Breaking into the big time

Travelocity owner Sabre is to buy lastminute.com in an effort to increase its toe-hold in the UK. But if it, and other online players, are to take a dominant role in the whole travel market, they must learn some traditional retail skills, such

Manchester United isn’t the only British brand to fall to the Yanks, for pioneering online company lastminute.com is to be sold to Sabre Holdings, the American parent company of travel company Travelocity.

A bid for lastminute.com, which floated on the London Stock Exchange in March 2000, has long been expected from one of its competitors. The online travel sector has been going through a spate of consolidation recently. Ebookers was snapped up by Cendant last December for £209m, and control of Opodo, originally the creation of nine European airlines, went to Amadeus, the global airline ticketing service, in June last year.

Amadeus itself is in the process of being bought by venture capitalists, who may want to realise their investment in three years time with an Opodo sale.

But industry observers believe Sabre’s acquisition of lastminute.com, likely to go through with a £577m bid if no counter-bid emerges after lastminute.com’s board recommended its acceptance, could mark the end of this period of consolidation, leaving the remaining online players to get on with battling for market share.

Shop-bought

The online travel pioneers have been joined by traditional tour operators such as TUI UK (owner of Thomson Holidays) and Thomas Cook, all keen for a share of the online pound. They have invested heavily in playing catch-up, launching their own websites to sell package holidays, and working hard at grabbing a slice of the “mix and match” holiday market introduced by the online players. Known as “dynamic packages”, they enable consumers to choose their own combination of flights, accommodation and other options such as car rental.

The consumer migration to buying travel online has been boosted by broadband’s growing market penetration, which stands at just over 5 million households in the UK (Ovum). There is also a strong perception among consumers that prices are cheaper online.

Ten per cent of the total European travel market, estimated to be worth $300bn (£163bn) (World Tourism Organisation/IEO), now goes through online retail.

Consumers are becoming more accustomed to booking online, according to Thomson Holidays marketing director Miles Morgan. “People are more confident about what they are willing to book online. It’s not just about low-cost flights any more. We are experiencing people booking higher value holidays and quite detailed travel arrangements,” he says.

Travel research company PhocusRight predicts that the online travel market will grow by at least 20 per cent by 2006. Traditional operators are also experiencing major growth in online bookings. TUI predicts that half of all its holidays will be booked online within the next four years. It claims that a quarter of its own holidays and flights are currently sold through its website, an increase of ten per cent on last year.

Time for change

Increasing its size and widening future potential are the driving forces behind Sabre’s bid for lastminute.com, which has just reported pre-tax losses of £45m for the six months to March 31. Sabre’s Travelocity is well-known in the US, but has so far failed to make an impact in Europe. By contrast, lastminute.com has strong awareness in the UK and Europe. Nielsen/NetRatings research shows lastminute.com had 1.595 million UK visitors in March, giving it a reach of 6.3 per cent; Travelocity had 445,000, or 1.8 per cent.

Dresdner Kleinwort Wasserstein analyst James Ainley says of the deal: “It’s a logical extension, Travelocity has a six or seven per cent market share in Europe and lastminute.com has double that. The market is still growing rapidly, with lastminute.com having an organic growth of 30 per cent.”

Sabre plans to make lastminute.com its lead brand in Europe, but also says that Travelocity will remain active. However, a question mark hangs over Travelocity’s future in the UK. Nielsen/ NetRatings figures for March show that Expedia remains market leader in the UK, with 2.073 million visitors; lastminute.com is ranked second; Virgin Travel third; and TUI fourth; while Travelocity fails to make it to the top ten (see Market Facts).

That is despite Travelocity spending £3.66m (Nielsen Media Research) on advertising last year: Lastminute.com spent £1.75m. Brent Hoberman, chief executive of lastminute.com and proposed head of the combined operation, told Marketing Week he believes there will be greater marketing funds available after the merger. He recognises that the battle for brand awareness is fought on television, and in posters, online and print advertising.

Not only must the online players raise brand awareness, they must also change consumer perceptions about the nature of their business. Many consumers see them primarily as late booking sites that offer cheap flights or discounted packages. But if online operators want to sell more holidays and travel packages at higher prices, they will have to foster customer loyalty and encourage consumers to book well in advance.

What’s in a name?

Some might say that lastminute.com’s very name works against the premise of forward bookings, but Hoberman says: “The brand stands for more than that. We already have significant levels of advance bookings – and had a record number of them at the end of the last quarter.”

The purely online travel players could learn lessons in customer loyalty from their online retail counterparts. Management consulting and research company Shelley Taylor & Associates claims that Amazon and Ebay have won customer loyalty by offering added-value content, interactivity and a sense of community. Its 2003 report says: ” It is not sufficient simply to allow travellers to book and pay for travel services. Travel sites have yet to adopt the sophistication of their retailer cousins and are therefore risking losing their share of revenues and profits owing to problems in site design and ultimately user experience.”

According to Shelley Taylor, the travel sites have still not caught up and adds that there is huge scope for building loyalty through the use of feedback forums, useful maps and more detailed information on leisure pursuits at holiday destinations.

With more consumers using broadband, travel sites should be able to offer more compelling content with the kind of interactivity that Shelley is suggesting. Thomas Cook and TUI are already streaming programming from their TV channels onto their websites so that browsers can view live-action reports on resorts and cities. Dedicated online operators could no doubt buy in content if they wish to do the same. Lastminute.com’s Hoberman says that the company has started to work on building a community of users by sending out a weekly e-mail bulletin, on request, to up to 10 million European consumers.

Sabre is doubt hopes that if its bid for lastminute.com succeeds, those companies investing in the online travel market now will be the ones that eventually reap the rewards.

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