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PhoCusWright Inc.1 Route 37 East, Suite 200Sherman, CT 06784-1430USA+1 860 350-4084+1 860 354-3112 faxwww.phocuswright.com

Philip C. Wolf President and CEO

Carol Hutzelman Senior Vice President

Christopher D. SchutteVice President, Client Services

Lorraine Sileo Vice President, Information Services

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Annamarie CerretaDirector, Marketing

Travel Tech Consulting, Inc.951 Old County Road #157Belmont, CA 94002 USA+1 650 345-8510+1 650 345-7590 faxwww.traveltechnology.com

Norman L. RosePresident

Selling Complex Leisure Travel Online: Focus on Dynamic Packaging Technology November 2004

Selling Complex Leisure Travel Online:Focus on Dynamic Packaging Technology

Written by Norman L. Rose

Edited by Lorraine SileoMichael Cannizzaro

Published byTravel Tech Consulting, Inc. and PhoCusWright Inc.

Selling Complex Leisure Travel Online: Focus on Dynamic PackagingTechnology is published by Travel Tech Consulting, Inc. andPhoCusWright Inc. The information contained herein is derived froma variety of sources. While every effort has been made to verify theinformation, the publisher assumes neither responsibility for inconsis-tencies or inaccuracies in the data nor liability for any damages of anytype arising from errors or omissions.

©2004 PhoCusWright Inc. and Travel Tech Consulting, Inc. All Rights Reserved.iii

Selling Complex Leisure Travel Online: Focus on Dynamic Packaging Technology November 2004ContentsSelling Complex Leisure Travel Online:Focus on Dynamic Packaging Technology

Section 1 1.1Dynamic PackagingOverview

Section 2 2.1Leisure TravelTechnology: SellingVacations Online

Section 3 3.1Packaging Impact bySegment

Section 4 4.1Technology Trends

Section 5 5.1Market Overview

Table 1.1 1.3Types of Dynamic Packaging

Table 2.1 2.1U.S. Package Internet GrossBookings, 2002-2003 andProjected 2004-2006 (US$M)

Table 2.2 2.2Online Travel Purchased bySegment, 1998-2003

Table 2.3 2.2Future Interest in Packages

Table 2.4 2.3Opportunity by Level ofComplexity

Table 2.5 2.3Type of Combination Package

Table 2.6 2.4Barriers to Purchasing Packages

Table 3.1 3.2Segment Focus

Table 4.1 4.3Emerging Common Architecturefor Dynamic Packaging

Table 4.2 4.11Value Chain Focus

Table 5.1 5.1Dynamic Packaging Categories

Table 5.2 5.2Partial Overview of DynamicPackaging Vendors

Table 5.3 5.11Online Travel Agency Strengthsand Weaknesses

Table Listings

©2004 PhoCusWright Inc. and Travel Tech Consulting, Inc. All Rights Reserved. v

Company Spotlight:

Viator 4.6

OpenJaw Technologies Ltd. 4.12

Bowstreet Inc. 4.13

Accovia Inc. 5.4

Fourth Dimension Software 5.5

Discovery Travel Systems LP 5.6

Datalex 5.8

EzRez Software Inc. 5.9

Neat Group 5.10

Expedia Inc. 5.12

Orbitz 5.13

NLG 5.14

Travelocity 5.14

Introduction

Not long ago, consumers who wantedto purchase a vacation package had

to sift through a pile of brochures thatcontained pre-assembled options, many ofwhich did not match their needs.Traditionally these static packages weredeveloped by wholesalers and soldthrough offline travel agencies. TheInternet has permanently altered the wayvacation packages are created and market-ed. Consumers can now purchase pack-ages from a variety of sites such as onlineagencies, hotels and airlines; the optionshave never been so broad. And within thedramatic increase in Internet travel sales,the surging packaging sector has emergedas a new growth category.

Joint research recently conducted byPhoCusWright Inc. and Vividence Corp.found that:

Online purchases of vacation packagesare expected to at least double by 2006,as consumers and suppliers alike realizeand reap the value-added benefits ofbundling products, including activitiesand events, into one pricing scheme. Packages are no longer available solelyfrom top online agencies, as supplier,destination and other sites are nowoffering combinations of products.

Under the broad category of vacationpackaging, a single technology has sur-faced as the “killer app” for the leisuretravel industry: dynamic packaging.However, this term is used so commonlyin different contexts by different vendorsthat a standard definition is needed. Whatexactly is dynamic packaging? There is nodispute that dynamic packaging involvesassembling components into an itinerarywith a single price, but it is generally notclear what makes a package dynamic.Among the questions raised by dynamicpackaging developments are:

Are there common technologies beingdeployed to achieve a balance betweenconsumer preferences and supplier mar-keting goals? Is there a difference between dynamicpricing and dynamic packaging? What technologies are emerging thatwill drive next generation dynamicpackaging engines?

Purpose of Report

In early 2004, PhoCusWright Inc. andTravel Tech Consulting Inc. embarked on ajoint project to help the industry under-stand the current and future trends indynamic packaging. One goal is to clearlydefine terminology with respect to customonline packaging techniques. The reportalso examines the underlying technologies


©2004 PhoCusWright Inc. and Travel Tech Consulting, Inc. All Rights Reserved. Page 1.1

Dynamic Packaging Overview

Section 1

that enable dynamic packaging, and pro-files 13 companies that offer packagingsolutions. In addition, it explores emergingtechnologies coming to market that willfurther enhance the online vacation plan-ning experience.

Report MethodologyThis research is the result of inter-views conducted in January-June 2004within multiple sectors of the leisuretravel industry. To cover the topiccompletely, these in-depth interviewswere conducted with three types ofcompanies:

Traditional tour operator softwarevendorsInternet-based leisure travel distribu-tion platform vendorsOnline travel agencies

A clear picture emerged from theseinterviews of the evolving technologyplatform being developed for dynamicpackaging. Though there were differ-ences in approach and strategy, allcompanies agreed that dynamic pack-aging is the wave of the future andthat current systems are in the infan-cy stage of the development process.

Consumer BehaviorMethodologyPhoCusWright Consumer Travel TrendsSurvey Sixth EditionOnline travelers were identifiedthrough successive waves of ICR’sEXCEL Omnibus survey Sept. 4-Oct. 5,2003. Respondents indicated if theyhad: 1) personally taken a trip by com-mercial airline in the last 12 months,and 2) used a computer, either athome or at work, to connect to theInternet in the last month. A total of

504 interviews were conducted fromICR’s centralized telephone center. Theerror interval for the sample is +/-4.4% at the 95% confidence level.

Vacation Packages: A Consumer Trackingand Discovery Study, 2003In November 2003, PhoCusWright andVividence began a large-scale explo-ration into the online vacation plan-ning process. To conduct the research,Vividence recruited 1,500 Internetusers in various stages of vacationplanning. Travelers were asked to con-duct real-time Web research and makearrangements for an actual trip. Eachuser click and page view was capturedand analyzed.

Definitions

The travel industry needs to establishsome standard definitions around the sub-ject of packaging. In an effort to establishsome basic guidelines, the following defi-nitions are offered to help clarify tradi-tional industry classifications and capabil-ities within the package categories.

Traditional Fixed Packaging

There are four types of traditional fixedpackaging:

1. Package – A combination of two or moredifferent travel components, such as anairline flight with a hotel reservation,offered at a single price.

2. Tour Package – A package with the addi-tion of activities such as sightseeing ormeals, all offered at a single price; tradi-tionally inflexible in terms of scheduleand supplier.

3. Escorted Tours – A tour package con-ducted as a group, offered at a singleprice; itineraries are pre-determined andthe group is lead by a guide.


Page 1.2 ©2004 PhoCusWright Inc. and Travel Tech Consulting, Inc. All Rights Reserved.

4. FIT Travel – A combination of separatetravel components to form a manageditinerary at a single price, though theindividual component prices may ormay not be known; a FIT (FlexibleItinerary Travel, also known as ForeignIndependent Travel) was originally ahighly customized tour provided towealthy travelers, with itinerary and allother details managed by specializedtour staff or a travel agent.

“Static” Versus “Dynamic”Packaging

The term “dynamic packaging” is used bya variety of suppliers in different ways. Oncloser examination, the key capabilitiesthat separate dynamic packaging capabili-ties depend on how individual compo-nents and the overall package price change

based on business rules (see Table 1.1).

1. Static Packaging – A package with fixedcomponents defined by suppliers, forwhich component prices do not changebased on customer input or businessrules (itinerary dates may be flexible butthe component options are fixed).

2. Semi-Dynamic Packages – A static pack-age with swappable fixed components(i.e., the component prices do notchange based on customer input or busi-ness rules, but overall price may changebased on customer substitution of differ-ent fixed components, e.g., hotel orroom type, or activities). This package isdynamic in one sense as the price willchange based on customer choice ofindividual components, but static in thatthe individual component prices do notchange based on business rules.



Table 1.1 Types of Dynamic Packaging

Source: PhoCusWright Inc. and Travel Tech Consulting, Inc.

PACKAGE

Component

Business RulesEngine

NoBusiness Rules

EngineBusiness Rules

Engine

Component

Component

Component

Component Component

PACKAGE PACKAGE

Semi-DynamicPackaging

DynamicPricing

DynamicPackaging

Customer choice determinessubstitution of components,

affecting overall price

Business rules impact component price, affecting

overall price

Business rules impact component and package price

3. Dynamic Pricing – A package for whichthe overall price is affected by pricechanges in components based on busi-ness rules (e.g., the combination of pack-age elements, the value of the customerto the retailer, or the mark-up target ofthe intermediary).

4. Dynamic Packaging – A package forwhich the overall price and componentprices change based on business rules(e.g., the combination of package ele-ments, the value of the customer to thesupplier, packager or intermediary).

5. Opaque Pricing – The price of individualcomponents of the package is not dis-closed to the consumer.

6. Opaque Brand – The specific supplierbrand of package elements is not dis-closed to the consumer until after a pur-chase is made (e.g., products fromPriceline, Hotwire).

Key Findings

Most packaging consists of air with hoteland/or car. Attractions have been addedwith increasing frequency, representing amajor growth opportunity.All parts of the value chain are becomingpackage retailers.

A common platform is emerging toenable connections with multiplesources of supply and flexible pricingacross components.Dynamic packaging user interfaces are at a very early stage of development andwill dramatically change over the next18-24 months.Traditional tour operator software ven-dors are recasting and modifying theirsystems to support packaging for tradi-tional travel agencies and suppliers, combining a change in architecturaldesign and system functionality with arepositioning of the software as a solu-tion to multiple market segments.Electronic integration of multiple procurement sources is just starting; the process is led by progressive touroperator software vendors, new leisuredistribution platforms and the onlineagencies.Traditional tour operators face a mount-ing challenge from online retailers/wholesalers as they increasingly addfunctionality to enable complex vacationplanning.The ultimate goal of matching consumerpreferences and supplier distribution tar-gets remains elusive.



Size of the OnlinePackaging Market

In 2001, PhoCusWright stated that “sell-ing cruise and vacations online presents

both the greatest opportunity and thegreatest challenge for the travel industry.”Only a miniscule number of packageswere actually sold online, mostly static,pre-packaged tour operator products. Fast-forward to 2004, where the challengesremain but the opportunity has changedconsiderably. Online travel agencies areno longer selling travel packages as agentsfor tour operators. Over the last few years,the online agencies have largely eschewedthe partner model for travel packages,eyeing the bigger opportunity to bettercontrol margins and customer data bycontracting their own inventory andassembling their own packages.

Online travel agencies now represent 80%of all packages sold online, with touroperators selling the remaining 20%,according to PhoCusWright's Online TravelOverview: Market Size and Forecasts 2004-2006. In total, PhoCusWright estimatesthat $2.2 billion in packages were soldonline in 2003, a 14% share of all (onlineand offline) packaged travel sales (seeTable 2.1). By 2006, PhoCusWright proj-ects that online package sales will reach$10.3 billion, a 368% increase in threeyears. By that time, 13% of all air, car and

hotel sales booked online will be bookedas part of a package (see Table 2.1).

Table 2.1 U.S. Package Internet GrossBookings, 2002-2003 and Projected2004-2006 (US$M)

Why all the optimism?

Recent statistics from The PhoCusWrightConsumer Travel Trends Survey Sixth Edition(see Consumer Behavior Methodology, p. 1.2) show a steady increase in the num-ber of packages purchased online thatwere all-inclusive, from 3% in 1998 to a



Leisure Travel Technology: Selling Vacations Online

Section 2

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

20021,281 (4%) Packager Internet

& Share (%)

Total Leisure/Unmanaged Business Internet Travel2,217 (6%)

4,085 (8%)

6,737 (10%)

10,263 (13%)

78,472

65,957

52,771

39,357

28,710

2003

2004

2005

2006

Source: PhoCusWright's Online Travel Overview: Market Size andForecasts 2004-2006

projected 19% in 2006, while 24% ofrespondents said they put together theirown package (see Table 2.2). The vastmajority of online package purchases,however, are still a la carte.

Table 2.2 Online Travel Purchased by Segment,1998-2003

In addition, future interest in purchasinga package online is high. According to The PhoCusWright Consumer Travel TrendsSurvey Sixth Edition, 59% of online travel-ers are interested in purchasing a packageonline in the future, though actual pur-chasing behavior is low (see Table 2.3).

The Challenge of SellingComplex ComponentsOnlineEarly users of the Web simply purchasedindividual components for air, hotel andcar reservations. The appearance of mer-chant rate hotels in the late 1990s sig-naled a new era of opaque pricing andushered in the online retailer/wholesaler

model. In 2001-2003, the growth of mer-chant rate hotel inventory coincided withan economic downturn that fueled thevolume of inventory put into this chan-nel. Around this time, the industry firstbegan using the phrase “dynamic packag-ing” to describe the assembly of travelcomponents online to be delivered for asingle price. Most online dynamic pack-ages today still consist of simple multi-component itineraries (air, hotel and/orcar rental). Recently, some sites haveadded activities such as sightseeing,attraction passes and event tickets.

Adding activities to basic multi-compo-nent packaging represents a tremendousgrowth opportunity for the online travelindustry. The ultimate goal of most sites isto capture the multi-city, internationaltype of dynamic package, but given thecurrent state of technology and adoption,the ability to fully automate this complextravel planning process will be limited forsome time. Table 2.4 illustrates this point,as the largest opportunity for dynamicpackaging lies in adding activities to themulti-component sale.



0

5

10

15

20

25

30

2002 2003200120001998 1999

3%

11% 11%

18%

24%

19%

16%

30%

Vacations, Tours, and All-Inclusive Packages

Air, Car and Hotel in Single Purchase (as of 2002)

Base: Online Travel BuyersSource: The PhoCusWright Consumer Travel Trends Survey SixthEdition

0 10 20 30 40 50 60

18% 2001

2003

51%59%

19%

PurchasedPackage Online

Past Year (1)

Future Interestin Purchasing

PackageOnline (2)

Base: (1) Online Travel Buyers, (2) Total Respondents;"Very/Somewhat Interested"Source: The PhoCusWright Consumer Travel Trends Survey SixthEdition

Table 2.3 Future Interest in Packages

Consumers DemandFlexibility

The PhoCusWright Consumer Travel TrendsSurvey Sixth Edition clearly shows thatmost consumers prefer creating their ownpackages over purchasing pre-packagedtours. According to the survey, nearlyone-fourth of all travelers who purchasedtravel online in the past year did so withsome type of air, car and/or hotel pack-age. The majority of these, 79%, made

their purchases by creating their ownpackage, while the rest bought the com-ponents prepackaged (see Table 2.5). Thisunderscores the importance of dynamicpackaging in directing what online travel-ers purchase through online agency andsupplier Web sites, as well as the perceivedvalue of creating a package versus pur-chasing a pre-packaged one.

Barriers to purchasing relate to the pack-age interface. According to thePhoCusWright/Vividence research,



Table 2.4 Opportunity by Level of Complexity

Source: PhoCusWright Inc. and Travel Tech Consulting Inc.

Simple Multi-Component

SIMPLE COMPLEX

Complex Components

Multi-Componentplus Activities

THEOPPORTUNITY

Supplier and online merchant driven.

Focus is on supplier-distressedinventory needs and

highly price sensitive consumer.

Still handled by travel agents using brochures that are generated from traditional tour operator

wholesale services.

Table 2.5 Type of Combination Package

Source: The PhoCusWright Consumer Travel Trends Survey Sixth Edition

24%79%

20%

1%

Bought Prepackaged Air, Car or Hotel Component (2)

Created Own Air, Car or Hotel Package (2)

Other, Don't Know (2)

Bought Any Typeof Air, Car or HotelCombination Travel (NET) (1)

(1) Respondents Who Purchased Travel Online, Past Year(2) Respondents WhoPurchased Any Combination Air/Car/Hotel in a Single PurchaseSource:

Vacation Packages: A Consumer Trackingand Discovery Study (2003), 73% of respon-dents said they would not consider pur-chasing a pre-packaged vacation becausepackages are too inflexible, while 68%simply thought they could get better pric-ing on their own (see Table 2.6).

These recent research reports clearlydemonstrate a strong desire among con-

sumers to customize vacation packagesonline. The gap between consumer desiresand behavior is partially due to the limita-tions that currently exist in dynamicpackaging technology. Section 4 of thisreport examines the technology ofdynamic packaging systems and exploresefforts to drive these systems to the nextlevel of functionality.



Table 2.6 Barriers to Purchasing Packages

Source: Vacation Packages: A Consumer Tracking and Discovery Study, 2003, PhoCusWright Inc. and Vividence Corp.

Packages are too inflexible

I can put together a better deal on my own

I want to be able to selectthe providers I use

Packages do not includethe amenities I am looking for

I want to use companies whereI am a rewards member

73%

68%

50%

32%

24%

0 10 20 30 40 50 60 70 80

Packaging, by its multi-componentnature, impacts nearly every travel seg-

ment. Traditional tour operators rely onconsumers’ interest in purchasing multi-ple components in a single product forthe benefits of convenience and/or lowerprice. For online travel agencies and sup-pliers, packaging represents an entirelynew opportunity. While the majority oftheir sales are single component, tech-nologies now allow them to cross-sell,upsell and create an entirely new market-place – introducing a new concept to con-sumers who may never have purchased apackage in the past.

The following discussion looks at theimpact of packaging on four segments:(see Table 3.1).

1. Traditional Tour Operators2. Traditional Travel Agencies3. Online Travel Agencies4. Suppliers

Traditional Tour Operators

The traditional owners of the wholesalepackage process face many challengeswith the growth of online dynamic pack-aging. In the U.S., the traditional touroperator industry is a highly fragmentedset of more than 1,600 individual compa-nies. These privately owned firms general-ly specialize in specific geographic desti-

nations and are often run by second- orthird-generation family members. Thetechnology used to manage the tour com-pany is usually based on mini-computersthat have been highly customized to meetthe company’s specific needs. In somecases, the original vendor for these sys-tems is no longer in business. The propri-etary nature of these legacy systems hasprevented many tour operators fromimplementing an effective e-commercestrategy. There are a number of thirdparty vendors that do provide the touroperator industry with more modern solu-tions to solve this dilemma, but with theindustry malaise of the past three years,only a few tour operators can afford theinvestment required to shift their entireoperation to a more open, flexible system.

Traditionally, these tour operators createstatic packages that are then published inbrochures used by the travel agency com-munity. Despite efforts by more progres-sive tour operators to automate the reser-vation process, the majority of interactionwith travel agencies continues to be con-ducted by telephone. Further blocking theimplementation of online solutions is thefact that many of the tour operator callcenter agents still utilize text-based inter-faces that lack the tools to handle Web-based transactions.

One of the most unproductive aspects ofthe traditional tour operator process is the



Packaging Impact by Segment

Section Three



Table 3.1 Segment Focus

Traditional Tour Operators Traditional Travel Agencies

Online Travel Agencies Suppliers

Strength: specialty destinationsTechnology: mini-computer systemsTop challenge: proprietary technologyStrategy: migrate to open systems, broaden choicesOutlook: many lack investmentcapacity to upgrade technology

Strength: control the experience

Technology: some embrace wholesale/retail model

Top challenge: capturing datafrom customer interaction

Strategy: target cruises and tours

Outlook: may lose more market asdynamic packaging matures

Strength: pioneered retailer/whole-saler conceptTechnology: online; implementingdirect supplier connections Top challenge: maximizing advantageStrategy: use packages to bolstermargins, volumeOutlook: ability to use mass andlocal media provides competitiveadvantage

Strength: control over product

Technology: online; launchingpackaging capabilities

Top challenge: retain control byinitiating package sales

Strategy: capture market, strengthen brand loyalty

Outlook: bundling activities (esp.for resort sector) is growth oppor-tunity

reliance on fax communications with sup-pliers. Historically, block space has beengiven to the tour operator that communi-cated the status of rooms sold to the hotelthrough a barrage of faxes. Though blockspace arrangements still remain, theindustry is moving away from this type ofallocation concept to more “free-sell”types of agreements. In a free-sell arrange-ment, the tour operator sells rooms basedon individual demand and then reportsthe sale to the hotel. Hotel managementcan shut off the supply of inventory forfuture sales, but current sales are honoredbased on this free-sell agreement. Theability for the hotel supplier to workthrough other channels, particularly usingdynamic packaging technology, is one fac-tor causing this shift.

Tour operators also historically lack richcustomer databases. With their relianceon travel agency distributors, tour opera-tors often don’t receive customer informa-tion until the vacation is booked. Theirinability to understand the buying behav-ior of customers puts them at a furtherdisadvantage as the new onlineretailer/wholesaler launches more sophis-ticated dynamic packaging technology.

Traditional Travel Agencies

Facing standard commission cuts, manytravel agencies have targeted cruises andtour packages as an important revenuestream, because these suppliers still paycommissions of 15-20%. It is important tonote that for the majority of vacationpackages, traditional travel agencies stillown the customer purchasing experience.When a customer interacts with a tradi-tional travel agent by telephone or in per-son, an active conversation unfolds. Here,the consumer's needs are expressed andthe experienced travel agent acts as a true

consultant, providing various options inthe form of packages or customized itiner-aries. Given the economic challenges ofthe last few years, often these recommen-dations are made for an ever-narrowingset of preferred suppliers, as travel agentslimit their recommendations to a shortlist of preferred vendors that pay highercommissions.

Unfortunately, most traditional travelagencies have no way to capture the keyelements of the vacation planning conver-sation with the consumer. The veryessence of this conversation is whatdynamic packaging technology is tryingto duplicate by tracking customer prefer-ences and providing flexible itineraryoptions via the Web. Like traditional trav-el agencies, online agencies also promotepreferred suppliers, but thanks to the scaleof these companies, the variety of supplierchoices is far greater. More progressivetravel agencies have recognized the needto move online and are embracing thenew wholesale/retail model, competingwith tour operators by negotiating theirown net inventory and using new leisuredistribution technologies to assemblepackages dynamically in the backroom orat the agent’s desktop. As dynamic pack-aging matures, traditional travel agencieswill continue to lose business to competi-tors that offer flexible online vacationplanning.

Online Travel Agencies

Online agencies have quickly embracedpackaging as a means to bolster marginsand increase volume. These companiesessentially pioneered the concept of thecombined retailer/wholesaler. The growthof the online merchant model corre-sponded to the economic downturn andexcess hotel supply, allowing the online





agencies to establish a broad range ofmerchant rates for use with dynamicpackages.

These companies are also implementingdirect connection technology to commu-nicate electronically with suppliers, elimi-nating the need for faxing. The ability ofthe online agency to promote dynamicpackaging through mass and local mediaadvertising is a strong competitive advan-tage. Online travel agencies are expectedto account for 83% of all U.S. onlinepackage sales in 2006.

Suppliers

Suppliers have traditionally offered vaca-tion packages marketed under their brandthat are outsourced and managed by athird party. The goal is to capture thelucrative vacation planning market whileensuring that the customer stays brandloyal.

In an effort to capitalize on the emergingdynamic packaging market, many suppli-ers have launched dynamic vacation plan-ning capabilities on their sites, eitherthrough private label agreements withonline travel agency systems (e.g.,Expedia’s WWTE or Travelocity’s Site59)

or by using technology from companiessuch as the Neat Group. Other vendorseither from the traditional tour operatorsoftware space (e.g., Accovia, FourthDimension Software) or Internet-baseddistribution arena (e.g., Datalex, EzRez),are actively pursing direct relationshipswith suppliers to help facilitate dynamicpackaging directly from the supplier Website or through an established distributionnetwork.

In the hospitality sector, the type of prod-uct offered can impact the value ofdynamic packaging. In fact, for hotelsthere is a full range of offerings for theconsumer, from the basic commodity-typehotel room to a full service resort.Packaging simple hotel inventory with air,car and activity components can help selldistressed or high demand inventoryopaquely. The resort sector is a bit differ-ent but can also benefit greatly fromdynamic packaging technology. Often,because resorts are in more remote loca-tions, the inclusion of air to bring cus-tomers to the property is necessary.Activities available at the resort may be anintegral part of the vacation experience,and are often an important source of rev-enue; thus selling dynamic packaging hasa core value to the resort segment.

Common TechnologicalThemes

Most tour operator technology has itsroots in mini-computer or client-serverarchitectures. All information was inputinto a central database that was used pri-marily to create static packages and powerthe call center. In today’s environment amore flexible, modular system is needed,with information captured from multiplesources and distributed to a variety offront-end systems. This modular approachutilizes the latest IT theories regardingservice-oriented architectures (SOAs).

SOAs are quickly becoming the standardapproach to travel system design. Service-oriented architecture is essentially a col-lection of services that communicate witheach other. The communication caninvolve either simple data-passing or itcould involve two or more services coor-dinating some activity. SOAs are not new.The first SOA used DCOM (DistributedComponent Object Model) or ObjectRequest Brokers (ORBs) based on theCORBA (Common Object Request BrokerArchitecture) specification. DCOM, devel-oped by Microsoft, is a protocol thatenables software components to commu-nicate directly over a network in a reli-able, secure and efficient manner. CORBAis an open, vendor-independent architec-ture and infrastructure that computer

applications use to work together overnetworks. In more recent years, Java or.NET have become the standard connec-tion technologies for SOAs. Java is a crossplatform language and architecture thatallows the creation of powerful, enter-prise-worthy programs that run in thebrowser, from the desktop, on a server, oron a consumer device, and .NET is a set ofsoftware technologies developed byMicrosoft for connecting information,people and systems. In a true SOA archi-tecture, the service must be a functionthat is well-defined, self-contained, anddoes not depend on the context or stateof other services.

The N-Tier InternetComputing Model

A common architecture for dynamic pack-aging is emerging across suppliers and cat-egories reflecting an N-tier computingmodel. N-tier architectures create a flexi-ble and reusable application. By separat-ing an application into tiers, developersonly have to modify or add a specificlayer, rather than rewrite the entire appli-cation for modifications. In the term "N-tier," "N" signifies any number of distincttiers used in the architecture (such as 2-tier or 4-tier). In our sample case, thereare three layers (see Table 4.1):



Technology Trends

Section Four

Procurement LayerBusiness Logic LayerPresentation Layer

Each layer plays a crucial role in access-ing, managing and presenting informa-tion for dynamic packaging capabilities.

Procurement Layer

At the heart of this emerging architectureis a multi-source procurement engine.Historically, tour operators used a data-base as the main source of inventory fortheir packaging systems, reflecting blockallocations from hotel suppliers. As sup-pliers change their business practices andmove away from blocked space, newersystems need to adapt and capture “justin time” inventory. True dynamic packag-ing enables individual inventory compo-nents to change based on business rules.

Suppliers want to maximize yields whileintermediaries want to achieve the high-est possible mark up on the total package.The emerging architecture for dynamicpackaging engines described here is ulti-mately designed to satisfy both supplierand consumer goals, while most systemsin place today have not achieved thesedual objectives. By assembling inventorydynamically, the price can fluctuate basedon pre-determined business rules. Thisgives more control to the supplier.

The seamless integration of multipleinventory sources represents an importantaggregation point for leisure travel distri-bution. Wholesalers or tour operatorshave always acted as aggregators of dis-parate inventory. The difference in theemerging dynamic packaging systems isthe ability to assemble inventory at thepoint of sale and alter the componentsbased on business rules that reflect the

goals of the supplier and ultimately thecustomer.

Connecting to Multiple Sources of Procurement

In standard computing terminology,enterprise application integration (EAI) isoften made easier by a set of standardsthat is used to connect disparate systems.In the travel industry, the Open TravelAlliance (OTA) has published ExtensibleMarkup Language (XML)-based schemasthat represent various parts of the traveltransaction. However, as in the case ofmany attempts at standardization, theschemas sometimes lack the necessarydetail to be utilized fully as a solution forall parts of the procurement challenge. Asa result, vendors often start with the stan-dard, but then customize it to meet theirspecific needs.

The emergence of Web Services standardsis also helping to drive some commonali-ty among solutions. It is important tonote that system integration requires thatboth ends of the connection provide anopen interface into the system’s function-ality. Unfortunately, many legacy travelsystems lack the ability to allow access toall system functionality despite the emer-gence of these new tools. While mostleisure distribution companies are embrac-ing XML and Web Services standards, thetypes of inventory sources targeteddepend on the vendor’s approach to themarket. Some vendors are only creatingprocurement interfaces based on specificcustomer needs, while others have a tar-geted strategy to automate all majorsources of procurement.

AIR

Integrating different types of air compo-nents has always represented a challenge





Presentation LayerPresentation Layer

Business Logic LayerBusiness Logic Layer

Procurement LayerProcurement Layer

WebInterface

TravelAgents

CallCenter

ChannelPartners

Business RulesEngine

XML Message Interface

Adaptors

SuperPNR

ProfileDatabaseCRM

EXTERNAL INVENTORY SOURCESINTERNAL

INVENTORY SOURCES

AIR

HO

TELCA

R/G

ROU

ND

ACTIVITIES/O

THER

Sabre Galileo

Pegasus WorldRes WizCom

Transfers

WSPN Amadeus CharterAirlineCRS

HotelCRS

HotelPMS

GroundTransport

AllocatedActivities

Free SellActivities

CarRental

CRS

Viator Cruise InsuranceActivitySystems

BlockedSpace

Pre-PackagedTours

AllocatedInventory

Via Extranet

PrivateFares

Ind.Fare

QuotingEngine

Table 4.1Emerging Common Architecture for Dynamic Packaging




to traditional tour operator systems. Insome severe cases it was not uncommonfor the tour operator to access air invento-ry from different systems and then manu-ally combine the results. GlobalDistribution Systems (GDSs) have tradi-tionally been the source for published airand block inventory, and charter invento-ry and negotiated rates were stored in thetour operator database. Comparing thesechoices in real-time has been a majorobstacle to efficiency for traditional touroperators. Automating this process is cru-cial for dynamic packaging systems. It isessential to apply business rules to theseinventory sources in order to obtain theoptimum price for a given itinerary.

The Department of Transportation (DOT)had sunset all rules regulating the GDSsafter July 31, 2004. As a result, accessing asingle GDS may not provide completeaccess to inventory. With GDS deregula-tion, suppliers are free to distribute inven-tory in any way they choose, and thusmay not house the same level of invento-ry in all four GDSs or may opt for a directconnection strategy. More progressivesolutions can access multiple GDSs andcombine the results in a single Super PNR(passenger name record) that exists out-side the GDS and reflects all itinerary ele-ments.

Newer solutions that have recently beenbrought to the market, such as Accovia’sDynamic Pricing Air Solution, utilize thirdparty faring technology from ITA Softwareto calculate the best airfare from internaland external sources. ITA Softwarereceives a feed directly from the AirlineTariff Reporting Corporation, whichincludes all rules for published and nego-tiated fares. The system allows for unlim-ited combinations, prices the itineraryand checks the fare rules and availabilityin one call. Contracted fares are also

loaded directly into the Accovia databaseand incorporated into the fare-quotingprocess. Queries to the faring engine areconstructed dynamically for each request,ensuring that the latest rules are alwaysconsidered. This integrated faring- andrules-based approach to the air compo-nent of dynamic packaging is essential todeliver the flexible solution needed by thesupplier and the consumer.

HOTEL & LODGING

The online merchant model has revolu-tionized hotel distribution, much to thechagrin of many hotels. Supplying whole-salers with net rate inventory has beenstandard practice for many years. Theterm “merchant model” refers to the clas-sic business practice whereby a retailer orwholesaler acquires inventory at a net rateand then marks up that inventory for saleto the public or through another channel.The Internet has accelerated the collapseof the traditional wholesale/retail distinc-tion. The new combined wholesaler/retail-er sells the net rate inventory directly tothe public.

During the economic downturn, hotelsembraced the merchant model, distribut-ing significant volumes of net rate inven-tory through various online sources.Often these merchant sites offered lowerrates than the branded supplier sites whileprofiting from mark ups as high as 30%.This has caused many hotels to pull backon these third party merchant deals.

In an effort to gain control over merchantinventory, the major hotel chains haveimplemented price guarantees for reserva-tions made on their Web sites. Dynamicpackaging technology represents a newwrinkle in the battle for rate integrity. Byits nature the components of a packageare opaque and thus hotels have more



flexibility in discounting their rates with-out cannibalizing other market segments.The improving economy and resultingincreased demand for hotels is changingthe merchant model, reducing marginsfor the online agencies.

The growth of dynamic packaging sys-tems has spawned a new way to sell per-ishable hotel inventory. The historic,highly inefficient process of reportingsales via fax to the hotel supplier is beingreplaced by new direct connection tech-nology that taps into a hotel’s centralreservation system (CRS) or property man-agement system (PMS). Connectionsthrough switches or aggregators such asPegasus, WizCom and WorldRes representother options for the establishment ofelectronic connectivity for hotel procure-ment in new dynamic packaging plat-forms. Pegasus recently introducedPegsTour, a new service designed to auto-mate bookings by wholesalers and touroperators for their allocation-based hotelinventory and extra-inventory requests.PegsTour automates key booking processesin the wholesale market by enabling anelectronic interface for operators and theirsystem providers that connects them tomultiple hotel CRSs.

Online agencies use extranet interfaces toallow hotels to allocate inventory. Thisallocation is then stored in the agencies’internal systems. Unfortunately, this typeof connectivity does not allow the hotelto control inventory through traditionalyield management systems that reside atthe CRS or PMS level. Third party soft-ware from a variety of vendors is nowavailable that enables hotels to manageinventory through various channels, andsome of these applications do providedirect interfaces to hotel systems.

CAR RENTAL AND GROUNDTRANSPORTATION

Car rental inventory can be accessedthrough the GDSs or a direct connectionto rental car CRSs. Ground transportationhas traditionally been handled throughfax communication. Few companies havesystems that enable pure electronic com-munication for procurement of transfersand other ground arrangements. To sellground transportation, most wholesalerscreate inventory within their internaldatabases to enable the sale of transferson an as-needed basis as part of a dynam-ic package. This provides the wholesalerwith the ability to include ground trans-fers as part of the itinerary. The complet-ed reservations are then faxed or emailedto the ground transportation supplier.

ACTIVITIES

Adding activities such as attractions, watersports, tours and show tickets representsthe most significant growth opportunityfor dynamic packaging on the Web.Developing electronic connectivity to theseprocurement sources is not a simple task,as many service providers (often small,independent operators) lack the open sys-tems to enable real-time electronic com-merce. In the traditional tour operatormodel these activities are loaded into inter-nal systems on an allocated or free-sell basis.

Online travel agencies have developedtheir own databases of activities and/orwork with companies such as Viator (seeCompany Spotlight, page 4.6) for access.These activities are sold on a free-sellbasis with the exception of specific tick-ets for shows or sporting events, whichmay be provided on a limited allocationbasis. In the case of a free-sell arrange-ment, reporting has often shifted fromfax to email, an improved but not trueconnectivity solution.



Company Spotlight: Viator

History and Company BackgroundViator initially focused on deliveringWeb design and hosting services to trav-el industry clients in the Australian mar-ket. In 1999, the company entered theU.S. market via a partnership with Sabreto deliver technology services and desti-nation travel product to its 42,000agency users.

Viator seamlessly incorporates activitiesinto existing dynamic packaging sys-tems, using its consolidated database ofactivities worldwide. The company hasintroduced its own dynamic packagingplug-in enabling travel sellers to inte-grate activities into their own dynamicpackaging systems.

Product OfferingsThe company’s plug-in product allowspartners to include a wide range ofactivities in their booking path. Theactivities are offered to the partners atnet rates, which they can mark up inthe same way they mark up hotels.Viator’s business logic is set around theusage rules of the activities it helps dis-tribute. For example, if a tour requiresspecific payment terms, this can auto-matically be included as part of thereservation process.

The plug-in module takes the form of aReference Implementation (a series ofJava classes delivered as license-freesource code) that the distribution part-ner generally uses as a starting point forintegration into its own dynamic pack-aging system. In most cases, Viator’spartners have modified the ReferenceImplementation significantly to reflecttheir own needs and designs.

Business Logic Layer

The most critical part of the dynamicpackaging engine is the business logiclayer. A key differentiator among systemsis when and at what level business rulesare applied to each individual componentand the overall package. Basic static pack-ages combine fixed prices for componentsand are pre-assembled. It is within thefunctionality of semi-dynamic vs. truedynamic packages that business rulesapplication differs greatly.

If the supplier provides a merchant rate toan online or offline intermediary and thatrate does not change based on businessrules, the resulting package is actuallysemi-dynamic. Granted the overall price ofthe package may change due to inclusionor exclusion of components, or changes indates, but if the supplier inventoryremains static, these changes will onlyreflect a new mixture of set componentpricing or vendor mark-up rules.

Component pricing is a critical aspect oftrue dynamic packaging. By providingstatic net merchant rates (generally at dif-ferent pricing levels), suppliers relinquishcontrol over their inventory. In this envi-ronment, at best a supplier can onlychange the amount and mix of inventorythrough this channel, but has little con-trol over how the inventory is used. Truedynamic packaging systems should givethe supplier the ability to dynamicallyfeed inventory to the package at the pointof package creation. Suppliers need accessto business rules and logic which allowthem to define prices based on packagevariables. Ideally, dynamic package cre-ation would combine customer relation-ship management (CRM) informationinto the process so that the value of thecustomer to the supplier could also be



weighed as a factor in what is offered andat what price.

Currently no system provides true CRMcapability. Due to continued complaintsabout inequities in the merchant model,online intermediaries have recast them-selves as being “supplier friendly,” oftendelivering brand new customers based ontheir growing position in the market.However, unless online intermediaries canprovide the level of flexibly to allow sup-pliers to dynamically price their inventorybased on business rules rather than setmerchant rates, they will never reach truesupplier friendliness.

Dynamic Business Rules –Maximizing Value for EachComponent

AIR

Airlines pioneered the concept of yieldmanagement, using systems designed tomaximize yield on individual flights.These systems are based on a supply-driv-en perspective on profitability rather thana true demand-driven process. Dynamicpackaging engines provide new opportu-nities and new challenges to airline sup-pliers. As airlines move away from allocat-ed block inventory, it becomes necessaryto balance the price of a seat within thecontext of the total value of the customerand package. To achieve this, airline sup-pliers need to dynamically price a givenseat during the purchasing process.

Some dynamic packaging systems providerules-based capabilities that do allow theairline to alter a given price based on therelationship between components andtype of package being created. However,most of these are not connected to theyield management software used by the

airline, thus representing a function out-side of normal pricing strategies.

In traditional static tour packages, flightselection is generally limited, often result-ing in traveler frustration. This violates abasic tenet of CRM – that a preferred cus-tomer is treated the same way at everytouch point. There is a danger that thissame frustration is carried forth to theworld of dynamic packaging, adding toconsumer dissatisfaction. Airlines have awealth of knowledge on customer valuein their frequent flyer databases, and it isimportant to integrate that informationinto dynamic packaging systems. Severalvendors are looking at this problem, butit is unlikely this type of tight integrationwill be introduced within the next 12-18months.

Another new development would allowthe consumer to redeem frequent flyerpoints within the context of a dynamicpackaging product. Obviously this type offunctionality would only be availablethrough airline sites directly, but does rep-resent a significant advancement indynamic packaging technology. The inte-gration of frequent flyer status as an ele-ment to influence dynamic packaging sys-tems is dependent on the ability of theairlines to deploy Web Services-basedinterfaces to their frequent flyer databas-es. Look for this type of functionality toappear sometime over the next 18-24months from various vendors.

Dynamic packaging represents a new para-digm for vacation planning; it is not apassing fad. The need for airlines to applybusiness logic that is gleaned from internalyield management systems and customerinformation is an essential part of the evo-lution of dynamic packaging systems.



HOTEL

Hotels were the next major segment toembrace yield management technology.The hotel industry has long suffered froma set of disparate, distributed systems thatdo not integrate with each other. Moreprogressive hotel chains have or areimplementing the concept of single imageinventory in an attempt to correct thisnatural conflict between property-basedsystems and the hotel’s CRS. Without thiscapability, a hotel cannot take full advan-tage of dynamic packaging. Like the air-lines, hotels need to integrate frequentguest information into the process toreflect a dynamic package that respectsthe true value of the customer. Hotelsneed to move away from a set of staticmerchant rates to a dynamic pricing capa-bility that is integrated with internal yieldmanagement systems and frequent guestdatabases. Most yield management sys-tems maximize hotel revenue based ondemand, not individual customer value.With the deployment of dynamic packag-ing systems on their Web sites and withthe integration of frequent guest databas-es, hotels have an opportunity to price agiven package based on the overall valueof the customer. This individualized pric-ing approach provides hotels with a newway to compete with online travel whole-salers/retailers.

CAR AND GROUND TRANSPORTATION

Car rental and ground transportationhave generally represented secondaryservices to the vacation planning process.Upon more careful analysis, it becomesclear that ground transportation can sig-nificantly impact the vacation experience.A traveler’s trip to the hotel can signal thestart of a great experience or trigger anunpleasant first impression. From a CRMperspective, the customer should be pro-vided ground transportation that reflects

his or her value to supplier and interme-diary. Offering the right ground trans-portation to the consumer during thedynamic packaging process requires inte-gration with car rental and ground trans-fer systems.

Car rental system integration is likely tobe available first, and as with the airlineand hotel segments, the process shouldconsider the value of the customer to thesupplier. Car rental companies need to beable to offer upgrades and amenities tothe customer during the dynamic plan-ning process. For the foreseeable future,ground transfers will be offered from theinternal inventory system. Intermediarieshave an opportunity to offer enhancedground transportation options based onthe value of the package and customer,but this requires complex business rulesto be associated with the ground trans-portation component.

ACTIVITIES

As dynamic packaging systems continueto expand the number of activity options,these add-on vacation elements also needto be controlled by business rules andinfluenced by customer preferences. Anintuitive dynamic packaging system thatoffers, for example, family-oriented activi-ties reflecting the needs of that customersegment is one obvious approach, but col-lecting this information may present achallenge.

Different techniques and software toolshave been deployed over the years toallow consumers to specify their prefer-ences in the travel planning process.Finding the right balance between solicit-ing personal information and enabling anefficient travel planning process hasalways represented a difficult challenge.Online agencies that ask the consumer upfront to specify who is traveling are able



to capture some of this information. Thisis a first step in the process, as it doesenable the agencies to offer appropriateactivities based on this data.

Presentation Layer

The area that will show the most dramaticimprovement and change over the next12-18 months is the way dynamic pack-ages will be presented to the consumer.User interface design can be inhibited bythe underlying procurement sources aswell as the business logic layer. The verynature of the Web itself also prohibits thetype of common operations that arefound in desktop applications (e.g., dragand drop).

Many of the software vendors that aresupplying the underlying technology fordynamic packaging engines have opted toprovide an open-ended programminginterface, offering individual companiesthe ability to create a customized userinterface. Most also have an option to usean interface of their own design.

Companies that offer private label ver-sions of their packaging systems generallyprovide a standard interface that allowscustomized logos but not altered bookingflows. The major online agencies havedeployed dynamic packaging that is inte-grated into their overall site design andworkflow. For example, Orbitz offers avacation planning matrix display thatresembles its popular shopping matrix forsingle itinerary elements. Expedia’sdynamic packaging engine shares familiarelements for selecting air, hotel and carseparately.

CUSTOMIZED INTERFACES

Vacation packaging technology is at theinfant stage of development. The level of

frustration voiced by consumers is directlyrelated to the lack of flexibility and con-trol of many dynamic packaging systems.Underlying most online travel design isthe lofty goal of emulating the offlineexperience with a seasoned travel coun-selor. Unfortunately, most systems lackthe interactive give-and-take response ofhuman interaction. Over the last fewyears, some smaller companies (e.g.,TripleHop, VacationCoach) have broughtto market interfaces that have tried to uti-lize interactive preference techniques, butthese companies have not been widelysuccessful. Some supplier sites haveembraced preference- and content-match-ing technologies from firms such asBroadVision or ATG Software. It is logicalto predict that a number of innovationswill be introduced in the next two yearsto move the industry to a more customer-centric vacation planning process.

PERSONAL PREFERENCE PROFILING

There is a basic conflict that existsbetween collecting personal preferencesand protecting the privacy of individualconsumers. Despite this, the collection ofpersonal preferences by both explicit andimplicit means is becoming part of thefabric of Internet commerce. The willing-ness of the travel consumer to go behindsimple vendor loyalty identification toshare specific preferences with a travelvendor or intermediary is directly relatedto three factors: 1) the ease of use of sup-plying this information, 2) the trust theconsumer has that the information willbe kept private and not misused, and 3)the value derived by delivering this infor-mation.

Most major travel Web sites (intermedi-aries and suppliers) already use sophisti-cated analytics to understand their cus-tomer behavior. Bringing this knowledgeinto the dynamic packaging process will

be subtle at first but grow as more value isderived from preferences that are provid-ed by or inferred from consumer interac-tion.

Search Technology

Search technology is a staple of Internetcommerce. Despite this fact, no compre-hensive comparative shopping engine hasbeen deployed that compares packagesacross vendor sites. According to thePhoCusWright/Vividence research, half ofall vacation-planning consumers searchthe Web an average of five times beforebooking. Dynamic packaging technologyallows the consumer to evaluate and com-pare multiple vendor properties and flightoptions within a given site, but does notaddress the over-arching need to simulta-neously compare the offerings across thesites. Traditional search engine providers(e.g, Google, Yahoo!) certainly are wellaware of this opportunity and are workingon search capabilities to address this need.Former executives from Travelocity,Expedia and Orbitz have formed a newcompany called Kayak that is focused ontravel search and may provide some tech-nology for comparative shopping ofdynamic packages across sites. The majorchallenge for any of these cross-site searchinitiatives is the ability to properly evalu-ate similar package elements within a sin-gle search, a daunting task consideringhow different sites assemble their dynam-ic packaging offerings.

Interaction with CRM Systems

Another immediate change to dynamicpackaging interfaces will come whenthese systems are more tightly integratedwith existing CRM technology. Companieshave invested in systems and processes tomeasure the value of each customer andprovide personalized service at all touch-

points. The value of the customer shouldultimately be taken into account as partof a dynamic package, helping to drivemore customer-tailored package choices.Existing databases (frequent flyer/guest)and applications (e.g., Siebel) need to beintegrated into dynamic packaging tomore closely align package offerings withcustomer value. This trend may ultimatelylead to travel specific pricing for a ven-dor’s best customers. Using CRM tech-niques within dynamic packaging will bea key emerging battleground between sup-plier and intermediary as each positionsits brand to be the dominant consumerchoice.

Table 4.2 describes the current focus ofthe various parts of the dynamic packag-ing value chain:

Consumers are looking for control andflexibility integrating multiple sources ofsupply. Ultimately consumers want to beprovided with a customized solutionthat delivers a combined vacation pack-age at a lower price than the individualcomponents. Intermediaries want to maximize theirmerchant mark up rate while supportingthe needs of their preferred suppliers.Ultimately these firms are very con-sumer-focused and want to satisfy theircustomers’ needs by offering a compre-hensive set of inventory choices.Suppliers want to offer opaque pricing,but still be able to control that pricedynamically based on defined rules. Anultimate goal is to integrate dynamicpackaging with inventory managementsystems so that package inventory isincluded in overall inventory manage-ment goals.

In addition, integration of dynamic pack-aging systems with CRM systems would





allow suppliers to better understand cus-tomer requirements, and ultimately todynamically alter offers based on thevalue of a given customer. A number oftraditional tour operator software pack-

ages as well as newer Internet-based distri-bution platforms are enabling suppliers tooffer dynamic packaging directly fromtheir Web sites.

Table 4.2Value Chain Focus

Source: PhoCusWright Inc and Travel Tech Consulting, Inc.

CONSUMER SUPPLIERSINTERMEDIARIES

OPPORTUNITY• Understand customer requirements• Provide offers based on the value

of the customer

Enabling Direct SupplierDynamic Packaging Solutions

• Flexibility and control• Multi-source integration• Customization• Lower overall price

• Maximize merchant mark up• Support preferred vendors• Satisfy consumers’ needs• Offer comprehensive inventory

• Dynamic pricing• Opaque prices• Rules definition• Dynamic inventory management

Emerging TechnologyTrends

In general, travel software developmentfollows overall technology trends. Forexample, emerging technologies such as

Web Services are playing critical roles inthe way dynamic packaging systemsaccess multiple sources of supply, inter-face business rules with traditional yieldmanagement techniques, and provide anopen-ended presentation layer to allowintegration with other applications.

The Impact of XML and WebServices Technology

The term Web Services describes a stan-dardized way of integrating applicationsusing the Extensible Markup Language(XML), Simple Object Access Protocol(SOAP), Web Services DescriptionLanguage (WSDL) and UniversalDescription, Discovery and Integration(UDDI) open standards over an Internetprotocol backbone. Most systems don’t

share information, either internally orexternally with trading partners, on a real-time basis. This lack of connectivity leadsto “one-off” integration solutions thatupload and download informationbetween systems. By adopting a standard-ized approach through the use of WebServices protocols, systems can “serve”information to other systems both inter-nally and externally. The Internet todaycontains “human readable” Web sites pro-viding content and e-commerce functions



Company Spotlight: OpenJaw Technologies Ltd.“Web Services technology and the adoption ofXML standards will change the face of traveldistribution over the next few years, by sim-plifying and standardizing connections tosuppliers. As these technologies use theInternet for communication, one data connec-tion can be used to connect to all partners.Adoption of the industry standards by travelsuppliers will reduce the need for custom soft-ware development.” – John Lambe, ChiefTechnology Officer, OpenJawTechnologies Ltd. – from OpenJawTechnologies white paper, How WebServices and XML Will Change TravelDistribution

History and Company Background OpenJaw Technologies Ltd. is a privatelyheld travel technology company based inDublin, Ireland. OpenJaw was founded inMarch 2002 by John McQuillan, JohnLambe and Seán MacRoibeáird to developthe next generation of technology fortravel distribution based on XML andWeb Services standards.

Product Offerings OpenJaw’s first product is calledxDistributor, a middleware platform that

connects to multiple suppliers and aggre-gates the content into a single consolidat-ed response. The system effectively makesmultiple suppliers look like a single sup-plier. Part of the middleware platform is arules engine that enables business expertsto create the parameters for the applica-tion (e.g., which suppliers are selectedbased on specific channel or productrequirements). The platform can workwith different XML-based schemas andthen standardizes the information into acommon OTA-compliant format.

OpenJaw operates on a software licensingmodel and therefore develops connec-tions based on specific customer require-ments. The company has usedxDistributor to connect to three hotelsuppliers, four car rental companies, allfour major GDSs as well as other Websites. OpenJaw is currently in discussionswith clients to apply its xDistributor tech-nology to dynamic packaging to helpaggregate information from multiple sup-pliers and translate that into a singleresponse. xDistributor can take a singlemessage that has multiple componentsand split that into individual messages toair, hotel, and car suppliers, and thenaggregate the responses into a single mes-sage for the end consumer.

that are largely unintelligible to computerclients. This makes it extremely difficult toautomate standard processes such aschecking multiple travel Web sites for thebest deal, or multiple hotel Web sites for aroom in a particular city. Web Services areplaying a critical role in solving this prob-lem. Standardization also will have amajor impact as more companies embraceOTA schemas. Recently, Accovia submittedan XML schema for dynamic packaginghoping to further standardize the process.

Application SyndicationTechnology

Syndication techniques have been part ofthe Web since the mid-1990s. In fact, the

idea of syndicating travel content to part-ner sites has been part of many successfulbusinesses, including Hotels.com andLodging.com. The concept of syndicatingapplications is a bit more complex andhas had limited success. Most often aplug-in is deployed which brings the stan-dard booking interface in a private labelformat to partner sites, such as Yahoo!Travel’s partnership with Travelocity orExpedia’s World Wide Travel Exchange(WWTE) program. In these two examples,dynamic packaging is enabled as a subsetof the normal functionality found at theparent sites. With these types of privatelabel implementations, integration intothe normal booking process of a site isnot possible. For example, JetBlue’s imple-mentation of WWTE requires a separate



Company Spotlight: Bowstreet Inc.

History and Company BackgroundBowstreet Inc. is a Tewksbury, MA, firmthat specializes in tools for rapid creationof dynamic Web applications. The com-pany has been a pioneer of Web Servicesand uses a factory metaphor to applystandard production techniques for thequick creation of dynamic Web contentand applications. Bowstreet has devel-oped a technology that automates theprocess by which service providers dis-tribute customized products and services.In Europe, Opodo uses Bowstreet technol-ogy to customize services from the hotels,airlines and car rental agencies as well asmanage content to partner sites.

Product Offerings Bowstreet’s Syndication Factory (BSF)enables companies to seamlessly embedhighly customized services into partners’

Web sites in a cost effective, scalablemanner. For the travel industry, BSF is atool that can aggregate inventory frommultiple sources, dynamically configurecontent into customized products, andthen deliver it across multiple channelpartners in a highly personalized way. Itis not a dynamic packaging engine, but itcan help suppliers seamlessly integrateapplication content from partners to pro-vide a more comprehensive product offer-ing on their site.

The technology also can be used to dis-tribute existing applications to partnersites. For example, hotels could use BSFto distribute their booking capabilities toonline distributors, syndication partnerssuch as local media outlets or directly toconsumers. The technology could also beused to enable hotels to create (or aug-ment) sub-sites for individual properties.The system has a Web interface thatallows business owners to manage con-tent creation and distribution.

user name and password. Application syn-dication technology could enable a moreintegrated dynamic packaging environ-ment by integrating application contentfrom disparate systems into a single book-ing process.

Rich Internet Applications

With the advent of Web-based comput-ing, desktop functionality actually took astep back from the enhanced capabilitiesavailable in client server applications.Common desktop functions such as “dragand drop” were not available through theWeb browser, limiting the way user inter-faces could be developed. Rich InternetApplications (RIAs) are emerging to offerboth the benefits of distributed, server-based functionality and a rich interfaceand the interaction capabilities of desktopapplications. Macromedia, Inc. has posi-toned its Flash product beyond simpleWeb animation to act as a platform toenable the creation of RIAs. An RIA site

provides functionality to interact withand manipulate data, rather than simplyvisualize or present it. RIAs may play akey role in the advancement of dynamicpackaging interfaces by allowing con-sumers to book a combination of productssuch as hotels and activities on a singlescreen, thus simplifying the bookingprocess. Macromedia earlier this yearintroduced Flex, a new platform for RIAdevelopment. Flex language, MXML, issimilar to HTML but provides a richer,more powerful model than HTML. MXMLallows programs to use familiar languageto create Rich Internet Applications.Another pioneering company in this areais Laszlo Systems, which has developed anXML-native platform that enables compa-nies to rapidly build RIAs. The companyhas a particularly strong focus on the trav-el industry. Because the Laszlo platform isstandards-based, it enables companies toleverage existing developer skill sets andinvestments to create RIAs and enhanceuser experiences.



Dynamic packaging companies aregrouped into three categories:

1. Traditional tour operator software vendors

2. Internet-based leisure travel distributionplatform vendors

3.Online travel agencies

This categorization is a reflection of the

roots of the companies, rather than acommentary on the state of their develop-ment. It is important to note that thecommon emerging technological architec-ture discussed earlier in this report isbeing adopted by all three segments.

Table 5.1 illustrates how dynamic packag-ing systems have evolved from their rootsand are converging on a common market



Market Overview

Section 5

Table 5.1Dynamic Packaging Categories


SUPPLY DISTRIBUTION RETAIL

Traditional Travel AgenciesTraditional

Tour Operators

ACTIVITIES

HOTEL

AIRLINE

CAR RENTAL

OnlineAgencies

Traditional PackagingSoftware

Internal Development

Dynamic PackagingSoftware

Leisure DistributionPlatforms

position. Historically, hotels, airlines andcar rental companies have provided netrate inventory to traditional tour opera-tors. These wholesalers used internal pack-aging software to create static packagespublished in brochures and sold by tradi-tional travel agencies. Online agenciesdeveloped their own dynamic packagingsystems while new leisure distributionplatforms emerged to offer dynamic pack-aging capabilities directly to suppliers.

The three categories overlap as more pro-gressive traditional tour operator softwarevendors evolve their systems into Internetdistribution platforms offering dynamicpackaging capabilities to tour operators,suppliers and traditional travel agencies.

Table 5.2 outlines the features of the sys-tems used by 10 vendors and onlineretailers/wholesalers that offer dynamicpackaging technology.



Table 5.2Partial Overview of Dynamic Packaging Vendors

Technology Providers

TRADITIONAL TOUR OPERATOR

SOFTWARE VENDORS

ACCOVIA TO S, TA Std/CusFOURTH DIMENSION TO TA, S CusDISCOVERY TRAVEL S TO Cus

INTERNET-BASED DISTRIBUTION

SOLUTIONS

DATALEX S TO, TA CusEZREZ S TO, TA StdTHE NEAT GROUP S TA Std

ONLINE TRAVEL AGENCIES

EXPEDIA OTA S CusORBITZ OTA S CusNLG OTA S CusTRAVELOCITY OTA S Cus

Lice

nse

Soft

war

e

ASP

Maj

or F

ocus

Seco

ndar

y Fo

cus

Sepa

rate

Air

Mod

ule

Call

Cent

er P

OS

Pres

enta

tion

Laye

r

Priv

ate

Labe

l

Mul

tiple

GD

S

Supp

lier

Net

wor

k

Indicates service provided.indicates partial servicesdoes not provide this functionality or service

Licensed Software – Licenses software to be operated by client atclient’s location

ASP – Provides an application service provider arrangement wherevendor hosts software and provides Web interface for client

Major Focus/Secondary Focus – OTA = Online Travel Agency; TA =Traditional Travel Agents; TO = Tour Operators; S = Suppliers

Separate Air Module – Sells a separate standalone module to han-dle published, charter and negotiated air

Call Center POS – Provides a desktop application for the call centeragent

Presentation Layer – Vendor provides a standard (STD) or custom(CUS) presentation for the consumer

Private Label – Vendor offers private labelMultiple GDS – Offers multiple GDS connectivitySupplier Network – Provides net rate content from other suppliers

that can be used to design dynamic packages


Traditional Tour OperatorSoftware Vendors

History and Background

Tour operator software has powered vaca-tion package creation for the last 20 years.Often these systems were built for specifictour operators and then adapted for gener-al market use. There are hundreds of sup-pliers of tour operator software worldwide.

Market Challenges andOpportunities

Traditional tour operator software vendorsface a number of challenges and opportu-nities in the emerging market for dynamicpackaging engines. Tour operators areunder attack by the new online retail/wholesale market, and the true impact ofthis threat is only beginning to be felt.High profile public failures, such as therecent bankruptcy of Far & Wide, demon-strate the financial strain on this segmentover the last few years. A large number ofU.S.-based tour operators are small, fami-ly-owned businesses lacking the financialresources to deploy new systems. Atinera,the joint venture of Amadeus and FourthDimension Software, was an attempt toprovide an application service provider(ASP) model for tour operators, but thefailure of this company is another sign oftough times for the market segment.

As the economy improves, the larger,more profitable tour operators will beimplementing new systems. The moreprogressive tour operator software vendorshave already recognized the opportunityin the expanding market and are activelytalking with large travel agencies and sup-pliers about adapting their software tomeet the market need for dynamic pack-aging engines.

Architectural Focus

Vendors with software that still operateson mini-computers need to open these sys-tems to bring true dynamic packaging tothe consumer and travel agent. One strate-gy often followed is to create a Web data-base overlay over the legacy system. Thisapproach creates an XML communicationlayer between the legacy mini-computerand a relational database. The synchroniza-tion of the two systems is usually in a nearreal-time fashion. An e-commerce front-end is then placed on top of this relationaldatabase, allowing the system to beaccessed by consumers and travel agencies.

Since this approach relies on the mini-com-puter platform as its engine, functionalitymay be limited by the capabilities of thelegacy system. For example, if the systeminherently has problems with combiningpublished, negotiated and charter air inven-tory, this type of functionality may be lack-ing in the consumer or travel agency inter-face. This approach may also lack the stabil-ity and robust requirements to supportdirect online consumer transactions.

A more dramatic architectural change thathas been implemented by some of the lead-ing traditional tour operator software ven-dors takes a more holistic approach to theproblem. These systems have acknowledgedthat the legacy environment does providesome value as a source of inventory, buthave shifted their development efforts tocreate a set of independent modules thatare dedicated to the N-tier computer struc-ture – procurement, business logic and pres-entation layers. These vendors are recogniz-ing the larger market opportunity and areselling components to various segments tosolve specific problems, such as completeair systems that price the itinerary andcheck the fare rules and availability all inone call, independent of a single GDS.



Company Spotlight: Accovia Inc.“Everyone who currently talks about dynamicpackaging is really stating a business problemthat is related to dynamic pricing, not pack-aging. It is the dynamic price they are after.”– Daniel Parayre, Director, ProductStrategy, Accovia Inc.

History and Company Background Accovia Inc. is a privately held Canadiancompany that was founded in 1985. Itsmain market focus has been in the U.S.,Canada and France but its systems areinstalled in eight countries and in threelanguages (English, French and Spanish)for over 40 customers. The company hasapproximately 160 employees and C$23million in annual sales.

Company Perspective and FocusAccovia believes there are three modelsfor providing a travel packaging solution:outsource everything, access technologyfrom a provider with merchant deals, oracquire the technology. The first twooptions involve faster implementationtimes and lower integration costs, butoutsourcing limits revenue potential andusing an established channel requiressharing margins. Accovia offers the thirdsolution, licensing software to operate thepackaging system.

Accovia believes that the online retailer/wholesaler and traditional tour operatorsegments are on a collision course.

Accovia is currently working with twotypes of customers:

1. Traditional tour operators “who get it” –Many tour operators are not in a posi-tion to change their legacy systems, but

are talking to Accovia about specificmodules. Accovia’s Web Services andcomponent-based framework approachallows greater flexibility in implement-ing independent modules to meet a touroperator’s specific requirements. The aircomponent can be based on GDS or ITASoftware for availability and pricing andon a GDS or Navitaire DirectNet forbooking and ticketing. Some customersare buying the Accovia multi-channelfront-end selling system which enablesdynamic packaging functionality.

2. New prospects – The airlines, hotels, desti-nations and resorts, and the travel agen-cies and/or consortiums large enough tohave negotiated deals are all fertileground. Airlines and hotels like theopacity for both distressed and highdemand inventory. These suppliers rec-ognize the need to develop more directdynamic packaging capabilities and haveopted to be their own packager ratherthan outsource this function.

Company Technology and DirectionAccovia’s Logitours system has been thepackaging engine for many high profilesites for many years. Within Logitours,dynamic packaging has always been abasic function. The shift in the market tobring this functionality directly to thehands of the consumer or travel agent hasprompted Accovia to move down a newdevelopment path. The new Accovia archi-tecture reflects the three-tier computingmodel discussed previously in this report:

Procurement Channel Manager, provid-ing external connectors and managingaccess to separate components for air,hotel, car/ground and activitiesSelling System Platform with a DynamicPricing Rules Engine where all final pricing rules are handled, either at the



component level, within packages or atthe shopping basket level, and a ContractModule defining, managing and control-ling the distribution agreementsTravel Seller, providing an open interfaceto a customer-designed presentationlayer and workflow that enables dynam-ic packaging for the consumer, travelagency, or call center

Accovia has strongly embraced WebServices, which allows it to offer solutionson a modular basis. On the procurementlayer, there is an air procurement managerthat is Web Services-based that interfacesto ITA Software for fast shopping for vali-dated and available published, negotiatedand contracted fares. This manager canalso interface with Logitours for Charterinventory that has been loaded.

The company has detached availabilityand pricing from the booking, ticketing

and schedule change process. These aretwo independent streams that are recom-bined in the Air Procurement Manager.On the presentation side, Accovia wantsto “get farther beyond dynamic pricing todynamic offer,” according to DanielParayre. “The product offering and pack-aging rules will then also change based oncustomer characteristics, market segmentand context.”

In March 2004, Accovia formally intro-duced its Dynamic Pricing Rules Engine,which seamlessly applies pricing rules atthe individual component level or at thepackage level. Also in March 2004, thecompany gave its XML-based specificationsfor its Travel Application Protocol (TAP) tothe OTA for use in the creation of a stan-dards-based protocol for bundling multipletravel components under a single price.



Company Spotlight: Fourth Dimension Software“FDS’s CONTOUR has full reservation capa-bilities and comprehensive inventory manage-ment features.”– Roman Stanell, VicePresident of Business Development,Fourth Dimension Software

History and Company Background Fourth Dimension Software is one of theoldest providers of tour operator softwarein the industry. The company’s roots goback to custom software development forClassic Custom Vacations and DER toursin Germany in the mid-1980s and early1990s. In 2001, Fourth DimensionSoftware partnered with Amadeus to cre-ate Atinera, which used FourthDimension’s CONTOUR software in an

ASP-model targeted at smaller tour opera-tors worldwide. Due to the negative busi-ness climate during the post Sept. 11,2001 period, Atinera was never able togain momentum in the market and inDecember 2002 filed for Chapter 11 bank-ruptcy. Fourth Dimension continues tosell CONTOUR and has recently investedin a new marketing effort.

Company Perspective and FocusCONTOUR contains a user-defined, rules-driven database with both dynamic andstatic packaging options. The system sup-ports multi-channel distribution and pro-vides a platform for the consumer on theWeb, the tour operator call center agent,and the retail travel agent. The systemsupports air, hotel, car, transfers, tours,

cruises, and activities and events. As withother traditional tour operator software ven-dors, FDS has recognized the new opportu-nities that have emerged to provide packag-ing technology to suppliers as well as largetour operators, portals and retail agencies.SAS Airlines uses the CONTOUR platform tocreate its own packages. Traditionally, FDSfocused on larger customers who housed oroutsourced the entire technology platformwhile Atinera deployed an ASP model forsmaller tour operators. The outsourcingoption also makes CONTOUR accessible tosmall- and medium-sized companies thatwant to take advantage of the technologywithout the costs and burden of operatingthe IT infrastructure. This model (whichFDS refers to as platform management out-sourcing) has become a preferred methodfor many clients.

Company Technology DirectionLike its competitors, CONTOUR also usesN-tier architecture. At its core, the systemuses HP Non-stop servers. The HP Non-stop servers (formerly Tandem) have beenknown for their reliability and durability.CONTOUR’s business rules, content, andcustomer information are housed in theHP core, and over the last few years thesystem has been augmented using NTservers to provide a more flexible, lowercost communication layer to the coretechnology. It is this NT layer that feedsthe presentation module to agents, con-sumers and the tour operator call center.The procurement layer has custom builtadaptors to GDSs, car rental CRSs andactivity content. These adaptors havebeen either custom designed or built onsource-published APIs.



Company Spotlight: Discovery Travel Systems LP“Tour operators must add value in their dis-tribution segment… beyond the packaging ofvacation elements. This value-add is theknowledge and experience to advise clients onwhat makes sense.” – Mike Scott, ExecutiveVice President, Discovery Travel Systems LP

History and Company Background Founded in 1991, Discovery TravelSystems LP began as a developer of thirdparty cruise reservation systems. Applyingthe knowledge gained from building com-plex inventory logic and reservation sys-tems for the cruise industry, the companycreated its Tour Partner software for touroperators. Over the last six months,Discovery Travel Systems is finding its

greatest opportunity in a new market area:mid- to large-sized travel companies thatare “reinventing themselves as new typesof retailers with tour capability, withinventory management and pricing as wellas dynamic packaging,” according to Scott.

Company Perspective and FocusScott is the former CIO of Far & Wide,where he created a rich content manage-ment database that provides a full shop-ping experience for the traveler on theWeb. Discovery Travel Systems acquiredthis technology and it is being tightlyintegrated with its call center and elec-tronic booking tools to provide a com-plete solution for large travel companies.

The company aims to provide the meansto translate a combination of air, hotel,

car, transfers and attractions into a logicaland worthwhile vacation experience.Discovery Travel Systems brings groups ofitems that are interrelated (e.g., transferswith hotel and attractions) and creates asingle element for use with dynamic pack-aging.

Company Technology DirectionThe new content management databaseenables full shopping capability to letconsumers decide how they want to makethe purchase. Discovery Travel Systemsbelieves that a hybrid (e.g., combinationonline/offline) model will exist in theindustry for some time. Tours and cruisesare more expensive and more complicated

and people don’t want to make a mistakewithout seeking expert advice. The com-pany provides a robust platform for bothonline and offline support of complexvacation sales. With the addition of thecontent management database, DiscoveryTravel Systems is able to provide all thenecessary ingredients – customer experi-ence and a robust selling platform – toenable the same capabilities for tradition-al travel retailers and wholesalers as itdoes for online agencies. This is accom-plished by seamlessly integrating theonline shopping experience with theoffline support function to service theconsumer who shops online but needsoffline support to close the sale.



Internet-Based DistributionPlatforms


The Internet not only ushered in a newera of e-commerce, but it brought to mar-ket a number of new technologies forconnecting disparate systems. Building onthis trend, a number of companies havecreated Internet-based platforms to helpdistribute leisure travel more efficiently.

Dynamic packaging is a common func-tion offered by these companies. It isimportant to note that the more progres-sive tour operator software vendors havealso embraced these new Internet tech-nologies.


To succeed as a new form of distribution,these entities need to provide untappedvalue to the marketplace. This is particu-larly important in an era of disintermedia-tion. The value offered by most of thetechnology vendors in this category liesin providing more control to the supplier.Suppliers will value an intermediary plat-form as long as they can retain controlover the process.

Architectural Focus

The architectural focus of this segmentstrongly reflects the new N-tier architec-ture previously discussed. Procurement isintegrated from a variety of sources, busi-ness rules are applied on a componentlevel and the ultimate presentation layeris dictated by the supplier or intermediarythat offers the dynamic packaging service.

Company Spotlight: Datalex“In order to package things and price thingson a consistent basis we’ve ‘generic-ized’ a lotof concepts. For instance, if you look into ourdatabase and our data model you’ll never seethe word ‘hotel,’ you’ll never see ‘car rentallocation.’ We have things called products...selling products… selling promotions…sources of media… etc. We front-ended thisgeneric concept with all the OTA-compliantmessaging and map it to our model.” –Abram Richman, Chief Architect, Datalex

History and Company Background Datalex is a Dublin, Ireland-based compa-ny that specializes in travel technologydevelopment and integration services. In1999, Datalex purchased an independenttour operator system from Advanced TravelSystems and re-branded it as BookIt!Tour.This product was later phased out.

The roots of the company’s current leisuredistribution platform (recently re-brandedas BookIt!Matrix) come from a joint ven-ture relationship with Vail Resorts whichbegan in 2000. That joint venture endedwhen Datalex acquired the rights to thesoftware, though Vail continues to use thetechnology.

In addition to Vail, the BookIt!Matrixleisure distribution platform is currentlypowering LasVegas.com and is beingimplemented by Best WesternInternational. Datalex also is under con-tract with a prominent (not yet disclosed)traditional tour operator to use theBookIt!Matrix platform.

Company Perspective and FocusOver the years, Datalex has shifted itsfocus away from custom programming

services to a more product-centricapproach. BookIt!Matrix represents a clas-sic buy and extend strategy whereby theclient licenses the underlying platformand then works with Datalex to customizethe product to meet its specific needs.

Datalex is positioning BookIt!Matrix as anInternet-based distribution and bookingsystem for hospitality and leisure travelproducts. It has an open architecture thatcan connect to existing GDS, CRS andPMS systems. The same basic frameworkcan be used by suppliers, wholesalers andother intermediaries to connect to multi-ple sources of supply and distribute to avariety of channels.

Company Technology DirectionBookIt!Matrix is built on the latest WebServices technology framework. The sys-tem was designed and built from anInternet perspective rather than adaptinga traditional legacy tour product. Datalexhas been a long time supporter of OTAstandards, and its BookIt!Matrix productuses OTA schemas for transfer of datawith third party systems.

With a flexible, open-ended architecture,Datalex notes that BookIt!Matrix will ulti-mately provide the framework for closerinteraction with customers, allowing sup-pliers to acknowledge the customer anddiscount based on the value of that cus-tomer. Datalex is able to use CRM ele-ments in its Boolean logic to create rulesaround the value of the customer.BookIt!Matrix can be deployed in an envi-ronment that includes a CRM system, forexample, Siebel, that will identify the cus-tomer and return an XML message to trig-ger a specific business rule inBookIt!Matrix.



Company Spotlight: EzRezSoftware Inc.“EzRez has a distributed network that is driv-en by smart search technology – meaningthat each client configures its EzRez system tosearch these multiple sources and retrieveinformation and display it in the way thatthey dictate.” – Tina Fitch, CEO, EzRezSoftare Inc.

History and Company Background EzRez Software Inc. is a Honolulu-basedcompany that describes its system as a“Web-based travel network that connectssuppliers and distributors of travel in aseamless exchange.” The company wasfounded in 1997 and is privately held andprivately funded. Currently over 850clients and affiliates use the EzRez system.

EzRez has been under the radar of manycompanies because it intentionally heldoff promoting its product until it was inplace as a proven technology. The productwas developed “organically” by workingwith key airlines, hotels, car rental com-panies, wholesalers and activity providers.

Company Perspective and FocusEzRez is focused on connecting suppliersand distribution channels – suppliers tosuppliers, suppliers to wholesalers, consol-idators to sub-agencies, suppliers to inter-mediaries – all based on rules that dictatehow inventory is priced and distributed.The company has two different generalservice lines:

1.EzRez version 3.1 software, a completeASP Web-based inventory manage-ment/distribution tool. Due to its modu-lar nature, it can be used as a completesolution that includes transactionalaccounting, call center and inventorymanagement, a dynamic packagingengine, individual item bookingengines, charter air and group bookingtools, or as an enhancement to existinglegacy systems.

2.Turnkey affiliate program for portals andhotel companies that want to augmenttheir content.

Company Technology DirectionThe EzRez platform offers another exam-ple of an infrastructure using service-ori-ented N-Tier architecture to enable a com-pletely modular approach built on openstandards such as Linux. To connect tovarious sources of supply, EzRez uses XMLAPIs when available and has taken basicOTA-compliant schemas and enhancedthem for specific supply sources. The sys-tem interfaces with all four GDSs, as wellas hotel CRSs, PMSs, airline CRSs, travelinsurance companies, payment gateways,online merchants, tour operator systemsand activity database systems.

EzRez helps its clients facilitate consumers’desires, allowing them to compare ven-dors by enabling a single itinerary recordnumber to be created by consolidatinginventory from multiple legacy systems.



Company Spotlight: Neat Group"The difference with Neat dynamic packagingtechnology is that it is built for suppliers withreal time availability and pricing and totalsupplier control in the electronic realm. Thisis how the travel suppliers want to conductbusiness in the package environment.” –Steve Cossette, Co-Founder, Neat Group

History and Company Background Neat Group Corporation was formed in1999 by a group of travel and technologyexecutives whose goal was to create inno-vative methods for travel distribution.The company has been a key driver ofdynamic packaging, enabling suppliers totake direct control over the packagingprocess. In May 2003, Neat Group wasacquired by Cendant Corporation.

Neat Group’s technology combines arules-based system with merchant modelcapabilities and electronic settlement toenable dynamic packaging capabilities forsuppliers as well as online and traditionalintermediaries. With a single search, con-sumers can create a dynamic package thatintegrates components from a variety ofsources. Neat Group also offers real-timedynamic packaging solutions to travelagencies, allowing them to establish theirown mark up using merchant model pric-ing, and receive payment directly throughthe Airlines Reporting Corporation.

Company Perspective and FocusOne of the most important and innova-tive aspects of Neat Group's technology isits ability to allow suppliers to take directcontrol over the way merchant inventoryis distributed. Neat Group technology per-mits the supplier to dictate the pricingrules based on other products in the pack-age and the channel utilized. In one way,Neat Group has automated the traditional

manual process that has existed betweensuppliers for years. Historically, an airlinemarketing manager might partner with ahotel to target a specific geographic mar-ket to sell distressed inventory. NeatSource provides a browser-based, easy-to-use navigation environment that allowsthe supplier (or travel intermediary) tocreate targeted campaigns by specific mar-kets or channel, or with specified partnersautomating this process.

Company Technology DirectionNeat Group technology was created towork within the existing travel industryframework of pricing, recognizing theneed for suppliers to apply revenue man-agement techniques to dynamic packag-ing. For example, airline suppliers file farerules through the normal process (e.g.,Airline Tariff Reporting Corporation).Neat Group accesses these fare types andallows suppliers to create dynamic packag-ing combinations using existing invento-ry classifications. During the reservationprocess, real-time availability is checkedto ensure that the given inventory is avail-able for the package. The rules engine is atthe heart of the application and allows thesupplier to specify which inventory isused, with which partners, and throughwhat channel. The application, an ASPmodel that is controlled through a brows-er, is used by Cheap Tickets for its packag-ing solution.

With a strong focus on supplier-direct dis-tribution, a next logical step in the evolu-tion of Neat Group technology will likelybe to incorporate loyalty redemption aspart of the dynamic packaging process. Byincorporating a customer’s loyalty statusinto the dynamic packaging product, NeatGroup will enable suppliers to targetunique offers to their best customerswhile allowing strategic cross selling.



Online Travel Agencies


In the mid-1990s, Microsoft and Sabrerecognized a new opportunity was emerg-ing with mass market adoption of theInternet. No single offline leisure travelbrand was dominant nationwide. Seizingthe self-service nature of the Web, bothcompanies launched successful onlinetravel agencies that helped galvanize con-sumer acceptance of travel e-commerce.As the market has matured and consoli-dated, the big three players, Expedia (originally part of Microsoft but now partof IAC), Travelocity (Sabre) and Orbitz(soon to be acquired by Cendant) contin-ue to expand their market share domesti-cally and throughout the globe. Dynamicpackaging is a core strategy for all threecompanies, creating a battleground where features, functionality and consumeracceptance for online package purchaseswill ultimately dictate future success ofeach player.


Consumers have historically used the Webto purchase single components for a trip.Air sales were an early hit, especially withthe introduction of Web-only fares.Merchant hotel programs played a keyrole in the growth of the online agencysegments, particularly during the softmarket that followed Sept. 11 and theeconomic downturn. Expedia first intro-duced packages in January 2001. This sig-naled a major shift in online travel pur-chasing, allowing consumers to createmulti-component itineraries for a singleprice. The PhoCusWright/Vividence studyhighlights the strength of online travel

agencies in the area of dynamic packaging(see Table 5.3).

Despite their innovations, the majoronline agencies interviewed for thisresearch all agreed that dynamic packag-ing on their sites was at the earliest stageof development. The three market leadersall are making a major investment inenhancing their dynamic packaging capabilities over the next 12-18 months.



Table 5.3 Online Travel Agency Strengths andWeaknesses

Source: Vacation Packages: A Consumer Tracking and DiscoveryStudy, 2003, PhoCusWright Inc. and Vividence Corp.

STRENGTHS

Strong brandawareness amongtraveling consumersVolume and mer-chant model pricingtranslates to betterpackage pricing forvacationersOne or more of topfour included in allpackage researching Perceived as anamalgamation ofdata from manysites, reducing trav-eler time to searchmultiple sitesPerceived ability to create packagescompared to allother travel pur-chase channels

WEAKNESSES

Perceived as gener-alists and not desti-nation specialistsbeyond mass vaca-tion spotsSearch capabilitieslack flexibility andbrand affiliation

Company Spotlight: Expedia Inc.“Eighty-seven percent of the customers whoshow up at an Expedia special rates hotel arefirst time guests at the hotel.” – StuartMacDonald, Senior Vice President,Marketing and Packages, Expedia Inc.

History and Company Background As the leading online travel agency,Expedia Inc. has consistently set thetrends for the industry. The companyhelped pioneer the merchant rate hotelmodel with the acquisition of Travelscapein 2000 and was the first site to introducedynamic packaging in 2001. The acquisitionof Newtrade Technologies in 2002 was aclear signal of Expedia’s intention to auto-mate the hotel inventory communicationsprocess. With a strong financial structureand an ever-expanding customer base,Expedia is the company to watch as itenhances its dynamic packaging capabilities.

Company Perspective and FocusExpedia’s message to its suppliers empha-sizes new customer acquisition. Hotels usean extranet to enter rates and availabilitybased on room categories and receivesinformation on sales activity for their

property. The system pulls published,negotiated and charter flights seamlesslyinto the booking process.

The Newtrade technology replaces some ofthe activity that is performed on theextranet, moving it to an electronic commu-nications platform. Through the Newtradegateway, hotels can use yield managementtechniques to offer different package ratesfor different types of customers. The goal isto make it easier for hotels to communicatewith Expedia and give them greater controlover their inventory.

Expedia uses a sophisticated business rulesengine to create dynamic packages. Thecompany’s pricing algorithms calculatethe overall package price in real time, tak-ing into account the desired goals of thesupplier and potential available mark up.Expedia also has made a variety of activitiesavailable as add-ons to its dynamic packag-ing engine. These are primarily on a free-sell/stop-sell type of model. Selling add-onactivities is a major growth area for Expedia.

In 2002, Expedia surprised many in thetravel industry with the acquisition ofClassic Custom Vacations (CCV), a tradi-

Architectural Focus

From an architectural perspective, onlineagencies have a strategic advantage overtraditional travel companies simply due tothe timing of their internal development.The three online leaders emerged between1995 and 2000 and thus were able to cre-ate robust infrastructures for e-commercebased on service-oriented architecturesusing J2EE or .Net technology. During theresearch process for this report, companyexecutives for the most part were reluc-

tant to disclose detailed architecturaldescriptions of their dynamic packagingproducts due to competitive issues. Theircomments served as more of a barometerof overall market views and perspectivesrather than a true validation of the com-mon architecture discussed earlier in thisreport. Despite this limitation, all threevendors clearly are using Web Servicesstandards to access various sources of sup-ply, and are deploying sophisticated rules-based engines to control the way packagesare assembled and priced.





tional wholesaler of premier vacationpackages to Hawaii, Mexico, NorthAmerica, Europe and the Caribbean. Thecompany operates as a separate subsidiaryof Expedia. It is important to mentionCCV within the context of a report ondynamic packaging due to the company’shistoric approach to the marketplace.Rather than creating static packages, CCVbuilt its market position by providing lux-ury customized vacations that fit specificclient needs. This is an ultimate goal ofmany vendors in the emerging dynamicpackaging market and it will be interest-ing to monitor how CCV under the man-agement of Expedia adapts its product tothe Internet.

CCV is still committed to selling its prod-uct through traditional retail travel agen-cies. The first innovation came earlier thisyear when the company introduced a newbooking platform for travel agencies.Consumers can go directly to CCV toobtain a vacation quote, but they stillmust either go to a retail agent or tele-phone a CCV vacation specialist to booktheir reservation. The types of high-endsuppliers and variety of inventory choices(e.g. the presidential suite) availablethrough CCV represents the more com-plex high end of the market than the tra-ditional Expedia inventory. The evolutionof the CCV platform will be of interest asall vendors move into selling more com-plex vacation products online.

Company Spotlight: Orbitz“Our first goal is to provide the best shoppingand purchasing experience for the customer.Our second goal is to leverage the capabilitiesthat we have built for the Orbitz air, hoteland car product lines to complete and contin-ually optimize the technical and operationalstructure required to sell dynamic packagesdirectly, ultimately leading to a more stream-lined and consistent customer experience.”– Alan Josephs, Director of Packaging,

Orbitz

History and Company Background In just three short years Orbitz hasemerged as the third largest online travelsite. Orbitz’s MATRIX has quickly becomethe standard for comparative fare shop-ping on the Web. With the additionalcapital raised by the company's successfulIPO early this year, Orbitz is committed tofunding further innovation. In September2004, Cendant Corporation bid $1.2 bil-lion to acquire Orbitz, and this new

investment will help further fund itsdynamic packaging capabilities.

Orbitz works with leisure travel providerNLG and has launched a dynamic packag-ing capability that displays vacationoptions in its familiar MATRIX format. Inaddition to this current partnership,Orbitz has launched its own dynamicpackaging technology.

Company Perspective and Focus Orbitz’s current dynamic packaging offer-ing is a hybrid approach, combining in realtime NLG inventory with Orbitz’s hoteland air product. The system is built on aservice-oriented architecture (using Java)that separates the presentation layer fromthe booking engine, isolating it from intri-cacies of procurement. Orbitz uses XML tocommunicate with NLG and with supplierswhere available. Orbitz’s key differentiatoris the ability to show multiple flightoptions from a single packaging request.

Company Spotlight: NLG“[NLG’s goal is] to move the right product atthe right time at the right price points, ensur-ing that the overall experience, both onlineand offline, is excellent, driving loyalty andbringing the customer back in a competitivemarket.” – Ken Surdan, CTO, NLG

History and Company Background Over the last 20 years, NLG has grownfrom a small start-up with a focus on last-minute travel to become one of thelargest retailers of vacations and cruises.The company acts as both traditionalretailer and wholesaler and sells vacationpackages through major online sites suchas Orbitz, Yahoo!, Priceline, CruisesOnlyand Vacation Outlet. NLG developed itsown dynamic packaging engine based ona flexible open technical architecture.

Company Perspective and Focus NLG is unique in that it offers both partsof the solution – a dynamic packagingplatform married to the traditional agency

support environment, capturing both theonline and offline consumer bookingexperience. Its technology is built on arobust service-oriented architecture thatfully accesses inventory from multiplesources. This architecture allows NLG tocombine its own merchant hotel systemwith any combination of third party hotelsystems.

“NLG’s fundamental assumption aroundour dynamic packaging design is that wewould be doing real-time availability andpricing from the home page search,” saidSurdan. “NLG has accepted the invest-ment of building engines that are funda-mentally real time to insure that whenNLG shows a price to a customer that theprice is the right price and that it is avail-able the dates that they want.”

NLG believes that in the next 18-20months, loyalty program inclusion indynamic packaging will explode, and thatpeople will struggle with this, especiallywith overlapping loyalty programs.



Company Spotlight:Travelocity “There has been a significant and continuedfocus at Travelocity on understanding andactually predicting what the customer will belooking for and then making sure we’reappealing to those wants and needs.”– Bryan Saltzburg, Vice President,Packaging and Cruises, Travelocity

History and Company Background Travelocity, a division of Sabre HoldingsCorporation, is the second largest onlinetravel agency in the U.S. and is investing

heavily in dynamic packaging technology.The company also powers the bookingengine for both Yahoo! and AOL, andoffers dynamic packaging on all threesites. Travelocity is in discussions withsuppliers about using its engine to enabledynamic packaging on the suppliers’ sites.

Company Perspective and Focus The Travelocity dynamic packaging enginewas built internally with the aim to createa platform that has multiple purposes,such as connecting consumers with suppli-ers, or helping one supplier connect withanother to create the package components.

Summary and Conclusions

The online travel industry is still relativelyyoung, and its dynamic packaging tech-nology is truly at the infant stage of devel-opment. This is the start of a marathon,and the ultimate winners will have to sat-isfy two major, and sometimes conflicting,sets of interests: The consumer’s desire forcontrol and flexibility, and the intermedi-ary’s or supplier’s need to maximize profit.To get to the next level of market maturi-ty, dynamic packaging will need to movebeyond a narrow focus on distressedinventory and into the broader arena oftrue online vacation planning.

A common N-Tier architecture is emerg-ing that provides the infrastructure forthis evolution. Technology will continueto play a critical role in the way suppliersconnect to intermediaries and ultimatelyto the consumer. Intermediaries need touse technology to allow suppliers to gainbetter control over pricing through inte-gration with current yield management

systems. Integrating supplier CRM effortsinto online vacation planning is anothercrucial evolutionary step. Ultimately,inserting the true value of the customerinto the booking process should be acommon goal of any dynamic packaginginitiative. Over the next 18-24 months,there are likely to be some importanttechnological developments in the area ofdynamic packaging, including some dra-matic changes in the user interface designand expanded use of Web Services toaccess multiple sources of supply.

In the meantime, the traditional marketdefinitions of retailer, wholesaler and sup-plier will continue to blur. Traditionaloffline tour operators and travel agenciesface an ever-increasing threat to their corebusiness unless they embrace this newarchitecture for dynamic packaging.Growing consumer demand for dynamicpackaging will drive further innovationand profits for those progressive compa-nies that exploit this expanding marketopportunity.

Hotels can enter their information via anextranet, based on established rate codesand inventory types. Travelocity uses itsSabre GDS as the foundation for its hotelallocations. The company also uses XMLas a means to automate the hotel commu-nications process. XML is used to capturereal-time availability feeds, and real-timesales reporting.

Travelocity has its own merchant agree-ments with several hundred suppliers. Thecompany has added attractions which canbe purchased after a dynamic package hasbeen created, using the Viator plug-in.The system is flexible, with component-level pricing that allows any element tochange based on business rules.



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Travel Tech Consulting, Inc.

951 Old County Road #157, Belmont, CA 94002 USA, +1 650 345-8510, fax +1 650 345-7590 www.traveltechnology.com

PhoCusWright Inc.

1 Route 37 East, Suite 200, Sherman, CT 06784-1430 USA, +1 860 350-4084, fax +1 860 354-3112www.phocuswright.com

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