Aviation and the Travel Aviation and the Travel IndustryIndustry

By Randi RichmondBy Randi Richmond

Beginnings of AviationBeginnings of Aviation

Kitty Hawk on Thursday, December 17, Kitty Hawk on Thursday, December 17, 1903 1903

Industrial Revolution, especially railroads, Industrial Revolution, especially railroads, causes massive population expansioncauses massive population expansion

Supervening social necessity – delivery of Supervening social necessity – delivery of mail across great distancesmail across great distances

First Early Adopter – Post OfficeFirst Early Adopter – Post Office

September 23, 1911 pilot Earl Ovington September 23, 1911 pilot Earl Ovington was officially sworn in as ”Air Mail Carrier was officially sworn in as ”Air Mail Carrier #1” #1”

Lucky Lindy’s Solo FlightLucky Lindy’s Solo Flight

1927 - completed first solo 1927 - completed first solo Transatlantic flight from New York to Transatlantic flight from New York to Paris Paris

Enormous publicity, including the Enormous publicity, including the largest ticker tape parade in New largest ticker tape parade in New York history York history

Result was diffusion. In 1926 there Result was diffusion. In 1926 there were 6,000 passengers. In 1932 the were 6,000 passengers. In 1932 the number was 400,000.number was 400,000.

First Adopter versus DiffusionFirst Adopter versus Diffusion

The supervening social necessity for The supervening social necessity for

adoption in the United States was for adoption in the United States was for

purposes of mail delivery. However, the purposes of mail delivery. However, the

diffusion of that technology developed the diffusion of that technology developed the

travel and tourism industry.travel and tourism industry.

Birth of the Travel AgencyBirth of the Travel Agency

By 1938 there were over one million Americans By 1938 there were over one million Americans flying on commercial airlinesflying on commercial airlines

In 1931, the first travel association in the country In 1931, the first travel association in the country had been formed, its mission was to promote the had been formed, its mission was to promote the diffusion of recreational travel to average diffusion of recreational travel to average Americans Americans

Charged airlines for promoting air travel. Initially Charged airlines for promoting air travel. Initially commission rates were 7.5% of ticket price, commission rates were 7.5% of ticket price, eventually lowered to 5%eventually lowered to 5%

Trouble for Travel AgenciesTrouble for Travel Agencies

In 1995 all the airlines put a cap on commissions In 1995 all the airlines put a cap on commissions paid to $50 maximumpaid to $50 maximum

Travel Agencies filed anti-trust lawsuit which Travel Agencies filed anti-trust lawsuit which was settled for $86 millionwas settled for $86 million

Since 1995 the number of travel agencies has Since 1995 the number of travel agencies has declined from about 45,000 to between 20,000 declined from about 45,000 to between 20,000 and 25,000 as of August 2004and 25,000 as of August 2004

Birth of Online agencies continued declineBirth of Online agencies continued decline

2005 Travel Industry Stats2005 Travel Industry Stats

Travel and Tourism is a $1.3 trillion industry in the United Travel and Tourism is a $1.3 trillion industry in the United States.States.

The Travel and Tourism industry is one of America's The Travel and Tourism industry is one of America's largest service exports with $94 billion spent by largest service exports with $94 billion spent by international visitors in the U.S.international visitors in the U.S.

The Travel and Tourism industry is one of the country's The Travel and Tourism industry is one of the country's largest employers with 7.3 million direct travel-generated largest employers with 7.3 million direct travel-generated jobs, which translates into a payroll of $162 billion. One jobs, which translates into a payroll of $162 billion. One out of every eight U.S. non-farm jobs is directly or out of every eight U.S. non-farm jobs is directly or indirectly created by travel and tourism.indirectly created by travel and tourism.

How Travel is Purchased – 42% onlineHow Travel is Purchased – 42% online

Influence of Digital Media for Travel PurchasesHow much of each of the following influence your purchase decision

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““Without question, the Internet has shaken up the Without question, the Internet has shaken up the

status quo in the travel industry. Traditional travel status quo in the travel industry. Traditional travel

agencies are struggling to stay relevant, online agencies are struggling to stay relevant, online

travel agencies are trying to instill loyalty among travel agencies are trying to instill loyalty among

their customers, travel search engines are the new their customers, travel search engines are the new

upstarts, travel suppliers are flexing their muscles upstarts, travel suppliers are flexing their muscles

and global distribution systems are looking for and global distribution systems are looking for

ways to reverse their waning influence.” ways to reverse their waning influence.”

Jeffrey Grau, Senior Analyst at eMarketer, 2005

Global Distribution SystemsGlobal Distribution Systems

Sabre, Worldspan, Galileo, and AmadeusSabre, Worldspan, Galileo, and Amadeus

Developed in the 60sDeveloped in the 60s

Prior to Internet virtually all airline tickets Prior to Internet virtually all airline tickets were purchased through one of these were purchased through one of these systemssystems

Business model charges airlines for each Business model charges airlines for each segment of a journey. Very expensive.segment of a journey. Very expensive.

Global Distribution SystemsGlobal Distribution Systems

Battling new competitive environment by Battling new competitive environment by diversifying their product. Sabre owns or diversifying their product. Sabre owns or partnered with:partnered with:

TravelocityTravelocity

lastminute.com, UK’s best travel website lastminute.com, UK’s best travel website

IgoUgo.com IgoUgo.com

SynXis, a provider of reservation mgmtSynXis, a provider of reservation mgmt

FareChase to supply its software FareChase to supply its software

Traditional Travel AgenciesTraditional Travel Agencies

““Everything their system can deliver is already in Everything their system can deliver is already in existence…we see the threat to the airlines, not to existence…we see the threat to the airlines, not to travel agents. travel agents.

Customers will use the information to compare Customers will use the information to compare airline and hotel prices, then most of them will still airline and hotel prices, then most of them will still book through their agents."book through their agents."

Dick Knodt, executive director of the American Society of Travel Agents, 1996

Traditional Travel AgenciesTraditional Travel Agencies

Survival means becoming niche expertsSurvival means becoming niche experts

Focus on International Travel – this one Focus on International Travel – this one area still uses travel agents to a greater area still uses travel agents to a greater degree than all other types of traveldegree than all other types of travel

Strengthen advice-offering capabilitiesStrengthen advice-offering capabilities

Combine with other niche tour operators to Combine with other niche tour operators to create package travelcreate package travel

Online Travel AgenciesOnline Travel Agencies

Expedia was created in 1996 by Microsoft and Expedia was created in 1996 by Microsoft and American ExpressAmerican Express

Travelocity was created in 1996 by Sabre Travelocity was created in 1996 by Sabre Interactive Interactive

Orbitz was launched in June 2001 by the airlines Orbitz was launched in June 2001 by the airlines (United, Delta, Continental, Northwest, and (United, Delta, Continental, Northwest, and American) to compete with Expedia and American) to compete with Expedia and TravelocityTravelocity

Problems now with branding and customer Problems now with branding and customer loyaltyloyalty

Travel Search EnginesTravel Search Engines

Aggregators: Kayak.com, Sidestep.com, Aggregators: Kayak.com, Sidestep.com, Cheaptickets.com, Farechase.comCheaptickets.com, Farechase.com

Revenue comes from per click and Revenue comes from per click and advertising – not the airlinesadvertising – not the airlines

Because of their business model the fares Because of their business model the fares they show are impartial. They also show they show are impartial. They also show low fare airlines now available on the low fare airlines now available on the travel agency sites.travel agency sites.

Travel Suppliers Flexing MusclesTravel Suppliers Flexing Muscles

Airlines might not renew contracts with Airlines might not renew contracts with either online travel agencies or GDSeither online travel agencies or GDS

Beefing up their own websites to attract Beefing up their own websites to attract more consumers directly without any more consumers directly without any middlemanmiddleman

Buying Over the InternetPercentage of Flights purchased on the airline’s website in 2005:

Delta Northwest America West/USAir

Alaska AirTran JetBlue

23% 23% 28% 35% 58% 78%

Consolidations and LawsuitsConsolidations and Lawsuits

As market matures, more consolidations As market matures, more consolidations among online agencies, aggregators, and among online agencies, aggregators, and GDS systems likelyGDS systems likely

Business will turn to Europe and Asia for Business will turn to Europe and Asia for more business – both domestically and more business – both domestically and internationallyinternationally

Litigation among online agencies and Litigation among online agencies and aggregators will continueaggregators will continue