Report: Online Travel Revenues To Skyrocket

by Wendy Davis, Oct 19, 2004, 12:00 AM

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The rapidly consolidating online travel industry will double its revenues in the next three years, from $38 billion last year to more than $80 billion in 2007, according to a report released Tuesday by New York research firm eMarketer. This growth potential, combined with the "ongoing realignment," could lead to a new push to "establish market share in online travel," said eMarketer senior analyst Noah Elkin.

"The online travel sector is becoming increasingly competitive and suppliers ... are mounting a more aggressive challenge to the online agencies that initially dominated the marketplace," the report stated.

The most recent industry shake-up came last month, when travel and hotel-franchising giant Cendant Corp. agreed to acquire online travel company Orbitz for $1.25 billion in cash. Cendant--previously the third largest player in the industry behind Expedia, a unit of InterActive Corp., and Travelocity, a unit of Sabre Holdings Corp.--is now second only to Expedia.

The travel industry accounts for 24 percent of all online advertising, including permission-based e-mails, search engine marketing, and online impressions. Of those advertising methods, search engines "are the most promising form of advertising that's emerging at this point," said Elkin, adding that search engine marketing is cost-effective, and that consumers are likely to see such ads because they research destinations on search engines.

Despite the companies' attempts to establish brand identities, customers seem to view them. "Site loyalty is still pretty limited," said Elkin, adding that consumers site-hop when making travel plans.

The report also broke out online revenues for airline tickets, lodging, rental cars, vacation packages, Amtrak, and cruises. Within that group, online revenues for airline tickets were the strongest, with projected revenues of $32.8 billion this year, according to Forrester Research data cited in the eMarketer report. Hotel revenues came in second--but with only $16.4 billion, half the projected revenues of airline tickets.

One reason that hotels are so far behind airlines appears to be that many consumers still prefer to use the telephone to book hotel rooms, especially if they have specific requests--such as an extra bed in the room. "The Internet may win more often than not in price," said Elkin, "but there are still things that live people do better than the Internet."

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