Web-based sales in leisure and unmanaged business travel are expected to reach $28 billion in 2005, according to a report to be released tomorrow by Jupiter Communications, an Internet research firm. In 1999, travel sales hit $6.5 billion--almost triple the $2.2 billion in 1998--and marked 4.5 percent of total U.S. sales, the report found.
Despite the impressive figures, the steep climb is expected to level off by 2005. Travel sales jumped 192 percent from 1998 to 1999, but the numbers go down from there. The growth rate is expected to be at 69 percent this year and to be at 13 percent in five years, according to the report.
As the growth tapers, it will be harder for companies to survive, said Melissa Shore, digital commerce analyst at Jupiter. As a result, players in the industry will need to fill out their online services and establish longer-term relationships with their customers to compete.
"The increased growth of the Internet travel market has created winners out of all players, but decreasing growth will make apparent holes in many strategies," Shore said.
The online travel industry, one of the first markets to embrace and establish the Web as a viable business channel, has already gone through major consolidation. Last month, Sabre Holdings' Travelocity.com completed a $644.9 million merger with Preview Travel. Late last year, Priceline.com, Travelocity.com and Preview Travel formed a marketing alliance to compete with Microsoft travel spin-off Expedia, one of the most visited sites on the Web.
Low-commission sales such as airline bookings won't sustain a business in the coming market, Shore said. Companies will increasingly have to sell more vacation packages and added services--at higher commission rates--to build their businesses and draw in customers.
Companies could also find a niche in the travel business. As online bookings take a larger share of total U.S. travel sales each year, more traditional agencies and airlines will expand their online efforts. They'll need to give new customers a good reason to buy their tickets online by offering services such as live chats with agents.
"The asset is the customer relationship, but in the end it's the bookings," Shore said.