building the online vacation package marketplace: survey results

Bui

ldin

g Th

e O

nlin

e Va

cati

on P

acka

ge M

arke

tpla

ce:

Sur

vey

Res

ults

New York University And PhoCusWright Inc.Joint Research

Building The Online VacationPackage Marketplace:Survey Results

Building The Online Vacation Package Marketplace: Survey Results January 2003

Prime Researchers

New York University Preston Robert Tisch Centerfor Hospitality, Tourism, andSports Management

Lalia Rach, ED.D. Associate Dean

Mark M. Warner, D.P.A.Director, Graduate Programs

Martine BakkerGraduate Assistant

Bozhidar BachvarovGraduate Assistant

PhoCusWright

Philip C. WolfPresident and CEO

Lorraine SileoVice President, InformationServices

Building The Online Vacation Package Marketplace:Survey Results

New York University and PhoCusWrightJoint Research

Building The Online Vacation Package Marketplace: Survey Results is published jointly byNew York University and PhoCusWright Inc. The information contained herein isderived from a variety of sources. While every effort has been made to verify theinformation, the publishers assume neither responsibility for inconsistencies or inac-curacies in the data nor liability for any damages of any type arising from errors oromissions.

This publication is protected by copyright. It is illegal under U.S. Federal law(17USC101 et seq.) to copy, fax or electronically distribute copyrighted material outside of your organization without explicit permission.

Entire Contents ©2003 New York University and PhoCusWright Inc. All Rights Reserved.

Table 1.1Industry SegmentsServed Today

. . . . . . . . . . 6

Table 1.2Industry SegmentsTargeted For 2005

. . . . . . . . . . 6

Table 1.3ProductsSold/Developed

. . . . . . . . . . 7

Table 1.4Technology NeedsRequested By VacationPackage Customers

. . . . . . . . . . 7

Table 1.5Are Dynamic PackagingOfferings A CompetitiveAdvantage?

. . . . . . . . . . 8

Table 1.6Joint Ventures/Partnerships Today

. . . . . . . . . . 8

Table 1.7Joint Ventures/Partnerships In 2005

. . . . . . . . . . 8

Table 1.8Top Five ImpedimentsTo Development OfDynamic Packaging

. . . . . . . . . . 9

Table 2.1Vacation PackageTarget Market

. . . . . . . . . . 10

Table 2.2Types Of Vacation Packages Sold

. . . . . . . . . . 10

Table 2.3Number Of IndividualCustomer VacationPackages Sold Annually

. . . . . . . . . . 10

Table 2.4Does Your Web Site Offer Online Consumer VacationPackage Bookings?

. . . . . . . . . . 11

Table 2.5Does Your Web SiteOffer Online TravelAgency Vacation Package Bookings?

. . . . . . . . . . 11

Table 2.6Are Tour Operators Satisfied With The Current Mix Of Distribution?

. . . . . . . . . . 11

Table 2.7Do You DistributeVacation PackagesThrough Online TravelAgencies?

. . . . . . . . . . 11

Table 2.8How Do You HandleYour Vacation PackageTechnology Platform?

. . . . . . . . . . 12

Table 2.9Do You Have Adequate Access To Funding?

. . . . . . . . . . 13

Table 2.10Are Dynamic Packaging Solutions Meeting YourDesired Objectives?

. . . . . . . . . . 13


©2002 New York University and PhoCusWright Inc. All Rights Reserved.

IntroductionOnline Vacation Packaging: Assessing Challenges AndGrowth

. . . . . . . . . . 4

Section 1Technology Providers:Survey Findings

. . . . . . . . . . 5

Section 2Tour Operators: Survey Findings

. . . . . . . . . . 9

Conclusions. . . . . . . . . . 14

“GDSs andInternetproviders willfind ways toblend productsfor packagesonline.”

Table Listings

Online Vacation Packaging: Assessing Challenges And Growth

In spring 2002, PhoCusWright Inc. and New York University’s TischCenter of Hospitality and Tourism began a joint research process intothe biggest trend in online travel: vacation packaging. The overallpurpose of the research was to investigate the technological, market-ing and financial challenges for building the online vacation packagemarketplace.

Two online surveys were developed targeting two segments of thevacations marketplace:

Tourism Technology Providers (vendors of software and hard-ware)Tour Operators (including online travel agencies that packageand sell tours)

In May 2002, the NYU/PhoCusWright research team surveyed a selectgroup of 200 providers and tour operators on their opinions regardingdynamic packaging, Web-enabled booking, strategic partnerships andthe future of the online vacation industry. NYU/PhoCusWrightreceived 22 completed questionnaires to the Technology ProviderSurvey and 26 to the Tour Operator Survey. The respondents repre-sented a mixed group of CEOs, CFOs, directors, managers, vice presi-dents and other tourism professionals.

In general, the research uncovered an enthusiasm toward online vaca-tion sales amid a host of obstacles. There were concerns about part-nerships, funding, channel shift and ROI. There was also optimismabout online sales potential and new technologies. This report sum-marizes the findings from the two research efforts. Note that severalquestions were open-ended and opinions were solicited during thesurvey. Comments by respondents appear randomly throughout thereport.



“The entire market willchange as aresult of home shopping,pervasive computing, andvoice-enabledtechnologies.”

1. Technology Providers: Survey Findings

Technology providers play a key role in facilitating development ofthe online vacation package market. Their response to the demandsfor software and services impacts the desire of the travel industry toshift to online distribution. Technology providers have the means toenable the automation of packages and revolutionize the way vaca-tions are sold to travel agencies and consumers. How quickly touroperators adopt these new technologies will determine the timelinefor development of the online vacation package marketplace.

Survey Highlights

Key findings from the Technology Provider Survey include:

Dynamic packaging is the major trend in software develop-ment, but legacy systems are inhibiting market penetration.Although dynamic packaging is seen as a key differentiator anda future competitive advantage, most technology providershave not yet formed the necessary partnerships to offer thesesolutions to their customers. Other barriers include consumerawareness, travel agent comfort levels and adoption rates.

Cruise travel and distribution are the main points of focus fornew platforms and software development. However, the mar-ket is still in its infancy and dependent on online shoppersbecoming more confident and familiar with making large pur-chases online.

Despite expected market saturation, the Web booking engineis still the most requested product by vacation packager cus-tomers. GDS interfacing ranks second, and leisure travelsolutions, third.

The top issues and challenges affecting development ofdynamic vacation packaging solutions are funding, legacy systems (GDS) and the current state of the economy.

Technology providers have learned that CustomerRelationship Management (CRM) requires more technologyinvestment than what is currently being allocated, and that theneed for specialized personnel to implement and operate CRMsystems has not yet been met.

Partnerships and joint ventures are seen as fundamental tobuilding online vacation sales. They will be a focal point in thenear term, as all players need to cooperate in building thisevolving marketplace.

Online Cruises: A Rising Opportunity

Eighty-two percent of technology providers surveyed sell to compa-



“There will be a new breed of travel agent,making wideruse of wirelessand the Internetfor bookings.”

nies that sell vacation packages. Their client list includes Worldspan,Mark Travel, Club Med, Expedia and Disney.

While travel technology providers generally focus on three main seg-ments — tours/vacations, hotels/lodging and airlines (see Table 1.1) –their priorities are expected to shift in 2005. Asked where their focuswill be in three years, the largest percentage, 41%, cite cruises as thenext big opportunity (see Table 1.2). With most cruise lines not avail-able on the GDSs, the need for connectivity among cruise lines, travelagencies and consumers is clearly recognized as vital. Other industrysegments that will gain attention are rental cars and destinations.

Table 1.1 - What Travel Industry Segments Are Served Today?

Table 1.2 - What Travel Industry Segments Are Targeted For 2005?

Note: Respondents may have chosen more than one response.

Software Solutions Developed

Web booking engines is the top product sold/developed by technologyproviders today (see Table 1.3). Leisure travel solutions, ApplicationService Providers (ASPs), Global Distribution System (GDS) interfacing,and inventory management services also rank among the top fiveproducts sold and/or developed. Products that rank low on the listinclude sales and marketing solutions, switching and corporate travelservices.



“For travelagents, browser-based tools and increasedaccess speedwill change GDSrelationships.”

0%

20%

40%

60%

80%

100%Tours/

Vacations77%

Hotels/Lodging

73%Airlines

68% Destinations59%

RentalCars55%

Attractions45%

Cruises45%

Sports27%

Events/Conf/Mtgs

9%

Food &Bevg5%

Other5%

Entertainment41%

0%

10%

20%

30%

40%

50%

Tours/Vacations

14%

Hotels/Lodging

18%Airlines

18%

Destinations27%

RentalCars32%

Attractions18%

Cruises41%

Sports9%

Events/Conf/Mtgs

18% Food &Bevg9% Entertainment

5%

Table 1.3 – What Software Solutions Are Sold And/Or Developred?


Web Booking Engines Tops Needs

While technology providers offer a full range of services, their offer-ings are generally well matched with consumer needs, except in onearea: Web site design and/or management. While 67% of technologyproviders say their customers request that service, only 45% offer suchsolutions today (see Table 1.4). Among the most requested productsare Web booking engines, GDS interfacing, leisure travel solutions,ASPs and dynamic packaging.

Table 1.4 - What Technology Needs Are Requested By Vacation Package Customers?




0%

20%

40%

60%

80%

100%

91%82%

77% 72% 68% 64% 59% 59% 56% 56%50% 45% 41% 41% 36% 36% 32% 32% 27%

5%

Web

Boo

king

Eng

ines

Leis

ure

Trav

el

ASPs

GDS

Inte

rfac

ing

Inve

ntor

y\ M

anag

emen

t

CRS

Inte

rfac

ing

B2C

Inte

rfac

ing

B2B

Inte

rfac

ing

CRM

/Cal

l Cen

ter

Trav

el A

genc

y I

nter

faci

ng

Supp

lier

Inte

rfac

ing

Web

Site

Des

ign/

M

anag

emen

t

Reve

nue

M

anag

emen

t

e-Pu

rcha

sini

ng

PMS

Inte

rfac

ing

Sing

le Im

age

In

vent

ory

Sale

s &

M

arke

ting

Switc

hing

Corp

orat

e Tr

avel

Oth

er

0%

20%

40%

60%

80%

100%

89%78%

72% 67% 67% 67% 61% 56% 56% 56%50% 50% 44% 44% 39%

33% 33%28%

22% 6%

Web

Boo

king

Eng

ines

GDS

Inte

rfac

ing

Leis

ure

Trav

el

ASPs

Inve

ntor

y M

anag

emen

t

CRS

Inte

rfac

ing

B2C

Inte

rfac

ing

B2B

Inte

rfac

ing

Dyna

mic

Pac

kagi

ng

Trav

el A

genc

y I

nter

faci

ng

Supp

lier

Inte

rfac

ing

Web

Site

Des

ign/

Man

agem

ent

Reve

nue

Man

agem

ent

e-Pu

rcha

sini

ng

PMS

Inte

rfac

ing

Sing

le Im

age

In

vent

ory

Sale

s &

M

arke

ting

Switc

hing

Corp

orat

e Tr

avel

Oth

er

Dynamic Packaging: The Key Differentiator

An overwhelming majority of par-ticipants agree that in 2005, a com-pany providing its customers withdynamic packaging technology willcapture greater market share (andtherefore revenue) than a companywithout this capability (see Table1.5). Over 90% agreed, and 64%STRONGLY agreed.

However, most respondents havenot formed the partnershipsrequired to bring dynamic packag-ing solutions to their clients. Askedif they currently have (or plan tohave in three years) jointventures/partnerships with companies offering dynamic packaging inonline vacations, 39% say they have them today and 61% have notstarted working on this issue (see Table 1.6).

Among those who don’t have joint strategic alliances in dynamicpackaging, only 36% expect to form such partnerships in the future.In general, there was uncertainty in forming strategic partnerships ina market still volatile and fragile (see Table 1.7).

Funding: The Greatest Challenge

Funding is still the greatest impediment to the development ofdynamic packaging solutions - more providers choose funding as atop technology issue than any other issue/challenge (see Table 1.8).Less than one-fifth of technology providers offer initial funding helpand advice for the solutions developed.

Legacy systems ranked second as an issue/challenge, followed by currentstate of the economy, indicating the tourism and hospitality industry isoften slow to adopt new distribution and booking technologies. Currentstate of the economy ranked third.

61%NO

39%YES



“The biggestchange will beWeb services anda large-scalereplacement oflegacy systemswith systemscapable of interoperatingfor inventory distribution.”

Table 1.6 – Joint Ventures/Partnerships Today

Table 1.7 - Joint Ventures/Partnerships In 2005

27% No Answer/

Don'tKnow

36%YES

36%NO

64%StronglyAgree 27%

Agree

5%Disagree5%

StronglyDisagree

Table 1.5 - Are Dynamic PackagingOfferings A Competitive Advantage?

Note: Total does not equal 100% due to rounding.

Note: Total does not equal 100% due to rounding.

Market trends are also a concern. The respondents say low consumerawareness and low consumer confidence are among the top fiveissues/challenges impacting the development of successful dynamicpackaging solutions. This suggests there is still a large learning curveassociated with dynamic packaging.

2. Tour Operators: Survey Findings

Tour operators are mentally ready to upgrade their distribution chan-nels. They recognize the need to shift from manual (phone/fax)methods to online distribution. But few are prepared for thesechanges, with most tour operators not yet online at all. Tour opera-tors have clear goals, but are slow to adopt the technology required toreach them.

Key findings from the Tour Operator Survey include:

Operators are unhappy with the current distribution of vaca-tion packages; most packages are still sold through independ-ent travel agencies or directly through their own call center.

Key objectives are to see sales grow through tour operator Websites as well as online travel agencies.

The majority of operators are dissatisfied with distribution andbookings through online travel agencies.

The majority of operators design and manage their vacationpackage technology in-house.

Dynamic vacation packaging is recognized as a future necessity;done right, it will allow tour operators to capture greater mar-ket share.

An integrated, inexpensive booking engine is required foronline vacation sales to be successful.

The future will bring more consolidation and acquisitions bytraditional operators and online companies.



“It will create anywhere, any-time, databaseaccess for the consumer oragent.”

Table 1.8 – Top Five Impediments To Development Of Dynamic Packaging (ranking based on all responses given)

1. Funding

2. Legacy systems

3. Current state of economy

4. Low consumer awareness

5. Low consumer confidence

Focus On Couples In Luxury/Mid-Priced Market

Most tour operators that responded to the survey focus their productson couples, followed by families and singles. They also emphasize theluxury and mid-priced markets (see Table 2.1).

Table 2.1 - How Would You Classify Your Vacation Package Target Market?

Table 2.2 - What Types Of Vacation Packages Do You Sell?


Almost all of the operators specialized in either Foreign IndependentTravel (FIT) or escorted tours, though not many sell both (see Table2.2). The majority (73%) of respondents sell up to 500,000 individualcustomer vacation packages a year (see Table 2.3).

Table 2.3 - How Many Individual Customer Vacation Packages Do You Sell Annually?(per operator)



“More and moretraditional operators willuse e-solutionsto reduce theirtransactioncosts, access newmarkets, etc.”

0% 20% 40% 60% 80% 100%

Couples 88%

Families 73%

Singles 65%

0% 20% 40% 60% 80% 100%

Independent 73%

Escorted 73%

Other 27%

up to 500,000

500,000 - 999,999

1-2 million

more than 2 million

no answer

4%

15%

73%

4%4%

Online Presence A Reality

Over half (58%) of the operators who responded to the survey offeronline consumer vacation package bookings. Yet, most of them do notprovide an area on their Web sites for travel agencies to make onlinebookings for their customers (see Tables 2.4 & 2.5).

Operators Unhappy With Status Quo

An overwhelming majority (73%) of the tour operators are not satis-fied with their current distribution mix (see Table 2.6). Their keyobjective is to see sales grow through their own Web sites and throughonline travel agencies. The drivers for this shift, according to the touroperators, are cost reduction and filling customer needs for informa-tion and ease of booking.

Tour operators seek change; their drive to reduce costs and improveservice drives them to online distribution solutions. The transition toonline is expected before 2005.

At present, tour operators sell mostly through traditional travel agen-cies. About half of respondents say the Web site and online travelagency channels accounted for less than 20% of sales. As a matter offact, 15% do not sell any vacation packages through their Web sites.



“Packaging fromdifferentproviders will beintegrated topresent newpackages to theconsumer.”

42% NO

58%YES

54% NO46%

YES

Table 2.4 - Does Your Web Site Offer OnlineConsumer Vacation Package Bookings?

Table 2.5 - Does Your Web Site Offer OnlineTravel Agency Vacation Package Bookings?

73%NO

23%YES

4%Don't Know

62%YES 38%

NO

Table 2.6 - Are Tour Operators Satisfied With The Current Mix Of Distribution?

Table 2.7 – Do You Distribute VacationPackages Through Online Travel Agencies?

In the future, 62% want to see Web site sales increase and 46% wantthe online travel agency channel to increase.

Sixty-five percent of tour operators expect their Web sites to representmore than one in five bookings by 2005. Meanwhile, only 19% thinktraditional agencies will represent the majority of sales by that time.

Online Travel Agencies Bring Mixed Results

More than 60% of the respondents distribute their packages throughonline travel agencies (see Table 2.7).

Travelocity, Expedia and OneTravel.com were mentioned most often,but some operators sell only through smaller online agencies such asthetraveldeal.com, gotoday.com, and modernagent.com. Exit.ca ofCanada was mentioned as was Mark Travel’s Vacation Access, andOrbitz.

However, it appears that many tour operators would prefer a differentset of relationships. Of the operators that distribute through onlineagencies, half are dissatisfied/very dissatisfied with the channel.

Automation was no further along on the back-end, or B2B side, of thedistribution chain. The phone was chosen by 65% of respondents asthe primary interface between the tour operator and the travel agencyfor the sale of vacation products. The Web site (50%) and fax (46%)were most often cited as secondary channels. However, 31% did notuse fax at all, and 35% did not use the GDS.

Vacation Package Technology Platform: In-House Or Outsourced?

To automate the process of selling product to travel agencies and con-sumers, most tour operators are building a vacation package techno-logy platform. The majority of tour operators design and managetheir vacation package technology platform in-house (see Table 8).

Table 2.8 – How Do You Handle Your Vacation Package Technology Platform?



“The leisure and corporate[travel] worldwill convergewith added functions,searches, andease of use.”

0% 20% 40% 60% 80% 100%

Inhouse Outsourced

Managing Vacation Package Technology Platform...

Designing Vacation Package Technology Platform...

Partnered Don't Know

52%

58% 15% 12%15%

30% 18%

While there was some dissension, those who outsourced the designand management were mostly satisfied. Outsourcing partners varied,but the most common names are Logibro (which has since changedits name to Accovia) and Data Plus. Other companies mentionedwere BuyTheNet.com, Radixx and Radius Software.

Funding

While 27% of operators don’t knowif they will have enough funds forfuture development, most operators(42%) feel they have adequateaccess to funds to capitalize on thefuture growth of the packaged vaca-tion industry (see Table 9).

For those with funding constraints,partnerships and private capital arethe strategies of choice. The mostimportant investment decision-making criteria regarding vacation packaging are ROI and the poten-tial for increased volume.

Dynamic Vacation Packaging: A Future Necessity

Half of the operators use dynamicvacation packaging solutions, mak-ing it possible to pull from liveinventory to create a unique pack-age.

The core objectives behind thistrend are:

1. Servicing customer needs2. Revenue generation3. Increase in market share4. Building supplier relationships

For the vast majority offering dynamic packaging, the solution ismeeting business objectives. One tour operator commented that theinterface needs work, and still requires human intervention.

Almost all operators (92%) agree that in 2005, a company providingits customers with online vacation dynamic packaging will capturegreater market share than a company without this capability.

In general, tour operators are calling for an integrated inexpensivebooking engine to support the packaged vacation market. This enginewould enable their entire inventory to be connected and tour opera-tors to execute real time bookings. Common protocols that connectsuppliers and distributors would make this happen.



“High marginproducts willconverge – cruises, toursand vacations…in addition,technology products willconverge – GDS, CRS, PMS systems…”

31%NO

27%Don'tKnow

42%YES

Table 2.9 - Do You Have Adequate Access To Funding?

23%NO

8%Don't Know

69%YES

Table 2.10 - Are Dynamic Packaging Solutions Meeting Your

Desired Objectives?

Web Sites Rank High

Web sites and travel agencies were most often chosen as effectivechannels for providing individual customer advice on vacation pack-ages (85%). Call centers were cited as an effective channel by 77% ofrespondents, and 42% say the call center is ”very effective.“ Fax fly-ers, chat and follow up e-mails were given honorable mentions asother effective channels.

CRM

Half the operators polled have CRM software integrated into theirvacation-packaging platform. These include database marketing orcustomer service tools.

Consolidation

The survey also found the industry expects more consolidation drivenby online companies such as Expedia in this market segment. Therespondents were asked what the Expedia acquisition of ClassicCustom Vacations would mean for the immediate future. Almost allthought that Expedia would sell more vacation packages onExpedia.com and that there will probably be more acquisitions wherean online company will purchase a traditional tour operator.

ConclusionsTechnology companies must respond to tour operators’ clarion call forincreased connectivity as their distribution mix is expected to shiftdramatically in 2005. Despite tour operators’ recognition of the travelagency channel, they see a future where direct (Web site) distributiontakes precedence, decreasing their reliance on intermediaries. Onlinetravel agencies will also play an increased role in tour operator sales.

Dynamic packaging solutions are seen as a must-have solution bymany tour operators. However, it’s just one of many technologiesthat can help tour operators lower costs and service customers. Webbooking engines and GDS interfacing are deemed even more impor-tant than dynamic packaging by most tour operators.

Once funding and awareness issues are resolved, the online vacationpackage marketplace will develop quickly. Certainly, tour operatorsstill need evidence that the shift to online will result in greater rev-enues overall – as ROI is the biggest requirement for obtaining thenecessary funds to move forward. Technology providers will be put tothe test, as tour operators will demand greater features to jump-starttheir online strategy. Technology providers will be required to makepartnerships to help move the industry forward.



“Any providerthat falls behindthe ‘new technology’will disappear.”

building the online vacation package marketplace: survey results

Documents