• by Wendy Davis  @wendyndavis, August 12, 2005

Revenue at online travel agencies such as Expedia and Travelocity will soar 19 percent to $27.7 billion in the United States this year, according to a report released Thursday by financial services company Merrill Lynch. The new estimate is more optimistic than the one Merrill Lynch issued just three months ago, which predicted U.S. growth of 15 percent.

One reason for the more bullish forecast is that although consumers have the option of purchasing directly from airlines, hotels, and other direct suppliers, bookings via online agency sites were nonetheless up by 20 percent in this year's second quarter.

Consumers also will up their spending with direct travel suppliers on the Web, predicted Merrill Lynch. The firm forecast that revenues at direct suppliers online will grow by 27 percent this year, to $32.5 billion.

Overall, online travel sales will account for an estimated 30 percent of the total travel market this year--up from 25 percent last year and 21 percent in 2003, the report asserted. By 2007, Merrill Lynch predicts, online travel sales will represent 39 percent of all travel revenue, with growth from direct suppliers outpacing that of online travel agencies.

In the report, Merrill Lynch research analyst Justin Post concluded that search engines are driving much of the increase in online bookings. He estimated that travel search technology accounted for $600 million in direct bookings last year. What's more, he predicts that search-related bookings will double each year through 2007.

Of the online agencies, Merrill Lynch expects Expedia to again capture the largest market share, with 44 percent of bookings this year; Travelocity will account for 23 percent of bookings, while 19 percent of online travel agency dollars will go to Orbitz.