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Please note to that matter that Expedia is not in the same position as
Travelocity as Northwest and Expedia reached an agreement in April 2,
2001 and decided that Internet agencies will no longer get a commission
on sales but will get a specific payment instead, as part of a global
distribution agreement. Let's also specify that Expedia is in charge of
developing Northwest Airlines' BtoC website, which brings this agreement
much further than a commission on sales.
But I still
think that before the end of 2001, online airline companies will have
cut down the commissions they pay to Internet agencies, at least in the
United-States. The day it happens, the online real power will indeed be
on Orbitz's side and consumers might well see prices increase.
Even though
Travelocity and Expedia might play an important role in the American eTourism
sector, we still need to consider its role in context as a producer always
prove so much more powerful than its distributors.
Don't you
think that the fact that producers already have 85% of the American domestic
travel and might well become distributors as well through a unique site
that would be dedicated and totally dominated is much more worrying?
To that
matter, Professor Hausman's statement goes much further as it estimates
that should the Orbitz project really take place, it would cost consumers
an extra $3.2 billion…
As far as
I am concerned, I'd rather remain cautious, and maybe even doubtful, on
the assumptions Mr Hausman made to calculate this amount.
Indeed,
one of the key elements of his calculation is based on the fact that the
Internet, as it allows airline companies to display specific prices on
their web sites, outside the GDSs' database, caused a disruption of the
prices and consumers are the ones who presently benefit from this.
The Orbitz
system, as it will force airline companies to display their whole offer
on Orbitz in a centralized way, will allow them to know in real time the
prices which are displayed by every single company and will thus prevent
inconsiderate discounts.
In my opinion,
this disruption of the prices would have been settled in a short time
anyway, due to the Internet tracking tools. What's more, it is not possible
to create an economic theory on a temporary disruption by censuring a
return to normality.
And this
is even truer, as I am convinced that this disruption can only prove profitable
to the biggest actors in the sector, which means that the weakest ones
will disappear and that the market will consolidate itself…
To cut a
long story short, should this disruption of the prices last, consumers
would not be the benefit from it but, on the contrary, would end up loosing
out, as the biggest actors would become even more powerful. Please note
to that matter that the five current Orbitz' founders represent 74% of
the American domestic travel today and will soon represent 85%, which
cannot have happened by pure chance…
In order
to be as objective as can be, let's also specify that Hausman's statement
was commissioned by the ITSA (Interactive Travel Services Association,
whose members include…Travelocity and Expedia), Southwest Airlines
(that is not part of the Orbitz project) and the ASTA (American Society
of Travel Agents).
The two
opposite sites are presently at war through reports and this should prompt
you to view the objectivity of their content with caution… This is
the reason why I give you the opportunity to download each of them at
the end of this article, so that you can make your own opinion.
As far as
I am concerned, I think that the real power lies more in the producers'
hands than in the distributors' ones.
When we
saw how easily Northwest managed to cut down commissions to American and
Canadian travel agent websites without prior notice, we can imagine the
influence such decision could have, should the other airline companies
decide to follow its example.
Should this
happen, there is no doubt that companies that are still making great losses,
as is the case for Travelocity and Expedia, would immediately find themselves
in great difficulty. This proves that producers' strength is so much bigger
than distributors' and I do not only mean actors such as Travelocity and
Expedia. Indeed, how could online small actors resist to a joint action
by airline companies aiming at suppress online commissions?
We cannot
consider the threat that Orbitz represents lightly, as this new unique
actor would control 85% of American domestic air travel.
But, as
I already mentioned it as soon as July 2000 (see my article titled: "Orbitz:
No Future?"), all these strategic considerations are presently neglecting
a central point: how will consumers react to Orbitz?
We have
already seen so many eCommerce gigantic projects, with huge budgets and
great actors that still managed to collapse…
Consumers
will no doubt have the last word.
Either Orbitz
will prove to be a high-standard website that will manage to make up for
lost time faced to its competitors and it will then be time to start getting
worried, either the project will show such a lack of maturity online that
consumers will refuse to trust this monopolistic group of airline companies
and this will be the proof that Orbitz really lost its bet.
Please bear
in mind the fact that in front Orbitz' promises of low fares, we have
sites such as Hotwire.com that perfectly manage to keep their promises.
This type
of competitor is much more dangerous for Orbitz than Travelocity or Expedia.
And finally,
we should not forget another important element for Orbitz' success…or
failure: its shareholders.
Will the
harsh competitors that can be found among Orbitz' shareholders keep on
playing the game tomorrow? As some of them might feel tempted to go in
it alone, even if they do it in a discreet way, would this not question
a project that is more based on some apprehension about the future than
on a real unity between its founders? Can't we think that the project
might well blow off tomorrow under the pressure of its own capitalistic
pressures?
Orbitz future
does not appear quite as rosy as what its detractors seem to think and,
in my opinion, the die is not cast yet.
One thing
is for sure: it will prove a fascinating fight!
Sources
:
- Jerry
Hausman study Massachusetts Institute of Technology, expedite by 'ITSA
and ASTA.
- Global
Aviation Associates study expedite by Orbitz.
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