Lifestyle

Online Travel Agencies Trip but Don't Stumble -- Yet


Concerns about a bummer summer are forcing sites like Expedia and Priceline to offer creative, if risky, new incentives

Worried that rain may spoil that long-overdue summer vacation? Priceline.com (PCLN) is offering "Sunshine Guaranteed." The Norwalk (Conn.) online travel agency announced on June 2 that it will give customers 100% of the purchase price back if it rains more than half an inch on at least half their vacation days. The offer is good for trips purchased by July 17 and taken by Sept. 7.

More than 100 destinations qualify, including such notoriously rainy places as London and Seattle. "They are trying to address pain points," explains Caroll Rheem, director of research for PhoCusWright, an online travel research firm. "They're trying to eliminate reasons consumers have for not booking a trip."

It's already looking like a bummer summer for the travel industry. At the start of the season the Travel Industry Assn. predicted a 1.2% decline in trips domestically, but that now looks overly optimistic. Since then, gas prices have continued to climb and airlines have cut back on flights, raising fares and baggage handling fees to make up for rising jet fuel costs. That's forcing online travel agencies to get even more aggressive, rolling back booking fees and offering passengers more guarantees. "We've eliminated fees on airline tickets, reduced fees on hotel rooms," says Priceline.com Chief Executive Jeffrey Boyd. "We think customers are concerned about high prices and we're trying to give them a little bit of a discount."

The Lure of Free Gas

On June 16, Chicago's Orbitz Worldwide (OWW) announced it would give customers cash back if the price of a trip dropped between the date of purchase and the departure. A bet, essentially, that airfares won't fall for the rest of summer. Rival Expedia (EXPE), based in Bellevue, Wash., is offering $50 in free gas to anyone booking three or more hotel nights on its site in a cross-promotion with MasterCard (MA).

The online agencies are in a bit of a bind. Not only are they wrestling with cash-strapped consumers, they're also competing against airline, cruise line, and hotel companies that have accelerated their online marketing efforts in recent years. These "supplier" sites offer bonus frequent-flier miles and other perks for booking directly with them. According to market researcher comScore (SCOR), 59% of online travel shoppers stop at the agency sites first, presumably to comparison shop. But the majority of online travel revenues go to sites such as Marriott.com (MAR) and Continental.com (CAL). Last year the suppliers' share of the $77 billion in online travel expenditures was 64%, up from 53% in 2003.

In recent months, the agency sites have been rolling out their own frequent-flier programs. Travelocity customers who sign up for its Rewards credit card earn points for any purchases. Rack up 20,000 points and you get a $400 credit towards a Travelocity purchase. Using that could be easier than trying to cash in airline miles, because the airlines have been increasing their blackout dates and raising the point levels needed for free trips. Expedia and Orbitz offer similar cards. "We're restoring rewards to a world that feels less rewarding," says Jeffrey Glueck, chief marketing officer at Travelocity.

There are signs these efforts are winning new customers. Visitors to the online agencies as a whole were up 8% in May, according to comScore, while traffic at hotel sites was flat. Priceline.com saw the value of travel booked on its site jump 76% in the first quarter, to $1.7 billion, as new promotions generated more business. And while shares of Expedia and Orbitz have lost altitude along with the rest of the travel industry in the past year, Priceline.com has seen its stock price double to a recent $131 a share. Nobody wants rain on a vacation.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.

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