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Electronic commerce: Round the world in 80 clicks

The Internet will make high-street travel agents redundant and offer consumers cheaper fares. Or will it? Mark Vernon reports
Cutting out the middleman seemed like a threat to many businesses contemplating the impact of the Internet in the early days of electronic commerce. The idea was that as customers spoke direct to banks, bookshops or airlines, links in the supply chain would dissolve, with the savings being reflected in an orgy of lower prices. Superhighway prophets celebrated the approach of the Information Age as good news for "people like you and me". The balance of power would be handed over to the consumer.

Nowhere was this to have greater effect than in the travel industry, which has been so successful at using technology to sustain flexible pricing and match changes in customer demand. With the industry already online across the proprietary networks that feed travel agents, connecting straight to the customer was seen as the logical next step. Enter the World Wide Web.

But now that travel industry Web activity has reached a serious level - Forrester Research expects leisure travel revenue to reach $7.4bn by 2001, with 18 per cent of total sales already coming from the Net in 1998 - the reality is showing itself to be more complex. Certainly some prices have fallen, and industry dislocation has been evident. But it is not clear whether price cuts are just incentives to book online, rather than a result of real reductions in costs. And although airlines, hotels and cruise and tour operators are not escaping the channel changes unscathed, it seems that this is because of "reintermediation", as they strike new deals with online intermediaries such as Microsoft and Yahoo.

One company celebrating its Internet success is Travelocity (www.travelocity.com). Along with Microsoft's Expedia and Preview Travel, the company is in the top three for online bookings. Based on the Sabre travel reservations system, already one of the largest in the industry, the Travelocity website allows browsers to compare prices, check availability and make reservations on more than 400 airlines and nearly 38,000 hotels in more than 70 countries.

"We launched Travelocity in the US more than 18 months ago, and have seen sales grow exponentially to the stage where we have now topped $4m in each of the last three weeks," says Jim Marsicano, vice-president and general manager.

Out of the 2.1 million registered users, only 40,000 are located in the UK. The company is planning to increase its marketing focus here, and there are interesting differences in the service they will offer to customers on this side of the Atlantic. For example, in the US tickets can be sent by mail, picked up from an affiliated travel agent, or kept wholly electronic, with travellers making themselves known at the airport. In the UK, tickets will have to be picked up from an agent.

"In the UK there is still concern about disintermediation, so we do not offer electronic tickets," explains Robert Booth, the product marketing manager. "In the US this fear has been largely overcome, because it has been shown that people usually still want the comfort of an agency." It is the way individuals like to use the site that sheds the light. "People like to get a feel for the lowest prices. They like to look at the wide variety of air carriers. They like the availability of the service, 24 hours a day. But they also value their relationship with the vendor."

Research supplies the reasons. Given that there is information on the Web about their destination, the first hurdle that faces the browser is finding and understanding the description, availability and pricing data. Ironically, although air travel is the sector moving most quickly online, details about reservations are often obscure, laden with airport codes and carrier abbreviations and not readily translatable to a user-friendly Web interface. This becomes even more confused if the itinerary is complex. Once the consumer has decided to buy, he or she may still not be comfortable about transacting over the Web. Finally, many sites do not as yet offer online booking.

So how will the Internet reshape travel? Forrester Research believes there are three main drivers. First, travel companies distribute vast amounts of information, and the Internet provides the most effective means of accessing it. Second, consumers shop extensively when they travel, and the Internet offers a highly convenient way of doing so, once individuals learn to trust the medium. Further, all the leading travel Web sites offer access to a far wider range of tickets than most high-street agents, which are tied by the deals they have with suppliers. Only certain price categories are not available on public screens, among them some bucket-shop airline tickets.

Third, travel suppliers do want to cut channel costs by exerting pressure on traditional middlemen. "The Net provides another weapon in the travel industry's ongoing battle over distribution," says Forrester, though he warns that travel companies that undermine their own agents could become involved in conflicts that disable them from taking full advantage of the Web, another reason why a pattern of easy disintermediation is too simple a picture. Further, airlines have already capped travel agent commissions, thereby favouring online services such as Travelocity. But in this environment, smaller travel agents may not be able to afford Web distribution - which will leave consumers with fewer air booking options.