TDS Europe 2006 special: By EyeforTravel Correspondent in London (6/5/2006)

Forrester Research's vice-president and principal analyst-Travel Research Henry H. Harteveldt expects EUR30.7 billion of leisure travel to be purchased online this year across Europe, up from EUR 21.6 billion in 2005.

Our current 2007 online forecast is EUR 39 billion,?says Harteveldt.

The analyst, sharing findings of research, segregated European audience in terms of online profile. He also spoke about evolution of European online travel market, especially spate of acquisitions by US-based majors, current distribution battle between the new online channels (suppliers?sites, OTA and search engines) and traditional channels and much more in an interview with EyeforTravel.com's Ritesh Gupta. Excerpts:

Recently, I interviewed Alitalia's senior executive. He had this viewpoint about Europe-Northern Europe is a mature web?market quite similar to the US, Southern Europe is well penetrated in terms of web usage, but web buyers are quite limited even if growing a lot year over year and Eastern Europe market is still not relevant for web sales. What's your viewpoint on this?

Northern Europeans are actually more likely to be online than those in the south. For example, our research shows that 65 percent of Germans and 63 percent of Brits are online, versus 50 percent in France, 46 percent in Italy, and just 37 percent in Spain. Travellers, though, are more likely to go online, regardless of where they live. In both Germany and the UK, 68 percent of travellers are online; in Spain, 45 percent go online.

There are several other factors that will influence online booking. In-home broadband access, which is fairly strong in Spain and Italy, the forms of payment accepted online, and the presence of low-fare/budget airlines, which have an Internet-focused model. In Alitalia's case, they accept only credit cards online. In a multiple-choice question in our Q4 2005 European Technographics study, credit cards were the most preferred method of online payment by online travellers in Italy (41 percent), but COD came in second (36 percent, which is very close) and then EBT (26 percent). No two European countries online travellers have the same preference, and airline websites tend to do a terrible job catering to travellers varying needs.

What's more, in Europe we haven't seen the same set of business processes instituted to encourage more travellers to buy online. In the US, airlines shut down their city ticket offices, and now charge US$10 or more to purchase your ticket either over the telephone or at the airport. If European airlines are truly focused on driving more sales online, they must evolve their Web sites to better serve customer needs, while overhauling their business processes to support that strategy.

There are numerous projections related to online travel market in Europe, varying from EUR 25.2 billion to EUR 35 billion (for 2005)? How big is the European online travel market and how do you expect it to end this year?

We forecast EUR 30.7 billion of leisure travel to be purchased online this year across Europe, up from EUR 21.6 billion in 2005. Our current 2007 online forecast is EUR 39 billion.

How do you think Europe as an online travel market is evolving with all the acquisitions done by US majors?

We have seen a mix of results from the US acquisitions. In the case of Cendant, it's been bloody awful. Clearly, the eBookers deal must have looked great when it was presented in the clinical environment of PowerPoint, but someone likely several someones at Cendant didn't do their homework. Priceline, Travelocity, and Expedia have all fared better with their acquisitions. Given the poor exchange rate, though, I doubt we'll see any more US companies buying firms in Europe. Conversely, I will not be surprised to see European travel companies make forays into the US to opportunistically snap up some of our online travel businesses, though clearly they? be looking at niche or specialty firms.

How do assess the current distribution battle between the new online channels (suppliers?sites, OTA and search engines) and traditional channels?

I don't believe the battle these days is being waged as much between online and offline channels as it is between the various online entities. Eighteen percent of online European travellers research a trip on the web and then buy it offline.

Online, the battle is really between third-party intermediaries and suppliers (the travel search engines, or meta search sites, publish data from both suppliers and agencies, from which the traveller picks a site). I see suppliers winning the battle, because even though agencies will offer broader choice and may come to be viewed as having the best prices (which is the case in the US), suppliers will gain from trust, accuracy, and unique functionality (case in point: travellers who buy a ticket on KLM's site in the Netherlands get to create their own luggage tags, free).

If demand remains strong, suppliers will see less need for agencies, who in turn will be left either with less inventory from top-tier brands, or plenty of inventory from less popular brands. The LCCs have shown that consumers can be encouraged to book direct, and that a supplier site can partner with other businesses to round out their product offerings (e.g., hotels, insurance, lounge passes, etc.). Agencies stand a chance to compete fro long-haul travel, since travellers may know less about who flies to a destination, or which hotels operate there, and may value the added features found on travel agency sites, such as photos, virtual tours, user reviews, etc.

What major changes do you foresee in European market? How do you think this market will evolve vis-?vis other markets?

I believe that Europe is at a cross-road right now. There are so many possibilities with what can happen in Europe mobile marketing, for example, is going to take off much faster, and be much more exciting, in Europe than in the US, and the travel industry is ably poised to captialise on that opportunity.

The major European tour operators like Thomson, TUI, etc. are improving their online capabilities. Social computing recommendations and referrals through others, use of blogs, etc., will also help European online travel grow, especially as more of these are launched in languages other than English. But there are business practices in Europe that may impede online growth. For example, it still costs more to buy computers and go online in Europe than in the US. Sites within a country may not be multi-lingual, which can impede adoption or preference for example, it appeared to me that Alitalia's Italian site is published only in Italian. What a Spaniard, Greek, Egyptian or Swede who lives in Italy going to do in that case? And the European practice of assessing a booking fee by suppliers, as well service fees for credit or debit card usage, won't spur travellers to send Valentine cards to European travel companies.