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Online Travel -- Still An E-Commerce Star?

There's a strange paradox at work in the ecommerce sector: It's a great time to be in the online travel business, which continues its run as an e-commerce darling.

But these days, the following statement is equally true: It's a terrible time to be in the online travel business, what with increasing competition and all the difficulties with air travel since last Sept. 11.

On the upside, companies like Expedia.com are making some real money -- second-quarter net income of $19.1 million, or 29 cents a share, compared with a loss of $4.4 million a year earlier. And Priceline just reported a profit.

Internet data and consulting firm comScore Networks says that its estimates put total U.S. spending on travel products at about $14.8 billion for the first six months of 2002, up 71 percent from the same period last year.

Travel spending is the No. 1 growth driver for e-commerce as a whole, comScore's Dan Hess, a vice president there, told internetnews.com.

And there are surveys like the one this week from Orlando-based marketing services firm Yesawich, Pepperdine & Brown, which found that nine out of 10 adults who planned a trip, either business or pleasure, between now and the end of the year still intend to take those trips, despite the stock market recession and the uncertainties of potential terrorism.

"Quite frankly, the travel industry has had more than its fair share of tough breaks since last September, and this comes as very welcome news," said Peter Yesawich, president and CEO of the firm.

And it's readily apparent that online ticket sales operations will get their share of those travel dollars.

"As the Internet continues to evolve, and as online travel companies continue to implement and refine best practices for providing products and services that consumers want, more and more travel dollars will move to the Web," said Paul Ritter, head of Internet Business Strategies at Yankee Group.

"Growth in online travel spending will continue in the years ahead, despite any downturns from past events," he said. "People are still traveling and they may be more choosy in their destinations or their modes of travel, but many of those sales are merely transferred from one travel option to another ..."

On the downside: There's a fierce business and political battle raging between airline consortium site Orbitz and rivals like Expedia and The Sabre Group's Travelocity.com, supported by outfits like the American Society of Travel Agents. The detractors claim Orbitz has an unfair advantage because of its so-called "Most Favored Nation" arrangements with the airlines. Orbitz says those other sites just want to have the travel pie all to themselves.

Then you have the post 9-11 financial woes in the airline industry itself.

Consider: Vanguard Airlines this week filed for bankruptcy, following earlier filings by Midway Airlines and Sun Country Airlines. The major U.S. carriers collectively lost more than $1.4 billion in the second quarter, according to an Associated Press report. Even an overseas carrier like Irish state airline Aer Lingus blames its heavy losses on the "devastating impact" of the Sept. 11 attacks on the United States.

And travel spending has slowed a bit in general as the stock market declined yet again. "We have seen a slowing in growth that corresponds pretty closely with changes in the Dow Jones industrial average," said comScore's Hess. "It's to be expected ... in uncertain times, lots of consumers suspend decisions on expensive purchases."

So then will online travel sites go the way of Webvan? Not likely. See Page 2.