Tour Firms Squeezed by Online Offers

As online agencies move swiftly to expand their offerings of packaged vacations, analysts say tour operators are under increasing pressure to build up their own presence on the Web.

“Dynamic packaging” technology that allows consumers to essentially build their own vacation by combining air, hotel, car and attraction options in one discounted price, is seen potentially as a huge area of growth for online agencies.

And that growth, said Henry Harteveldt, principle analyst for Forrester Research, “will redefine the whole packaged travel landscape.”

Though package vacation sales online began only a few years ago, they are already making an impact. Expedia, seen as the leader in dynamic packaging, reported that 30 percent of its second-quarter revenue came from vacation packages, which the company began offering in 2001.

Other online agencies are quickly catching up. Orbitz last week launched its “vacation package matrix,” which allows consumers to view various air-hotel combination packages on one Web page.

And in the next several weeks, Hotels.com is expected to significantly expand its vacation package offerings in partnership with sister company Expedia.

Priceline.com, which launched its packaged vacation options in May 2002, reported 100 percent growth in the offerings in the second quarter over the same period last year. Last month, Priceline added all-inclusive resorts to the list of 1,700 properties among package options for which consumers can name their own price.

For consumers, packaging gives online agencies “greater flexibility to do the necessary trade-offs” to get consumers the prices they want to pay, said Brian Ek, Priceline.com spokesman.

For suppliers, the sale of inventory as part of a package is attractive because prices are opaque. The discounts that may be included in a package won’t undercut published prices.

The growth in packaged vacation sales online is fueled in part by expectations that air bookings will drop in coming years. Online agencies are focusing increasingly on higher-margin products, such as hotels, vacation packages and cruises.

Online hotel sales have already skyrocketed. But the vacation package market is expected to grow more quickly than online cruise sales.

Some tour operators and wholesalers sell pre-packaged trips online, either through their own branded Web sites or online agencies. Trafalgar, for example, offers some of its tours on Orbitz.

But in PhoCusWright’s Online Travel Overview, released in February, researchers predict dynamic packaging will soon pre-empt the online sales of prepackaged vacations.

Harteveldt with Forrester Research estimates that vacation package sales on the Web will total $599 million this year, representing 7.4 percent of all vacation package sales.

By 2007, online vacation package sales will grow to $954 million, an increase of 54 percent, and will represent 9.4 percent of vacation package sales.

“It’s a nascent niche product,” said Harteveldt. But the potential for growth is there, particularly as airlines offer more packaged offerings on the Web, as improved technology simplifies build-your-own-package tools for consumers, and as travelers become more confident about buying vacation packages on the Internet.

Bill Carroll, visiting assistant professor at Cornell University’s School of Hotel Administration, said sales of online vacation packages would initially have little impact on tour operators.

Most of what is defined as a package on the Internet is relatively simple. “Just because you combine air and hotel does not a sophisticated package make,” he said.

Tour operators can offer far more complex and specialized products, with more flexibility and a level of service not found with online agencies.

But, noted Carroll, as dynamic packaging technology improves, online agencies will be able to add more options like spa, golf, or diving activities, for a more complete vacation package.

Expedia, for example, began offering Las Vegas wedding packages online in 2001, and so far about 2,000 packages have been sold. Wedding package destinations now include Hawaii, and soon more popular spots to tie the knot will be added.

Expedia is planning to beef up even further its offerings of “destination services” such as boat tours, show tickets, golf bookings, or kayak tours, said Jenne Pierce, director of planning for hotels and packages.

It’s that increasing sophistication that may force tour operators to invest more in their own online sales.

Currently an estimated 85 percent to 95 percent of tour operator packages are sold by “offline” travel agents. And, as the PhoCusWright report contends, suppliers are “in no rush to upset their trusty partners, especially in hard economic times.”

Still, some tour operators like Pleasant Holidays are looking for ways to build online sales along with their agent partners.

Pleasant Holidays has offered vacation packaging options on its branded Web site for three years with the ability to combine air, hotel and ground transportation services.

Consumers can book direct, but agents can also use Pleasant’s Web booking options to put together complicated multidestination packages.

And agents can add Pleasant’s booking options to their own Web sites for commissionable online sales.

Todd Castor, Pleasant’s vice president for e-commerce, said agents’ online bookings are growing faster than consumer-direct bookings on the company’s Web site.

“We’re seeing an offline-to-online shift,” said Castor. In August, the total volume in online business increased 40 percent over August 2002.

The next step is to draw travelers to book higher-end vacations online, said Castor. Currently, the average cost of Pleasant Holidays packages booked online is about $2,700.

“We’ve put a lot of time and resources into packaging technology to provide the flexibility we believe is necessary for big-ticket purchases online,” he said.

Recognizing that agents need online tools to compete with companies like Expedia, Mark Travel in October will begin offering dynamic packaging through its VAX VacationAccess a Web-based system that enables travel agents to book vacation packages from suppliers.

The agents-only Web site has offered prepackaged tours since its launch in May 2000. But starting Oct. 1, agents will be able to build their own real-time packages for clients.

Initially, the dynamic packaging will include products from United Vacations and Funjet, but eventually all of Mark Travel’s 19 brands will be included, such as ATA Vacations, Adventure Tours USA, AeroMexico Vacations, and Blue Sky Tours.

And agents will be able to fold fees “seamlessly” into the packages, notes John Ische, president of Trisept Solutions, a sister company to Mark Travel that developed the technology for VAX VacationAccess.