Internet Growth and Competitive Differentiation: On-line Travel Agencies

Essay by yourikUniversity, Master'sA+, April 2004

download word file, 6 pages 5.0


Travel ranks as the leading category of on-line transactions by U.S. consumers (Pappas, 2001). According to James V. Delong, a senior fellow with the Competitive Enterprise Institute's Project on Technology, "there are more than 33,000 travel agencies, ranging from one-person shops to giant American Express, and 270 of them are online" (p. 2). A study by Bear Stearns suggests that only 200 on-line travel sites will still be in existence by 2005 of which, Travelocity and will lead the market (Greenberg, Regan, 2001).

This paper discusses why the growth of Internet necessitates the need for competitive differentiation within the travel industry. After discussing how the Internet has impacted the travel industry competitive environment, the paper compares business to consumer strategies employed by its major players -,,, and Orbitz. The comparison seeks to answer the question as to why web site differentiation is important. The paper concludes by suggesting that on-line travel agencies must not only distinguish themselves within their sub-segment but also from their physical travel agency counterparts.

Internet Impact on the Travel Industry

By 2003, researchers estimate that on-line bookings will account for 10 to 11 percent of total U.S. airline ticket sales (Delong, 2002, Pappas, 2001). Of this percentage, roughly half will be purchased directly from the airlines (Delong, 2002). The growth of the Internet, in both its scope and functionality, has resulted in a number of profound changes within the industry. Chief among them are the lowering of distribution costs, new industry groupings, and expansion of direct customer relationships (Pappas, 2001).

The complexity of the airline industry has grown exponentially with the growth of the Internet. New systems for ticket sales and reservations have emerged. Traditionally, direct ticket sales to the customer via the telephone became the biggest growth area for...