Sales Through Airline Sites Face Uncertain Future

Airline Web sites will account for 58 percent of air travel bookings in 2000, up from 53 percent in 1999, according to a report by PhoCusWright, Inc.

The report “Airlines and the Internet: Nonstop Growth and Competition,” cites four main reasons for the growth — greater airline investment in technology, online agency diversification to non-airline products, continued emphasis on customer loyalty programs, and broader online distribution strategies to reach multiple markets.

“Given the increased popularity of e-tickets and the emphasis on Web site utility, more and more consumers are using the Internet as their primary method of purchasing tickets, and are going direct to the airline sites to buy,” said Lorraine Sileo, VP of information services at PhoCusWright. “With online commissions at 5 percent or lower, airlines are continuing to put pressure on both online and offline travel agencies who depend on airline ticket sales.”

To evaluate the market for online airline booking, PhoCusWright surveyed e-commerce executives at 10 major US airlines to determine overall ticket sales. Other findings of the report include:

• Airlines’ Internet sales will increase 85 percent in 2000. Airlines’ efforts to focus on loyal customers, upgrade technology, and establish online marketing partnerships will result in 85 percent growth in airline Internet revenues, to $8.7 billion in 2000 from $4.7 billion in 1999.
• Southwest is the market leader with Delta and United close behind. Southwest has a commanding 19 percent share of the airline Internet market with $877 million in Internet sales in 1999. Delta and United are a close second and third with Internet revenues reaching $671 million and $505 million, respectively.
• Airlines will book 9 percent of sales on the Internet in 2000, up from 2 percent in 1998. Regional airlines will perform the best due to lower prices, point-to-point routes, and a high concentration of business-class customers.

According to PhoCusWright, even airline-backed online travel agencies, such as Orbitz and Hotwire, will not tip the scales in favor of intermediaries. Southwest, which has limited distribution through intermediaries, has a strong influence on the mix. Approximately 90 percent of Southwest’s more than $1 billion in Internet sales in 2000 will be generated on its own site.

The folks at International Data Corp. (IDC) don’t exactly agree. According to IDC’s research, the majority of online airline ticket sales will be purchased from independent travel agencies and not from sites directly affiliated with the airlines.

Despite the opening of Hotwire and Orbitz, airlines’ share of online ticket sales will decrease. According to IDC, the airlines’ Web sites today account for more than half of all online ticket sales. By 2001, however, their share will fall below 50 percent, and it will continue to drop through at least 2004.

“Because of their sizable marketing muscle, these start-ups will create good publicity for the online travel business. However, the traditional travel agency model, which includes Internet pure-plays and clicks-and-mortars, will better understand the needs of the traveler and will be unbiased and will therefore get more business,” said Joshua Friedman, senior analyst for IDC’s Consumer eCommerce: Travel research.

IDC does expect online ticket sales to more than triple from more than $5 billion in 1999 to more than $18 billion in 2004.

“Many factors will contribute to the growth of online airline ticket sales,” Friedman said. “An increasing number of Americans are going online, the demographics of online users are shifting favorably, and online users overall are getting increasingly comfortable with e-commerce in general. Additionally, we expect the online airline purchasing process to improve considerably over the next few years.”