Beginnings of Aviation Kitty Hawk on Thursday, December 17, 1903 Industrial Revolution, especially railroads, causes massive population expansion Supervening social necessity – delivery of mail across great distances
First Early Adopter – Post Office September 23, 1911 pilot Earl Ovington was officially sworn in as ”Air Mail Carrier #1”
Lucky Lindy’s Solo Flight 1927 - completed first solo Transatlantic flight from New York to Paris Enormous publicity, including the largest ticker tape parade in New York history Result was diffusion. In 1926 there were 6,000 passengers. In 1932 the number was 400,000.
First Adopter versus Diffusion The supervening social necessity for adoption in the United States was for purposes of mail delivery. However, the diffusion of that technology developed the travel and tourism industry.
Birth of the Travel Agency By 1938 there were over one million Americans flying on commercial airlines In 1931, the first travel association in the country had been formed, its mission was to promote the diffusion of recreational travel to average Americans Charged airlines for promoting air travel. Initially commission rates were 7.5% of ticket price, eventually lowered to 5%
Trouble for Travel Agencies In 1995 all the airlines put a cap on commissions paid to $50 maximum Travel Agencies filed anti-trust lawsuit which was settled for $86 million Since 1995 the number of travel agencies has declined from about 45,000 to between 20,000 and 25,000 as of August 2004 Birth of Online agencies continued decline
2005 Travel Industry Stats Travel and Tourism is a $1.3 trillion industry in the United States. The Travel and Tourism industry is one of America's largest service exports with $94 billion spent by international visitors in the U.S. The Travel and Tourism industry is one of the country's largest employers with 7.3 million direct travel-generated jobs, which translates into a payroll of $162 billion. One out of every eight U.S. non-farm jobs is directly or indirectly created by travel and tourism.
“Without question, the Internet has shaken up the status quo in the travel industry. Traditional travel agencies are struggling to stay relevant, online travel agencies are trying to instill loyalty among their customers, travel search engines are the new upstarts, travel suppliers are flexing their muscles and global distribution systems are looking for ways to reverse their waning influence.” Jeffrey Grau, Senior Analyst at eMarketer, 2005
Global Distribution Systems Sabre, Worldspan, Galileo, and Amadeus Developed in the 60s Prior to Internet virtually all airline tickets were purchased through one of these systems Business model charges airlines for each segment of a journey. Very expensive.
Global Distribution Systems Battling new competitive environment by diversifying their product. Sabre owns or partnered with: Travelocity lastminute.com, UK’s best travel website IgoUgo.com SynXis, a provider of reservation mgmt FareChase to supply its software
Traditional Travel Agencies “Everything their system can deliver is already in existence…we see the threat to the airlines, not to travel agents. Customers will use the information to compare airline and hotel prices, then most of them will still book through their agents." Dick Knodt, executive director of the American Society of Travel Agents, 1996
Traditional Travel Agencies Survival means becoming niche experts Focus on International Travel – this one area still uses travel agents to a greater degree than all other types of travel Strengthen advice-offering capabilities Combine with other niche tour operators to create package travel
Online Travel Agencies Expedia was created in 1996 by Microsoft and American Express Travelocity was created in 1996 by Sabre Interactive Orbitz was launched in June 2001 by the airlines (United, Delta, Continental, Northwest, and American) to compete with Expedia and Travelocity Problems now with branding and customer loyalty
Travel Search Engines Aggregators: Kayak.com, Sidestep.com, Cheaptickets.com, Farechase.com Revenue comes from per click and advertising – not the airlines Because of their business model the fares they show are impartial. They also show low fare airlines now available on the travel agency sites.
Travel Suppliers Flexing Muscles Airlines might not renew contracts with either online travel agencies or GDS Beefing up their own websites to attract more consumers directly without any middleman Buying Over the Internet Percentage of Flights purchased on the airline’s website in 2005: DeltaNorthwestAmerica West/USAir AlaskaAirTranJetBlue 23% 28%35%58%78%
Consolidations and Lawsuits As market matures, more consolidations among online agencies, aggregators, and GDS systems likely Business will turn to Europe and Asia for more business – both domestically and internationally Litigation among online agencies and aggregators will continue