'The scary part begins now'

SPECIAL REPORT: TAX 2002

In one corner, the click-and-mortar travel agents like Chan Brothers who have gone online but maintain a substantial brick-and-mortar operation.

In the other corner, online travel websites such as Zuji and Priceline which are banking mostly on the "clicks" to deliver revenues without too much "mortar".

Who will win out? Panellists taking part in the Online Forum during TAX 2002 had no answers but one thing was clear - this second wave of online travel players will have a bigger impact on the distribution landscape than did the first wave.

NOW COME THE BIG BOYS
Indeed, according to Anthony Chan, managing director of Chan Brothers, whose company went online during the first wave and survived the busting of the balloon which claimed several victims, including its arch competitor, Ken-Air, "the scary part begins now."

"Now come the big boys," he said. "We will see a real sorting out now."

This is because he believes the new players - the American-driven business models such as Travelocity, Expedia and Priceline - see the business differently. "They see it as a commodity, they drive it as a commodity which means low margins. And they use technology to drive the low margins."

The online battle, he said, "starts now and it will not be without its challenges." Asia however, is a different market from those markets the American models are used to, said Chan. With the exception of China and Australia, there is no scale in each of the Asian markets where these online players can play, he said.

The ones to survive will be those who get the fundamentals right, he said - excellent personal service, lowest costs and the right combination of click-and-mortar.

NO ONE'S GOT IT RIGHT YET
Martin Symes, commercial director of Zuji, outlined three criteria for success of a travel portal - good customer experience, strong supplier relationships and strong brand. "The one with sufficient resources to build a strong consumer brand will win the consumer trust."

So far, he said, nobody's got all three things right. "Some spend so much on technology that they have no funds for marketing. Some spend so much on marketing but have no suppliers onboard."

The second wave of players, he said, have more experienced and senior management teams and more realistic expectations.

He posed two questions:
• Can an online player survive without an office presence? "Can it move enough customers to online travel? Customers still want the human touch - travel is a high comfort transaction."
• Will traditional travel agents wipe themselves out by not offering services online? Can you make money from simple air and hotel transactions?

Symes contended that it was not players like Zuji that were driving low margins but suppliers. He queried the inefficiency of a distribution channel that was still "intermediated" by the GDSs to which suppliers had to pay fees.

"Perhaps we should go direct to the suppliers rather than through the GDS," he said.

IT'S ALL ABOUT THE DISTRIBUTION COSTS
By 2005, most simple air transactions will be done with e-tickets and online. And 50 percent of hotel transactions will be done online.

At the same time, Mark Siladi, vice president-travel of Hutchison-Priceline, quoting those figures, said a clear split was emerging between supplier-owned sites and intermediaries and the factors that would drive their success would be value, reach and speed to market.

He also painted the contrast between the North American and Asian online travel market. "It is interesting to note that in the US, the only big travel agency players currently are Internet-only sites while in Asia, there are two big regional players who do it all. We are seeing a consolidation among single country players and those that are niche."

Travel agencies were realising there were no returns in air ticketing, he said, predicting, "For consolidators and wholesalers of air tickets, the writing is on the wall."

He called Priceline a "superniche" player and "the most efficient distribution system" for suppliers.

Conceding that some people would not use Priceline because of its business model, Siladi said,

"Customers have different personas. I would use Priceline if I wanted to make a quick trip somewhere but I would never use Priceline for my family Christmas holiday."

Ultimately, he said, it was about providing the most efficient distribution system for suppliers. "Airlines and hotels will not stop driving distribution costs down," said Siladi, who used to work for Virgin Atlantic.