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Online Travel Sites' New Take Off

By now, the Web-wise know that no single online travel site is going to consistently have the best prices. So the industry's biggest rivals are grasping at new ways to compete.

"We're now in the second stage of growth," said Michelle Peluso, Travelocity.com's chief operating officer.

Research shows that the average customer checks three sites before buying an airline ticket or travel package, so while the best deal still matters, the added features are what will build customer loyalty.

A flurry of technology investment is breeding new features at Travelocity.com, Expedia and Orbitz — a number of which debuted over the weekend in a newly designed Orbitz site.

Orbitz shoppers can now book up to nine travelers at once — the maximum elsewhere is six. And search results will include more details up front, such as the type of plane and time between connections.

Meanwhile, Bellevue, Wash.-based Expedia, which is a pioneer in selling travel packages and has aggressively pursued the corporate travel market, has begun marketing wedding packages.

And Travelocity.com is providing more relevant information. The Fort Worth, Texas-based company has included taxes and fees in its rental car listings and has striven to only list flights and rooms still available.

Perhaps the most significant leap forward has been in "dynamic packaging." That's the practice, initiated by Expedia two years ago and copied by Travelocity.com in June, of offering special discounts if shoppers simultaneously book a flight and a hotel, or a hotel and a car, or all three.

The catch is that consumers are shown one price for the entire package, making individual prices less transparent and comparison-shopping more difficult.

Dynamic packaging now accounts for about a third of Expedia's revenue, while Travelocity.com wants similar results.

Expedia's chief executive, Erik Blachford, said suppliers have lauded dynamic packaging as "a way to avoid some of the competitive pressure" to offer the cheapest rates.

In addition, he said, it allows Expedia to "be creative and give interesting options" based on unique deals Expedia can secure from suppliers, such as a plush hotel room at an inexpensive rate.

Indeed, the top two industry priorities are strengthening brand identities and winning customers' allegiance — a particularly tough goal as long as consumers are fixated on bargain hunting, analysts said. The fact that all three sites have the same color scheme — blue and yellow, and now a touch of green at Orbitz — hasn't helped either.

"The agencies' lack of differentiation drives up marketing and customer retention expenses and reduces the agencies to mere comparison-shopping sites," Forrester Research principal analyst Henry Harteveldt said in a report.

Orbitz had a perceived advantage over Travelocity and Expedia after its launch in June 2001 because the Chicago-based company was founded by the nation's five largest airlines and had a deeper inventory of "Web fares," the heavily discounted tickets promoted on the carriers' own Internet sites.
While a Justice Department investigation into the matter continues, Harteveldt said, the alleged advantage has been diminished by the fact that carriers "have very quietly signed deals with Expedia and Travelocity" to offer similar fares. "They respect the strength these guys have to move market share," Harteveldt said.

Expedia had about 36 percent of the $28.4 billion spent on travel online in 2002, while Travelocity had 24 percent and Orbitz 13 percent, according to PhoCusWright Inc., a Sherman, Conn.-based research firm.

Currently, about 15 percent of all travel is bought online. Airline ticket sales account for nearly half of the online travel industry's revenues today, but hotels and vacation packages are growing rapidly and have higher profit margins.

For these reasons, Wall Street analysts said, de-emphasizing the airfare price war was an economic necessity.

CIBC World Markets analyst Paul Keung said companies need to maximize their "profit per transaction," no matter who the customer is, by coupling airfares with hotel and rental car reservations as well as selling tickets for events, tours and other "destination components."

In the grand scheme, the latest move by Orbitz is but a tiny step.