July 12, 1999
Cover

Travel: A road more travelled

Agencies must adapt as online trip bookings grow

BY WARREN CARAGATA with JOHN DEMONT in Halifax

Bailey's Travel Ltd. is a long walk from being one of the world's big companies. Based in Dartmouth, N.S., it employs a staff of four, and after 12 years in business, earns annual revenues of less than $3 million. Bailey's is used to competing with giant firms like American Express Travel and Carlson Wagonlit Travel, but now it must confront a different breed of mammoth competition: Microsoft Corp.

These days, the software giant from Redmond, Wash., is very much a part of the industry, having launched its Expedia travel Web site (www.expedia.msn.ca) three years ago. Expedia now sells more than 5,000 airline tickets a day, more than Bailey's sells in five months. Travel is not the only industry that Microsoft has successfully invaded as the advent of electronic commerce begins to blur the boundaries that traditionally divided companies into distinct sectors. The company also has Web sites selling cars and offering financial information.

In Canada, online ticket sales have been slower to take off than in the United States, where about four per cent of tickets are now purchased on the Web. But Peter Vezina, Bailey's manager, says the trend is too powerful to ignore. "So far, we haven't noticed a big impact, but it's inevitable. In a few years, we're going to be going 50-50 with the big guys."

Expedia is definitely among the big guys, racking up more than $750 million in travel sales a year. Despite that, John Pollard, Expedia's international group manager at Microsoft headquarters, is quick to provide a reality check that proves e-commerce is still in its infancy. Against total U.S. industry revenues of about $150 billion a year, "we're tiny," he says.

The big travel sites, such as the Canadian version of Travelocity (www.travelocity.ca), owned by the Texas-based Sabre Group Holdings Inc., all offer similar services. They allow you to research travel destinations, as well as check -- and reserve -- airline tickets, car rentals and hotel rooms. They keep track of frequent-flyer memberships and provide deals on such leisure travel items as cruises and resort packages. In short, they do pretty much everything that a travel agent would do. For Pollard, that's no surprise: "Expedia is a travel agent."

Expedia and other online competitors use the full throttle of computer power to their advantage. Keeping track of every airline that flies a particular route, and of the different prices, is something that computers -- and by extension, the Internet -- do well. Travel agents have done this for years, using their own systems to sort options for their clients. So, says Pollard, Microsoft's entry is not as peculiar as it might appear: "There's a huge amount of information to wade through -- that's a great software problem."

Online services have another advantage over traditional competitors. All travel agents have seen their profit margins cut in recent years as airlines have trimmed and set caps on agency commissions. Online services have suffered the same fate, but they also draw revenue from advertising and from fees for providing car-rental firms and hotels with a prominent place on Web pages. Pollard is loath to give figures, but says Expedia earns millions of dollars a year in advertising revenue.

Expedia's bread and butter is travel on heavily used routes. "That's where the major market is," he says. But pile complexity on complexity and travel agents have the edge. The online sites, for example, cannot easily allow someone to book two legs of a trip in economy and another in business class. "There's still a lot of stuff out there," admits Pollard, "that takes the artificial intelligence of humans."

Along with cuts to commission, competition from the Web has become yet another cross to bear. But travel industry executives still believe agents can compete. One answer is with their own Web sites -- or maybe the best way to stay in the game is through exceptional service. "I deliver my tickets personally to my clients' homes," says Vezina. That's something no Web site can ever do.