Online Travel Industry

8/13/2019 Online Travel Industry

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Contentsntroduction ......................................................................................................................................................................................

Online Travel Industry ......................................................................................................................................................................

nvestigation into current successful business models ....................................................................................................................

The Brokerage model ...................................................................................................................................................................

PriceLine.com ................................................................................................................................................................................

Expedia Inc ...................................................................................................................................................................................

Cool Travel ...................................................................................................................................................................................

Technological Requirements ............................................................................................................................................................

Software ........................................................................................................................................................................................

Hardware .......................................................................................................................................................................................

Services .........................................................................................................................................................................................

Challenges .........................................................................................................................................................................................

Airlines ...........................................................................................................................................................................................

Ensuring Customer Loyalty ...........................................................................................................................................................

Marketing and Promotion Strategy ..................................................................................................................................................

Blogging. ........................................................................................................................................................................................

egal and Ethical Issues ....................................................................................................................................................................

Ethical ............................................................................................................................................................................................

Legal ..............................................................................................................................................................................................

Recommendations ...........................................................................................................................................................................

Wireframe .......................................................................................................................................................................................

Bibliography .....................................................................................................................................................................................


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ntroductionWith the advent of the information age, signaled by the growing popularity of the Internet amongst the masses, intermediar

ompanies have been under the radar. An early research paper published in 2003 explored the disintermediation hypothesis

he assumption that the function of middlemen will become redundant, with specific regard to the travel agencies

ntermediaries in the travel industry) (Anckar, 2003).

This statement is backed by evidence by (Alexander, et al., 2008)They reiterate the fact that free internet access granted airli

irect access to the customers because of which airlines reduced commission from 20-25% to a meager 5% per ticket, as wel

miting the amount(capping) of commissions . The projected cost to an airline to book and issue one ticket through a travel

gency is almost $45 while cost of employing e tickets and cutting out the agents is as low as $2 to $5 (Lewis, 1998).

Malone, June 1987) termed it the electronic brokerage effect. (Anckar, 2003)went on to test its hypotheses, through mass

urvey method, whether the emergence of Internet based travel reservation services and mobile commerce would lead to a

trengthening or weakening of this effect. The findings conclusively proved that unless travel agencies do not avail e comme

he phenomenon of the electronic brokerage effect will manifest. However availing opportunities offered by the Internet, tra

ndustrys middlemen stand to reinforce their intermediary ties and achieve phenomenal sales growth.


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Online Travel Industry

Before determining the appropriate business model for Cool Travel it is necessary to see the evolution and forecast of growt

online travel bookings, to get a comprehensive idea about the massive opportunities and competition.

igure 1 Source: Global Travel Agency Services: Market Research Report, IBIS World 2013

This report shows that the online travel industry is worth 145 billion dollars which is a staggering amount. Figure 2


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igure 3 Source: PhoCusWright Europe Online Travel Overview 5th Edition November 2009

rom the above data it can be stated that there is immense opportunity for huge profits by expanding to online travel service

nvestigation into current successful business models

The Brokerage modelThere are 9 elements of a business model

1. Customer Segments2. Value Propositions3. Channels4. Customer Relationships5. Revenue Streams6. Key Resources7. Key Activities8. Key Partners9. Cost Structure

According to (E-Commerce.com, 2013), online travel agencies roughly follow the brokerage model. Third party agents called

roker make up he core of this module. By definition, these brokers are agents who bring businesses and consumers to one

latform to enable transactions and charge a fee for their services to the businesses and customers. It isnt entirely necessar

hat they assist transactions between businesses and the end consumer; they may also facilitate trade between retailers and

other retailers or between customers and other customers. The brokerage model includes a wide variety of tools and platfor

uch as online marketplaces, search engine optimization, online auctions etcetera.

The most simplistic brokerage model focuses on a perfect match between the buyer and seller, such as a search engine e.g.

Travelocity.com. A more complex version of this model is the online marketplace where the buyers and seller both providenformation (such as the seller providing product specification; in our particular example, airlines and hotels offering their

acilities) but the transactions themselves are carried out by the operator i.e. the agency. This entails more responsibility sinc

he operators clientele includes both the end consumers and businesses.

A step forward from the online marketplace model is the aggregators who focus on group purchases and sales which enables

onsumers to avail discounts and businesses to profit from high sales. A travel agency which follows this model is Expedia Inc

As of recent times, there are very few agencies which follow the conventional commission -revenue model, rather prefer a

ervice-fee revenue model (Kuuchi, 2011) (Amadeus, 2007)

PriceLine.comriceLine.come is an online travel agency which is one of the largest in the world. It straightforwardly follows the simple

rokerage model business-to-consumer (B2C) e-commerce in which online businesses seek to reach individual consumers. W

makes this simplistic model innovative is the unique value proposition it offers in the form of reverse auction pricing .Accor

o (Investopedia, 2012) a reverse auction is a bid war between sellers to obtain the most appropriate bid offered by the buye

t earns its profit from the disparity between the Name your own price given by the consumer and price charged by the airl

t has a monumental consumer following since it allows the consumer to avail much less rates than retail, as well as allows ho

nd airlines to sell off inventory which otherwise goes unsold.


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However PriceLine constantly innovates one or more of its elements of business models such as its price guarantee scheme

which rewards its customers for finding a price lower than the one PriceLine offers. This is ingenuity in customer relationship

riceLine also focuses on increasing its value proposition by expanding and acquiring various companies which offer periphe

ervices to their customer such as Travel Jigsaw, the multinational car hire reservation service. (Priceline.com, 2010) Recently

riceLine acquired Kayak, the travel metasearch engine (like Google but only for tourism) to provide a much more time saving

nd comprehensive experience for its consumers. (EDLESON, 2013)

Expedia Inc

xpedia Incorporated is also one of the worlds leading OTA(Online Travel Agency). Expedia Inc follows the simplistic brokera

model whence its revenue derives from playing the role of an operator in an online marketplace. Expedia derives its main

evenue stream by either charging a fee per transaction or by buying inventory at a lesser rate or charging the customer a

remium for it.

xpedia Incs focus on its supply chain or its Key Resources has been the cause of its immense growth and success. Rather t

epending on third party retailers (Hotels mostly), Expedia Inc acquires its suppliers and strives to develop quality from the e

Also Expedia has been involved in a constant struggle for innovation which has lead to many subsidiary brands to offshoot un

he Expedia name such as Hotels.com, Global Expansion, Egencia, EAN, and Hotwire brands function all over the world. Expe

owns majority shares in Venere, Egencia, and Air Asia and has recently acquired the metasearch engine Travigo. (EDLESON,

013) (Inc, 2013)

xpedia Inc derives its revenue from 2 models namely the Merchant Model and the Agent Model. Under the Merchant Mode

ustomers pay Expedia for everything, the air fare and the fare for bookings and Expedia pays the airlines and hotels when th

ustomers uses the product. The Agent Model is self explanatory.

Cool Travel

imilarities between Cool Travel, Expedia Inc and PriceLine.com are stark. Expedias strength is its scale of operations, having

more than 80 offices around the globe. Cool Travels distribution is similar. Cool Travels Customer Segment consists of ages

o 45, so does PriceLines(Priceline.com, 2010).

Hence Cool Travel would do well to follow the Brokerage Model with Specific focus on one aspect of the model. It may be

1. Customer Segments. Acquiring a larger age bracket with methods such as moving into personalized retirement travepackages(ages above 45)

2. Value proposition. Acquiring a Metasearch engine and making it super efficient and fast would add immense value3. Channels. Employing innovation in Mobile Applications. Coming up with a differentiated mobile application, applicab

on Android and iOS both, by the name of Cool Travel would tap into the Mobile Market. (Dickinson, et al., 2012) state

conclusively The Smartphone, and its associated apps, is in the process of revolutionizing the tourist negotiation of t

travel domain

4. Customer Relationships. Employing advanced customer feedback, leading to suggestions of personalized travel packaaccording to tastes and preferences of the user , would immensely increase the value of customer relationships.

5. Revenue Streams. Revenue diversification: Cross selling non-air (Consulting, 2010). This report conducted by HermesManagement Consultancy discusses revenue diversification away from airlines and branching into insurance, cruises

and hotels. Sales from air usually contribute to 86% of total revenue , on the other end of the spectrum however,

Leisure offline companies make 76% of their revenue from non air sales. The figure below is a mere testament to this

fact.


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igure 4 Source: Hermes 2009

6. Key Resources. Amalgamation of points 1 through 57. Key Activities. Amalgamation of points 1 through 58. Key Partners.9. Cost Structure. In the study of European OTAsthe report by Hermes outlines marketing activities as the major factor

which pushes costs up, Marketing Activities in the five OTAs studied contributed to a staggering 54% of costs which

amounts to an average of 6.5 million pounds. Assuming Cool Travel incurs the same fate, the report identifies measu

which can be taken in order to reduce these costs. One of them is to increase marketing efficiency by upgrading

reporting and tracking tools to assess the efficacy of marketing channels using automated feedback. If a new market

technique isnt feasible, it should be known and terminated immediately. Another method is to enhance effectivene

of online marketing avenues and the current trends on how to do this is to lower SEM (Search Engine Marketing, wh

is a big expenditure for OTAs) by focusing on boost SEO (Search Engine Optimization) so itsless time consuming. Soc

Media which is of negligible costs, should be employed more frequently and more emphasis on higher conversion

mediums such as Metasearch(the current trend in OTAs(EDLESON, 2013))

All these steps will possibly overcome the current challenges of high costs and too much concentration on air sales faced

todays OTAs.

Technological Requirements

Software

1. Microsoft Internet Information Server.2. MySQL(DBMS)3. Metasearch engine4. Shopify and Volusion (Anon., n.d.)5. Web design tools6. ColorZilla7. Quickbooks8. Microsoft Office9. Adobe Photoshop, Adobe illustrator10.VOIP Software11.McAfee Antivirus


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12.Social Media Applications13.Various Third Part Applications14.Encrypto

Hardware

1. Secure Web Server2. Domain Names3. Ports

Services

1. Internet Service Providers2. Internet Presence Providers3. IP Address

Challenges

Airlines

One of the major challenges facing Cool Travel if it were to announce its presence online is the threat from airlines which havtarted their own e-commerce business at a far wider scale than before. Airline companies are now offering almost all air

ervices offered by OTAs but the difference is they are offering at a very cheap rate. This rising trend has the potential to ea

nto revenue streams. (Bureau, 2012)

Ensuring Customer Loyalty

An interesting research published in the Journal of Internet Commerce explores the relevancy of previously outlined trust

actors which influence a consumers trust in an OTA, enabling managers to make more informed decisions on how to incre

ales by boosting consumer trust. These factors are having some previous information about the OTA, The level of security

ersonal information provided by the consumer and amount of their control over it., consistency between the result(delivery

nd promise of the result(terms of contract), the look of the website and level of user friendliness and accessibility of

ndependent verification of the OTA. The higher the existence of these factors in an OTA, the more trust the consumer will

lace. These factors were tested through questionnaires distributed in Singapore and the data collected was compiled using

R Type Approach. The findings of this study are illuminating.

actor number one is facilitated by having a platform, such as an online forum where customers discuss their experience with

he OTA hence providing previous information about the website. Offering links to relevant external sites and giving compara

nformation about alternatives also helps.

actor number two is aided by asking for permission before information of personal nature is saved, transparency in the

nformation processing and providing customers with the option of total autonomy to erase their personal information

whenever they please.

actor number three is expedited by stressing on clarity, appropriateness, and accuracy of information and timely responses

ueries.

actor four heightens its influence on consumer trust when the website interface is simple, with readable font size and color,

ttractive (colorful, harmonizing, appealing) facilitated by easy instructions (maybe in animation form) on how to carry out th

rocesses.


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actor five is comes effectively into play when the online vendor can claim to be certified by independent reputable institutio

much like ISO certification or Health Department Certification. (Austin, et al., 2008)

Having established that consumer e-loyalty translates into high sales, I would like to go into a much more technical discussio

ow quality of website design it aids consumer loyalty for the purpose of this report. (Wen, 2012) classifies three component

uality of website design, namely Information Quality(Customized deals, accurate and updated information, thorough and

etailed description of service), Systems Quality(qualifying technical indicators incorporate ease of use, accessibility,

uthenticity, responsiveness and versatility) and Service Quality(high quality service such as timely reply to customer queries

nd showing compassion for consumers troubles; an OTA might attract more customers due to reduced rates and more onliresence, however these wont aid in retaining loyalty compared to service quality).

Wen, 2012)Then tests his hypotheses which are the following:

igure 5 Source: Wen, 2012

The data is collected from US citizens who employ services of OTAs via email. The study involves different experimental

cenarios (a situation is given and responses recorded). Four types of websites are analyzed. Company-branded website, onl

ravel portal website, online discount travel portal website, and Internet portal.

While surfing an OTA, the three dimensions of quality of website design favorably impacts consumer trust, satisfaction, and

urchase intention. Also, findings confirm that consumer trust and online purchase intentions are linked. Conclusively, quali

website design exerts a sizeable and positive force on motives for buying.

Marketing and Promotion Strategy

ince Cool Travel is launching its presence online for the first time, initial outlay of expenditure should be at least 60% of

evenue. Consumers should be saturated with Cool Travel.com from all angles. After initial outlay on advertising and promot

uick feedback tools should be employed to measure success of the campaign. A Print ad with a catchy tag line and Cool Trav

ogo should flood the city. Billboards, Bus Stops, Kiosks (at the malls and airports).

tep Two would be to employ the social media. Facebook, Twitter, Youtube. Contests with free giveaways could be held, on

ocial media. Frequent email blasts could be incorporated into the campaign. Updates, Tips etcetera. SEOs could be employe

o ensure more hits on the promotional material. Also, Cool Travel could enter into partnership with already online clients an

se their platform to advertise the launch. Co-branding could be practiced, both Joint Venture and Multiple Sponsor. Joint


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Venture could be taken up with a bank (Costumer holding Bank ABS Credit Card automatically becomes eligible for certain

iscounts on services offered by Cool Travel.

One of the major advantages Cool Travel retains is the immense power of their clientele base. Already existing loyal custome

an be counted on to boost online sales.

Blogging.

A new emerging marketing avenue for online travel agencies is company managed blogs. Blogs offer a way to distinguish you

own services and strategic performance. Travel agencies endeavor to connect successfully in blog marketing with corporatioo advance e-commerce capabilities and propositions (Puhringer & Taylor, 2008). Even though blogs, in a medium in itself ca

ot be used for direct provision of services, they are used as highly effective communication and advertising tools. Blogs are

ighly valuable as a component of defense strategy as they stimulate favorable publicity as well as allow for countering harm

omments from the public as a tool for damage control. Blogs are a cheap form of advertising, and a well managed blog

ngender awareness, persuades readers to visit repeatedly and boosts page ranks with important search engines. Also, they

rovide a medium for easy feedback from customers which give invaluable insights for customer targeting. A study conducte

Taiwan amongst Travel agencies already employing blogging as a strategic tool showed that blogging is indeed highly effectiv

maximizing profits through customer loyalty. (Huang, 2012)

Legal and Ethical IssuesA highly comprehensive and detailed paper examining the ethical and legal implications of taking a business online is written

Defago & Bockanic, 2006) takes into account all possible issues.

Ethical

The major ethical issue while considering taking a business online is the problem of Privacy and Security. Identity Theft is a

ommon tool for criminals to employ and websites can sometimes facilitate unknowingly. Cookies are harmless lines of

omputer code which are originally used to follow consumer tracks over their digital trail as to collect information about the

references and tastes so as to save inconvenience to the consumer. Consumers however might feel threatened by this and

he company for maintaining cookies. A class action suit was filed against Yahoo, pertaining to the website using cookies as

ncalled-for surveillance. However these small lines of code can be a deadly weapon in the hands of a criminal since. Also

eople disclose a lot of sensitive information while conducting transactions online such as their credit card numbers. From a

ompanys perspective, a hacker might be able to gain access to the website mainframe and solicit the sensitive information

ery easily.

Legal

iability Issues is a vast subject and majorly covers Copyright Infringement, Defamation, Libel, Appropriation of employee ima

nd Intellectual property Protection.

Copyright infringement may be direct such as the management copying something off another website onto Cool Travels

Website or indirect such as an employee copying something off the internet and onto the website (with the management be

naware). If the business wishes to incorporate pictures, text, sound bytes or video clips into their Web site it is imperative t

he business obtain in advance the express written permission of the copyright holder.

ibel is another evil which may arise due to the introduction of a website. Defamation in written form is libel and refers to

ntrue stories or facts which damage anothers reputation.

Recommendations to Cool Travel regarding ethical and legal issues


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1. Be clear to the consumer how information given to the website will be employed. Ensure you have the customerspermission and be sure that they have read the policy and agree to it.

2. It is best to secure an all encompassing written grant of permission from the holder of copyrighted work. The grantshould have every conceivable form in which the work is going to be put to use. Also, give written credit to the archit

of whichever form of art is on display on your property.

3. There should be a regular and stringent check on all material uploaded to the website.4. Under no circumstance should employees be given access to or allowed to upload anything to the website.5. If material being uploaded is the intellectual property of an employee, ensure proper written consent before putting

to use.

6. Secure rights to website content along with possession of the Website too. The rights should be plainly declared in thbinding document between Cool Travel and he developer

7. Employ firewalls, encryption software, anti virus software against any kind of viral attack. Keep updating and upgrad8. Exhibit a copyright notice on the website.

Recommendations1. Customer Loyalty should be kept in mind while designing the website2. More emphasis on non air3. Diversifying such as taking to blogging as an advertising avenue4. Technology organization(Business Process Design, Web Application Development) should be outsourced.5. Existing pool of customers should be called upon to assist, to drive up web traffic.


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Wireframe


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ookings

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