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Will Online Travel Survive?
24 September 2001

As we all now realise, the recent tragic events in the USA are set to have serious consequences for the travel industry. Undoubtedly online travel will be affected as much as any other sector. To illustrate this, Expedia in the US has reported that online travel bookings in America have plunged by 60%. 

The traditional model of an online travel business, established by organisations such as Expedia and Travelocity, is to invest heavily in supremely competent technology and recoup this investment through high volume sales. Rather like airlines, these companies have high fixed costs that need to be amortised over a high volume of sales. In August, for example, Priceline reported second quarter revenues at $365million and a profit of $11.7 million. In the company’s own words, it sold “3 million units of travel product” in this period.

High fixed cost businesses suffer badly when revenues fall and this, of course, is an issue that airlines are now facing. When an aircraft is flown half empty as compared to full, revenues are halved but there is hardly any reduction in cost. However, unlike airlines, online travel companies’ fixed costs are mostly sunk. They do not have high operating costs, their investment in technology and marketing has been all upfront. Thus, I believe the established online players will weather the storm.

However, newly launched organisations, such as Opodo, will probably have to adjust their business plans to take account of a downturn in their projected travel sales. This might mean adjusting expenditure on advertising and marketing to reduce spend or cancelling high cost roll-outs into new geographic areas. Just this month, Opodo announced it plans to invest £30million in European advertising. Will this be cut back?

One thing that will be more difficult for any new online travel business will be to gain funding. With last year’s downturn in online investment, this was already extremely difficult. Recent events will make this more so. 

However, all is not doom and gloom in the world of online travel. There are plenty of companies who have done very well and will continue to do so. Take, for example, the many smaller, specialist travel companies on the Web. For them, the world continues to be their oyster. If you run a small travel agency or tour operation, it is very important to realise that it pays to specialise on the Web. Specialist operators and agents will not only be sought out by travellers for their specific expertise, but there is actually less competition. 

If you are running a typical smaller travel business, selling a bit of business travel, a bit of leisure travel, basically trying to be an expert in every sector of the industry, perhaps these troubled times can be a catalyst for change. As many smaller companies have done, perhaps you should consider specialising and getting onto the Internet. In spite of recent events, online travel, with its operational efficiency and cost-effective reach, still has a great future. Sell to the world, not just those who walk past your front door.

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