Reference no: EM13517405

Since the turn of the 21 st century, there has been a relentless shift in the distribution of lodging services to the Internet. That shift has been part of a general migration of travel service shopping and buying to online channels. The trend was initiated in the U.S. leisure travel market by online intermediaries such as Travelocity and Expedia, called online travel agencies (OTAs). These firms rely primarily on the Internet to distribute and package travel services for users. These ?rms initially offered online shopping and selling of airline service, then expanded to lodging, rental cars, and other destination services. Currently, OTAs provide a variety of travel services à la carte or in packages produced dynamically by customers or prearranged into preset vacation packages. OTA activity and growth caused a channel shift in distribution away from both traditional travel agents and the suppliers. It also caused underlying changes in overall distribution channels. As travel suppliers, including hotel chains, began to recognize OTAs ’ incursion into their customer bases, with transaction costs generally higher than a direct customer interaction, they launched their own online activities. These included brand web sites, search engine strategies, and marketing efforts designed to encourage direct, rather than intermediary, online interactions with leisure customers. Coincidently, travel suppliers became increasingly savvy about, and reliant on, online marketing and the effective management of OTAs. After success in the leisure online travel market, OTAs leveraged their success by expanding into the business market. Leisure sites like Expedia and Travelocity developed sister sites, Expedia Corporate Travel, now Egencia, and Travelocity Business, to serve business travelers. These sites adapted some of the functionality in the leisure sites to serve business needs, including travel budget management, and negotiated rate programs with suppliers. The online travel agency expansion to the business market intermediated supplier-direct business travel and shifted that business away from traditional travel agents and large travel management companies (TMCs), like American Express Travel and Carlson Wagonlit Travel. TMCs are companies that serve primarily the business market with dedicated travel agents, call centers, and web sites. The TMCs serve business clients with oursourced travel management, budget control, negotiated suppler rate programs, and employee travel services. As a challenge to the OTAs, the TMCs launched their own online efforts. These included migrating travel management and travel booking activity online for their largest corporate customers as a means to protect that customer base and as a convenience and cost-savings step. The TMCs also focused their online service offerings to smaller accounts as a means to grow and protect that customer base from the online travel agencies or, as they are more commonly known, Internet travel management companies (ITMCs). U.S. online trends were repeated in Europe and Asia with some variations. However, the existence of large and well-established tour operators and aggregators in Asia and Europe represented a challenge to OTA immediate success in the leisure segment. These operators, like TUI and Thomas Cook in Europe, were long-standing vacation tour operators who were themselves migrating activities online to protect their market positions and serve changing customer buying and shopping behaviors. European and Asian reliance on traditional travel agents for business bookings and service was also a temporary impediment for business online bookings growth for both major OTAs and TMCs. Despite these differences, online migration of distribution in Europe and Asia is following trends seen in the United States but at a slower rate.

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