Report: 80 Percent of Online Travel Sites Will Fold

According to a new report by investment bank Bear Stearns, 80 percent of online travel sites are destined to fail over the next five years.

The six-month study projects that only 200 of the 1,000 existing online travel sites will still be in business in 2005, led by such stalwarts as Expedia.com, Travelocity and Priceline.com.

“Most agencies will run out of the capital needed to provide access to hotel rooms, cruise ships and airplane seats,” said Bear Stearns analyst Jason Ader.

Offline Concerns

The study also suggests that online travel agents are as vulnerable in the new economy as their offline counterparts, showing that one quarter of offline travel agents will lose their jobs due to ongoing industry consolidation and commission cuts.

“Traditional travel agents will be out of work because the demand for their services will decline as the Internet grows,” Ader said. “Consumers are becoming more comfortable with online services. For a long time they were lookers and not bookers, but that’s beginning to change.”

Bear Stearns reports that 1,800 traditional travel agencies permanently closed their doors in 1999. The vast majority of remaining agencies will also be “swallowed up by larger, more established players or just dwindle away,” the report said.

Direct Pressures

The online version of the industry could see similar fallout soon. Web sites that made their mark offering discount plane tickets may succumb to the very airlines they represented, as the airlines implement their own methods for selling discounted tickets online.

Further, new competition for the online agencies will come from the strategic partnerships that are now developing between airlines and hotel companies that sell travel packages.

Ready for Take-Off

The airline companies have been aggressive in their approach to electronic commerce. In January, American Airlines and American Eagle slashed their commissions by a third, sparking a trend among other airlines. The result has been workforce attrition among offline agencies, whose employees are increasingly turning to larger companies.

Additionally, as reported in the E-Commerce Times, the highly anticipated mega-Web site of 27 major airline companies is set to debut early this summer, much to the dismay of the American Society of Travel Agents (ASTA). ASTA has filed a complaint with the U.S. Department of Justice (DOJ), alleging that the new site represents unfair competition for travel agencies.

The Justice Department has yet to respond to the complaint.

Businesses Book Online

Both the Bear Stearns report and findings released this week by Forrester Research indicate that the online travel industry overall is set for strong growth, and the industry leaders who survive the travel site fallout — like Expedia and Priceline — will pick up all the marbles.

Bear Stearns says the market will reach $29 billion (US$) by 2003, while Forrester’s research predicts that online travel bookings by businesses will reach $29 billion by 2004, driven in large part by corporations wanting to cut travel costs for employees. According to Forrester, businesses booked $3 billion worth of travel over the Internet in 1999.

“This year marks the beginning of a new era for Web-enabled business travel booking,” said Henry H. Harteveldt, a senior analyst at Forrester. He added that businesses like online travel booking because it is easier and faster than making arrangements by telephone and because it makes it easy to track travel expenses.

Most of the growth in business travel booked online will come in the form of “managed travel” — trips arranged by a corporation on behalf of a frequent traveler. Forrester expects many business to begin to install their own booking engines linked directly to hotels and airlines in the coming year.