Aviation and the Travel Industry

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Aviation and the Travel Industry

• By Randi Richmond

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The Past
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Beginnings of Aviation

• Kitty Hawk on Thursday, December 17, 1903
• Industrial Revolution, especially railroads,
  causes massive population expansion
• Supervening social necessity delivery of mail
  across great distances

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First Early Adopter Post Office

• September 23, 1911 pilot Earl Ovington was
  officially sworn in as Air Mail Carrier 1

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Lucky Lindys Solo Flight

• 1927 - completed first solo Transatlantic flight
  from New York to Paris
• Enormous publicity, including the largest ticker
  tape parade in New York history
• Result was diffusion. In 1926 there were 6,000
  passengers. In 1932 the number was 400,000.

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First Adopter versus Diffusion

• The supervening social necessity for adoption in
  the United States was for purposes of mail
  delivery. However, the diffusion of that
  technology developed the travel and tourism
  industry.

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Birth of the Travel Agency

• By 1938 there were over one million Americans
  flying on commercial airlines
• In 1931, the first travel association in the
  country had been formed, its mission was to
  promote the diffusion of recreational travel to
  average Americans
• Charged airlines for promoting air travel.
  Initially commission rates were 7.5 of ticket
  price, eventually lowered to 5

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Trouble for Travel Agencies

• In 1995 all the airlines put a cap on commissions
  paid to 50 maximum
• Travel Agencies filed anti-trust lawsuit which
  was settled for 86 million
• Since 1995 the number of travel agencies has
  declined from about 45,000 to between 20,000 and
  25,000 as of August 2004
• Birth of Online agencies continued decline

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The Present
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2005 Travel Industry Stats

• Travel and Tourism is a 1.3 trillion industry in
  the United States.
• The Travel and Tourism industry is one of
  America's largest service exports with 94
  billion spent by international visitors in the
  U.S.
• The Travel and Tourism industry is one of the
  country's largest employers with 7.3 million
  direct travel-generated jobs, which translates
  into a payroll of 162 billion. One out of every
  eight U.S. non-farm jobs is directly or
  indirectly created by travel and tourism.

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How Travel is Purchased 42 online
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• Without question, the Internet has shaken up the
  status quo in the travel industry. Traditional
  travel agencies are struggling to stay relevant,
  online travel agencies are trying to instill
  loyalty among their customers, travel search
  engines are the new upstarts, travel suppliers
  are flexing their muscles and global distribution
  systems are looking for ways to reverse their
  waning influence.

Jeffrey Grau, Senior Analyst at eMarketer, 2005
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Global Distribution Systems

• Sabre, Worldspan, Galileo, and Amadeus
• Developed in the 60s
• Prior to Internet virtually all airline tickets
  were purchased through one of these systems
• Business model charges airlines for each segment
  of a journey. Very expensive.

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Global Distribution Systems

• Battling new competitive environment by
  diversifying their product. Sabre owns or
  partnered with
• Travelocity
• lastminute.com, UKs best travel website
• IgoUgo.com
• SynXis, a provider of reservation mgmt
• FareChase to supply its software

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Traditional Travel Agencies

• Everything their system can deliver is already
  in existencewe see the threat to the airlines,
  not to travel agents.
• Customers will use the information to compare
  airline and hotel prices, then most of them will
  still book through their agents."

Dick Knodt, executive director of the American
Society of Travel Agents, 1996
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Traditional Travel Agencies

• Survival means becoming niche experts
• Focus on International Travel this one area
  still uses travel agents to a greater degree than
  all other types of travel
• Strengthen advice-offering capabilities
• Combine with other niche tour operators to create
  package travel

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Online Travel Agencies

• Expedia was created in 1996 by Microsoft and
  American Express
• Travelocity was created in 1996 by Sabre
  Interactive
• Orbitz was launched in June 2001 by the airlines
  (United, Delta, Continental, Northwest, and
  American) to compete with Expedia and Travelocity
• Problems now with branding and customer loyalty

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Travel Search Engines

• Aggregators Kayak.com, Sidestep.com,
  Cheaptickets.com, Farechase.com
• Revenue comes from per click and advertising
  not the airlines
• Because of their business model the fares they
  show are impartial. They also show low fare
  airlines now available on the travel agency sites.

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Travel Suppliers Flexing Muscles

• Airlines might not renew contracts with either
  online travel agencies or GDS
• Beefing up their own websites to attract more
  consumers directly without any middleman

Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005 Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005 Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005 Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005 Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005 Buying Over the Internet Percentage of Flights purchased on the airlines website in 2005
Delta Northwest America West/USAir Alaska AirTran JetBlue
23 23 28 35 58 78
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The Future
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Consolidations and Lawsuits

• As market matures, more consolidations among
  online agencies, aggregators, and GDS systems
  likely
• Business will turn to Europe and Asia for more
  business both domestically and internationally
• Litigation among online agencies and aggregators
  will continue

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Questions?