is vast growth potential for mobile applications that drive bookings and revenue. Travel companies that build effective mobile strategies to target early adopters will be in prime position to lead the coming mobile revolution in travel. These early adopters tend to be young, and, most importantly, frequent travellers. (PhoCusWright FYI - 05/02/2010, February 2010)

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The 2009 to 2014 outlook for US online leisure and unmanaged business travel sales is rather mixed, according to a report by Forrester Research entitled "US Online Leisure Travel Forecast, 2009 to 2014: The Plateau Is In Sight".

The era of double-digit growth among US online leisure travel bookers and sales is fading. Between 2009 and 2014, Forrester expects that online sales will remain below those estimated in their 2008 forecast. The number of US leisure travel bookers will grow by just 3.5% during the next five years, while online leisure and unmanaged travel sales will grow 7%, according to Forrester Research. (Forrester Research, January 2010)

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Relatively low percentages of US Web users ages 18 and older went online to investigate travel-related subjects in 2009 (in comparison to level in some European countries), according to an Ad-ology Research. Airfares were the most popular travel-related topic, with 34% of respondents saying they had recently checked out flight costs online. But less than 31% of internet users said they had searched for information on rates and availability at hotels and motels.

US internet users who have used the internet to research travel-related topics, 2009 (% of respondents):
- Airfare: 34.0%
- Hotel/motel rates and availability: 30.8%
- Car rental: 14.3%
- Cruises: 10.3%
- Adventure vacation: 10/0%
- Train travel: 6.3%
- Casino vacation: 4.4%
- Guided tour: 3.8%
- Bus tour: 2.8%
- Out-of-town sporting events: 2.8%
- Travel agent/agency: 2.6%
- Golf vacation: 1.7%
- Other 1.2%
- None: 52.9%
(eMarketer, January 2010)

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Compete led a workshop at the PhoCusWright conference in Orlando, FL that provided a high-level pulse on the travel industry's level of recovery based on data through September 2009. One of the conclusions was that different travel categories (hotel, cruise, air, car rental) have recovered at different rates. The analyses were based on the number of visitors to sites in aggregate that represent those industries (suppliers and category-specific sections of OTAs). Note that each visitor is counted only once in a month in a travel category. Someone who visits than one hotel site in the same month is counted only once in the hotel totals for that month. The data presented at PhoCusWright are updated here to include results through October 2009.

Compete analysis suggests that the hotel and cruise categories recovered faster than did airlines and car rental, based on comparing monthly 2009 results vs. the same period in 2008. The hotel and cruise categories posted sustained year-over-year gains starting in early 2009 with aggregate traffic in 2009 above 2008 levels in all months. The gains coincide both with the US emerging from the recession but, as important, very aggressive price cutting and deal creation by the travel industry. The results also highlight the dip in consumer traffic during the brunt of the recession (Q4 2008) and more so than simple seasonal patterns would suggest.

In contrast to the hotel and cruise industries, the airline and car rental industries took longer to recover. Sustained airline traffic did not lift year-over-year until July 2009; sustained car rental year-over-year gains did not start until June 2009.

Airlines and Car Rentals also show the effects of the Q4 2008 recession bottom. Both had 2008 Q4 traffic below Q4 2007, with Car Rental showing the longest and deepest drop in that period among the four categories shown.

In summary, all four categories are showing signs of recovery, and in general consumer research levels are leading indicators. But results here are based on domain level visits: a deeper assessment would include consumer engagement (deeper funnel steps like conducting a search or choosing an itinerary) and actual bookings. A true recovery will be supported by more overall research by travellers, more engagement, and more bookings - coupled with a return of pricing power. (Compete, December 2009)

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As 2009 is coming to a close, the big question on the minds of many is the outlook for 2010 and 2011. The recovery will likely be slow, bringing only incremental improvements over several years, according to PhoCusWright's U.S. Online Travel Overview Ninth Edition. As a result, PhoCusWright projects very modest growth of 1% for the total travel market in 2010, as consumers and corporations gradually increase their travel spending. Online travel will continue to benefit from its positioning as a discount and distressed-inventory channel amid soft overall demand and a weak pricing environment for travel suppliers, especially hotels Online travel will grow 5% in 2010, far outpacing the total travel market. (PhoCusWright FYI, December 2009)

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Companies no longer need to sell travel to be a major online travel player. Over the past several years, the online travel marketplace has evolved to include a full range of non-transactional web sites that complement and at times compete with transactional sites for consumer attention, according to PhoCusWright.

Travel sellers must consider the special positioning of these new intermediaries and the extent to which non-transactional travel sites influence travelers' purchasing decisions. Non-transactional sites are those whose primary purpose and revenue model is something other than directly selling travel. These sites generally include travel media sites, travel referral sites and metasearch.

PhoCusWright explains that before consumers ever hit the 'book now' button, they undergo a whole process of gathering, qualifying and comparing travel options. Both metasearch and review sites are designed to help consumers in this often cumbersome decision-making process. Therefore, it is not surprising that the popularity of these types of web sites has grown significantly over the past several years.

PhoCusWright partnered with Compete to examine metasearch and planning and review Web sites to determine the impact they have on the conversion rates of shoppers who visit them. As of June 2009, Kayak is by far the most significant site in the metasearch category, leading with nearly 7 million monthly unique visitors. TripAdvisor and Kayak represent two of the most exciting brands in the travel space today and they both offer a multitude of products.

Non-transactional sites were found to benefit suppliers more than they benefit online travel agencies (OTAs). Supplier shoppers who also visit non-transactional sites exhibit an increase in conversion rates across all products and categories. For OTA shoppers, cross-visitation with non-transactional sites often corresponds to either no increase or a decline in conversion rates. (PhoCusWright FYI, December 2009)

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The US hotel industry has suffered greatly amid the US recession. Total hotel room revenue has been in freefall with double-digit declines for 2009, according to PhoCusWright's US Online Travel Overview Ninth Edition: Hotels. This will bring online hotel sales down for the first time since PhoCusWright began tracking the market in 1998. But online leisure/unmanaged business hotel bookings (with a projected 2009 decline of just 4% to under US$27 billion) will still markedly outperform the broader hotel market. Online travel agencies (OTAs), once hotels' online nemeses, will actually see their aggregate hotel sales climb in 2009.

After years of notable market share gains by hotel Web sites over online travel agencies, the severity of the US recession has turned those competitive dynamics entirely upside-down. Considered adversaries just a few years ago, OTAs have been essential distribution partners, able to generate bookings amid a significant overall slump in demand, according to PhoCusWright. (PhoCusWright FYI 01/12/09, December 2009)

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Far from embracing the do-it-yourself era, many consumers are fed up with the complicated process of planning and booking travel, according to a report by Forrester Research.

What we've seen is growing frustration, according to Henry H. Harteveldt, a Forrester travel analyst. Consumers see other Web sites becoming easier to use - retail Web sites, banking Web sites, media Web sites. But travel is treading water as a category. There are very few travel companies that are really looking to improve the planning and booking process.

Instead, customers are forced to figure out extra fees, wade through fine print and understand industry terms like the difference between a deluxe and a standard room, in addition to educating themselves about destinations, flights and hotels. Travel companies expect the consumer to behave like a travel agent, according to Henry H. Harteveldt. (HOTELMARKETING.COM, August 2009)

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At STR Hotel Data Conference in Nashville, Brian Ferguson, VP of lodging demand and analysis for Expedia, shared 10 interesting hotel trends using data generated from hotel bookings on Expedia:

1. Exchange rates are shifting travel patterns: there are a lot more Americans travelling to the UK despite the economy. That's simply because it has gotten so much cheaper. It's 35% cheaper just because of the exchange rate. Add to that the discounts UK hotels are giving, and it's become a bargain.

2. Consumers are looking for a deal: Year-over-year share of bookings with promotions has increased and will continue to do so throughout the third-quarter of 2009.

3. Promotions matter more than ever: Year-over-year percent change on rooms booked with major promotions has increased in 2009. There were 68% more travellers who booked their stays during a 4th of July promotion this year than last year, for example.

4. Promotions are getting more creative: Before, it used to be all about cutting rates on the sites, now, hotel companies are offering free nights, value-add packages and other incentives to drive demand.

5. Customers who book online are trading up: Customers are finding that the four- and five-star hotels are getting more affordable.

6. There are massive swings in online market share: In Nashville, Tennessee, for example, the most booked hotel during second-quarter 2009 jumped 13 spots before landing in that position and increased year-over-year room nights by 413%. However, its year-over-year ADR declined by 34%.

7. Booking window compression: Travellers are waiting longer than ever before to book their stays.

8. Leisure rates are leading the way: Leisure rates went down first and are going down more.

9. Hotels are using the package channel to fence rates: Examples of this semi-transparent technique including bundling a hotel stay with airfare or a stay with a car rental.

10. Opaque channels are growing faster than non-opaque channels.

(HOTELMARKETING.COM, August 2009)

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Increasing visitor share is important as a key measure of DMO success, but so too is increasing spend. Consumers who begin and end their travel shopping exclusively online have a significantly higher average annual travel spend than offline shoppers, according to PhoCusWright's Consumer Travel Report. In fact, travellers who select their destination online and book online spend on average almost twice as much as travellers who do some of those activities offline.

Incidence of internet usage in the travel planning process and annual household travel spend:
- Selected destination online / Purchase online: $4,066 average annual spend
- Selected destination online / Purchase offline: $2,490
- Selected destination offline / Purchase online: $2,568
- Selected destination offline / Purchase offline: $1,938

(PhoCusWright, July 2009)

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US online travel sales will total nearly $92.6 billion in 2009, down from $95.3 billion in 2008, according to eMarketer. But, assuming the recession ends in 2009, as many economists predict, the forecast indicates that online sales will begin to rebound in 2010 and hit full stride in 2011 when online travel sales are predicted to reach $102.8 billion.

US online travel sales (online leisure and unmanaged business travel sales), 2008-2013:
- 2008: $95.3 billion
- 2009: $92.6 billion
- 2010: $95.2 billion
- 2011: $102.8 billion
- 2012: $110.5 billion
- 2013: $117.7 billion

Everyone focuses on the downturn in the overall economy, but the recession has only accentuated the gradual decline in online sales growth over the past few years. The decline would likely have occurred even in normal economic times, according to eMarketer. (eMarketer, June 2009)

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Recessionary markets provide extraordinary opportunities to observe shifts in consumer behaviours and attitudes. PhoCusWright projects that the total US travel market will decline 11% in 2009, returning the industry to pre-2006 levels. This decline reflects a dramatic shift in consumer demand levels, and new research from PhoCusWright's Consumer Travel Report provides valuable insight into the changing behaviour of today's traveller.

PhoCusWright's top US traveller trends include:

- Move over boomers-Generation Y has come of age: 25 to 34 year olds are spending the most per household on travel and 18-34 year olds are significantly more likely than older age groups to indicate that they plan to travel more this year. While boomers are commonly described as the wealthiest generation, the 45-64 age group is spending the least per household on travel and is also the most likely to reduce travel spend this year.

- It is going to get worse before it gets better: Consumers who spend more than average on travel are more likely to reduce travel expenditure this year, and those that spend less than average are more likely to actually increase travel expenditure this year. The result of this mixed bag of intentions is that overall expenditure will decline considerably across the board, but budget brands will experience a smaller decline than upscale brands.

- Online travel agencies will fare better than other channels: It may seem surprising given the recent flurry of fee cuts and revenue-eroding promotions from online travel agencies (OTAs) like Expedia and Orbitz, but OTAs will outperform other channels in year over year bookings because of their consumer base.

- Online travel is mature but not saturated: Though the majority of travellers typically book online, there is still plenty of opportunity to grow online transactions. Consumers that spend the most on travel still use a mix of online and offline methods.

- Travel search engines are (finally) making a mainstream impact: Travel search engines like Kayak are not new to the travel industry, but are now becoming a mainstream element in the travel planning process. Over a quarter (28%) of travellers typically turn to them when shopping for travel and new entrants like TripAdvisor will continue to broaden the audience.

(PhoCusWright FYI, May 2009)

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A sign that online travel has come of age, the online leisure/unmanaged business travel market in the US is projected to decline 3% to US$93 billion in 2009, according to PhoCusWright's updated market numbers from PhoCusWright's U.S. Online Travel Overview: Update 2009-2010.

This marks the first time since PhoCusWright began tracking the marketplace in 1998 that online travel has fallen year-over-year. Representing more than one third of the total travel marketplace, the online leisure/unmanaged business travel market is now more or less mature and far more susceptible to broader swings in the economy and the total travel marketplace.

While online travel will decline in 2009, it will still far outperform the broader travel market and return to positive growth much sooner. With the recession in full swing and leisure and corporate travellers alike pulling back, the total US travel market will decline 11% in 2009 to approximately $241 billion. This returns the total market to pre-2006 levels, when US travel supplier revenue reached $251 billion. The drag on the total travel market is driven primarily by an even sharper decline in the corporate travel and groups and meetings markets.

The travel industry has been experiencing significant declines in both traveller demand and revenue since the financial crisis unfolded; but not all travellers (and not all segments of travel) have been affected in the same way, according to PhoCusWright. Companies mapping their strategies for 2009 and beyond must understand how different segments of the traveller population are responding to current economic conditions and the impact those responses will have on both product selection and booking channels. (PhoCusWright FYI Newsletter, April 2009)

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M-commerce will eventually become as commonplace as online shopping, according to a report surveying the frontiers of mobile commerce in the US and Europe, PhoCusWright's Mobile: The Next Platform for Travel. The report finds that US travel industry bookings will reach US$291 billion in 2010 and online transactions will top US$90 billion. The report projects mobile bookings to reach US$160 million during the same period. While the revenue figures remain low, there exists a vast potential for growth for mobile applications that empower mobile travellers, improve travel efficiency and build ancillary revenue.

Consumers with newer mobile devices are ready for advanced functionality. The survey finds that 67% of travellers and 77% of frequent business travellers with Web-enabled mobile devices have used the mobile Web to find local services and attractions. Topping the list among preferred features, 53% of leisure travellers want real-time flight information. Location-based services are also expanding in use and popularity, frequent business travellers expect to receive services such as mapping, navigation services and city guides upon arriving at a destination.

Recalling the revolution TV brought to a business world hooked on radio as a case study, mobile has the potential to reshape the entire travel marketplace. Consumers can expect airlines that offer mobile barcode boarding passes, hotels offering mobile payments for on-site charges and OTAs launching geo-aware travel promotions. (PhoCusWright FYI 08/04/09, April 2009)

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69% of US senior internet users aged 64-72 years old went online to make travel reservations in 2008, according to the Pew Internet and American Life Project. The level reached 65% among those aged 73 and older.

Online activities of US senior internet users, by age in 2008 (as a % of each group):
- Email: 91% of those aged 64-72 / 79% of those 73 and older.
- Use search engines: 85% / 70%
- Research products: 73% / 60%
- Get health information: 70% / 67%
- Make travel reservations: 69% / 65%
- Buy something online: 56% / 47%
- Get news: 56% / 37%
- Visit government sites: 60% / 31%
- Bank online: 45% / 24%
- Get religious information: 30% / 26%
(eMarketer, March 2009)

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US average search cost-per-click in the travel category reached $0.63 in February 2009, according to data and research provided by Efficient Frontier. This was up from $0.58 in January 2009. (ClickZ, March 2009)

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The growth in the online vacation rental sales will accelerate through 2010, when the online vacation rental market in the US will reach nearly $4.7 billion, up from $2.8 billion in 2007, according to PhoCusWright's Vacation Rental Marketplace: Poised for Change report. Vacation rentals have an extremely high satisfaction and repeat rate, if they can entice the leisure traveller to try vacation rental they may find new life-long customers. The developments underway in the vacation rental industry leave the sector well positioned for growth. (PhoCusWright FYI 18 February 2009 Issue, February 2009)