The Future of Travel Meta Search
Online travel agencies (Expedia, Orbitz, Travelocity, etc.) have long had a stranglehold on travel distribution over the Web. Many airlines signed multi-year contracts with the large OTA’s mandating hefty commission fees for fares booked through OTA partner sites. These fees are in addition to the commissions airlines also must pay the Global Distribution Systems (i.e., Sabre, Amadeus, etc.) for providing the content and booking facilities.
As a result, the airlines have a love/hate relationship with the OTA’s. They appreciate the additional revenue these partnerships generate but also recognize that it is an expensive distribution option.
Enter Kayak. In the last year and a half this unassuming start up has become a force to be reckoned with after gobbling up its largest competitor, Sidestep- the company initially responsible for spearheading the meta-search concept.
Meta search does two things better than OTA’s:
- It provides a greater scope in fare availability by not only aggregating the competing airline fares (OTA model), but also including fares from competing OTA’s.
- Instead of fulfilling the actual booking on their site like an OTA does (with the help of a GDS), meta-search companies deep link directly with the supplier site (i.e., United Airlines, Expedia, etc.) to complete the transaction. This effectively cuts the GDS out of the sale.
Travel meta-search engines introduce a cost effective form of distribution for the airlines because they cut out the middleman and drive business directly to the airline site, where it can, in turn, push ancillary products and services, thus increasing the bottom line.
Dan Vorlage, our airline guru, predicted the rise of meta-search and the fall of traditional online travel agencies when we started researching our business model. Recent data seems to support his predictions. According to a December 2008 PhoCusWright study, 61% of online travel sales are now made directly at supplier sites, compared to 39% for online travel agencies. A portion of these sales are brought to the supplier sites by meta-search sites like Kayak, Sidestep, etc. This balance is expected to stay this way through 2010.
Travel meta-search sites are finding that they can more than make up for the reduced commissions from the airlines in advertising revenue. In fact, although the growth in non-travel advertising shrunk in 2008 from 21% CAGR to 10% CAGR, travel ecommerce remained steady and only slipped one percentage point (from 12% to 11%) in the first three quarters of 2008.
TravelFli is excited about the emergence of meta-search in the online travel industry and we think there is a lot of opportunity for new entrants, especially if they have a niche. ;)
