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Asian Wall Street Journal
February 18th, 2002
Ready
for Take-Off?
While e-booking a hotel room has become increasingly popular in
Asia, the region's consumers have shown a reluctance to use the
Internet for airline tickets. Zach Coleman finds out why.
Kiit Ha is Internet-savvy but she's never bought a plane ticket
on the Web. The Hong Kong Advertising executive is in the habit
of booking vacation hotels over the Internet. She buys books and
clothes on the Web. She looks at travel Web sites to check flight
schedules, but the fares her offline travel agent quotes here consistently
beat those she's found on the Web. Online, she says, the prices
are just ridiculous."
Ms. Ha is hardly alone. While sales of air tickets have fueled
the takeoff of the online travel industry in the U.S. and Europe
as one of the largest segments of consumer e-commerce, Asian air
ticket sales have failed to climb as fast as Internet hotel bookings.
While neither hotels nor airlines in Asia are making many direct
sales to consumers, independent Web sites in the region are booking
a lot more rooms than plane seats. that's been a boon to hotels,
particularly to smaller ones outside the big chains or located beyond
city centers. Some of these hotels are now filling most of their
rooms with guests who book through unaffiliated sites.
That hotel rooms are outselling plane tickets online in Asia underscores
the hard reality that has brought the Internet boom down to earth:
concepts can't sell themselves online any more than they can off-line.
Entrepreneurs who thought the success of online air ticketing in
the West would set them up for sure hit in Asia have met with disappointment.
Consumers need something more than just novelty to be persuaded
to buy online. Sellers of Asian hotel rooms have provided that through
simple, discounted rates and useful information on facilities and
service quality. Few regional plane-ticket vendors have offered
advantages to match. Of course earning a profit also helps keep
a site in business and there too, rooms top tickets; the profit
margin for selling hotel rooms runs at least five times higher than
that for plane tickets, site executives say.
U.S. consumers buy millions of domestic tickets from Web sites
such as Travelocity.com and Expedia.com because they carry most
of the discounted fares offered in the U.S., giving travelers the
information to make their own tradeoffs between flight times, prices
and earning frequent-flier points. With paperless "e-tickets,"
An American
traveler is ready to fly after putting in his or her credit card
number and doesn't have to wait for anything to be delivered. All
told, U.S. consumers spent $13.9 billion on-line on air tickets
last year, more than triple what they spent on the Web on hotels,
according to estimates by research firm Jupiter Media Matrix Inc.
Similar figures
are hard to come by in Asia. Research firm IDC Asia/Pacific estimated
early last year that hotel rooms outsold plane seats on-line in
the region by about 2-to-1 in 2000, but that the gap would narrow
in 2001 with consumers spending $640.1 million on hotels rooms and
$431.8 million on plane tickets.
Deep Discounts
Regional travel
sites report little or no air ticket sales however. Alex Kong, chief
executive of Kuala Lumpur-based Asiatravelmart.com, says his site
books 16 times more hotel rooms than airplane seats. Competitors
such as sino.net and asia-hotels.com don't promote plane tickets
at all. Singapore listed AsiaTravel.com doesn't either. But the
site has been profitable since its founding six years ago, and it
has watched revenue climb 38% in the year that ended last Sept.
30 to $26.8 million. The flashiest regional site that focused on
plane tickets, ebookit.com, shut down last summer after less than
a year in operation.
Asia's major
airlines also are selling few tickets over the Web. Aviation analyst
Philip Wickham of ING Barings estimates the region's airlines are
selling less than 1% of their tickets on-line. By comparison, 14%
of U.S. airline tickets are sold on-line, according to U.S. research
firm PhoCus Wright Inc.
We don't sell
a lot of tickets ourselves," says Tony Tyler, director of Pacific
Airways, "Eventually the world will move the USA-way, but it
is not happening as fast as some predicted."
That said, online
ticket sales in Asia appear set for growth. Some local Web sites
started by traditional agencies or as stand-alone ventures are already
selling more plane tickets than hotel rooms. Sites getting airborne
include a joint airline site in Taiwan, Hong Kong-listed Fourseas.com
Ltd. and the most visited travel sites in Singapore, South Korea
and Taiwan as measured by research firm NetValue.
Cathay has quietly
begun offering deeply discounted fares available only on its Web
site for 48 hours at a time. Online holdouts EVA Airways and AirIndia
finally introduced Web bookings in January. Joint sites by airlines
in Japan, south Korea and the rest of the region are to be belatedly
debut later this year with the promise of competitive fares and
heavy promotional muscle. Airlines around the rgion have had more
success selling domestic tickets than international ones online,
but international routes generate the bulk of the revenues for most
major Asian carriers.
The reverse
is true for U.S. airlines, and the contrast pints up some of the
obstacles holding up Asian ticket sales. In the U.S., sites can
conduct transactions across a broad marketplace with a single currency.
Within the domestic market, airlines make cetralized price adjustments
constantly throughout the day without the need to notify regulators
or competitors. Those changes are instantly reflected in the giant
databases accessed by the computer networks used by travel agents
both off- and on-line to make bookings.
Europe is largely
the same, especially now that the introduction of the Euro has made
regional prices more transparent. But in Asia, the lack of widespread
e-ticketing means Web sellers effectively have to set up facilities
in each market to print and deliver paper tickets. Every country
uses a different currency. On top of that most airlines adjust their
fares locally and notify agtents of changes by fax or phone. the
computer networks used to make reservations display at most only
full-fare prices, because airlines in most of the region can only
adjust their international and sometimes domestic retail prices
after official consultations.
So without investing
the time and manpower to input frequent fare changes themselves,
Web sellers can offer only full-price tickets that any traditional
agent with a phone and a fax machine can easily beat. Local sites
doing well with plane tickets are managing to keep up with the fare
changes for their own individual markets. Eztravel.com.tw, Taiwan's
top travel site, employs a staff of six workers to track changes
on fares from the island, each of which can take a half-hour to
process. But the task of building an up-to-date fare database for
the region has proved too daunting.
On the contrary,
a hotel room generally costs the same regardless of where the customer
is coming from and its price doesn't change very often. But eztravel.com.tw
Chief Operating Officer Andy Lee says his site comes out ahead on
plane tickets, despite thinner profit margins, through high sales
volumes, the same approach as the big U.S. sites. Ticketing paperwork
is just one factor squeezing the profit on seat sales. ticketing
also usually requires credit card payment, for which the card companies
charge 1% to 3%, while most on-line hotel bookings take only a credit-card
number as guarantee; the hotels actually process the payments and
pay the card companies.
Squeeze
on Commissions
An even larger
factor is the move by airlines to ratchet down agency commissions,
which have fallen in most Asian countries from 9% to 7%, 5% or even
zero in just two years while hotel commissions have remained steady
at around 10%. That's brought the profit margin on online tickets
to "virtually zero," says Mr. Kong of Asiatravelmart.com.
Hotels have
far less market leverage to cut commisions. "In each market,
there's a dominant airline, which has a lot of control over price,"
he says. "But there are too many hotels in any given market,
there is no control over the price." Many sites, such as Mr.
Kong's, contract directly with hotels for special deals, giving
the sites' more room to offer discount rates to customers and to
pocket a profit for themselves.
The multitude
and range of options available gives travelers another reason to
surf the Web to figure out which hotel is more conveniently located
or which has clean bathrooms -- questions ehich rarely come up with
airlines. From Hong Kong "you go to Kuala Lumpur, you know
you have a choice of Cathay, Malaysian, and maybe one or two more
carriers. But there are more than 120 hotels in K.L.," says
Jon Stonham, chief executive officer of asia-hotels.com. Mr. Stonhams's
site, which has made its mark by carrying hotel reviews by customers
and site staff, has seen booking volume quadruple in two years to
more than 350,000 rooms a year.
Sites like asia-hotels.com
have made all the difference for the Keong Saik Hotel, a tiny 25-room
hotel tucked away in Singapore's Chinatown district. When the hotel
opened five years ago, staff went door to door calling on local
companies to promote the Keong Saik as a convenient place to put
up corporate visitors. Now the hotel generates most of its business
over the Internet and is doing far better than it was in 1996. "It's
been very helpful," says general manager Nicholas Tan.
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