Travelocity.com is a leading online travel Web site where travelers can make airline, hotel, and car rental reservations, book cruises and vacation packages, find information about destinations, and access a range of other travel-related services. It was launched in March 1996 as a joint venture of Sabre Interactive and Worldview Systems Corp. Sabre Interactive was a business unit of American Airlines’ parent company AMR Corp. Sabre’s principal business was to develop and install computer systems for travel agents. Sabre was the leading travel reservation system used by travel agents. In 1995 Sabre offered an easySabre service through online services CompuServe and Prodigy, giving consumers access to the same booking information available to travel agents. For 1997 Sabre reported $1.8 billion in revenue and $200 million in net income.
Worldview was a partnership formed by publisher Random House and regional Bell operating company (RBOC) Ameritech. Worldview provided content for Travelocity.com, while Sabre booked the airline reservations. Travelocity’s strategy at first was to offer compelling content, including hotel recommendations, restaurant reviews, entertainment listings, weather reports, video clips, photos, maps, news, chat forums, and other information about specific destinations. Travelocity’s Web server was connected to Worldview’s multiple databases by Kiva’s Enterprise Server software, which processed user requests and pulled down real-time data from Worldview’s databases, then displayed it on the Travelocity site. In February 1997 Sabre Interactive bought out World-view’s interest in Travelocity, with Worldview remaining as the site’s featured provider of destination information.
TRAVELOCITY ENJOYS STEADY GROWTH
In the first three months 144,000 people registered at Travelocity.com, which reported 1.2 million visits during the period. At first the site sold airline tickets and provided destination information. It then added features such as vacation packages, car rentals, and hotel reservations. Through an agreement with Vicinity Corp., Travelocity users were able to access street maps of areas around specific U.S. sites. Before the end of 1996 Travelocity was chosen to be the travel content provider for Time Warner’s experimental online service, Road Runner. During the year Travelocity refined its Web site to make it easier to use. By the end of the year it offered travel information for more than 200 destinations around the world and had more than 400,000 registered members. In October 1996, Microsoft launched a competing travel service, Expedia. Travelocity and Expedia would become the top two travel sites on the Internet. Another online travel competitor, Preview Travel, would be acquired by Travelocity at the end of 1999.
Travelocity enjoyed steady growth during its first two years in business. It provided reservations on more than 400 airlines, schedules for more than 700 airlines, reservations at 35,000 hotel locations, and access to 50 rental car companies. Registration was required to make a purchase over Travelocity, with tickets being delivered either to a local travel agent or through Travelocity’s own travel agency, the Travelo-city Service Center. To maintain the support of travel agents who utilized the Sabre reservation system, Sabre and Travelocity built 12,000 customized Web sites for travel agents to help them handle online bookings. It was important that Travelocity position itself as an ally, rather than as a competitor, to travel agents. Travelocity was created as the key element in Sabre’s strategy to capture the biggest possible share of overall travel bookings, both on and off the Web. For 1997 the company handled more than $100 million in bookings, a sizeable percentage of the estimated $900 million booked in online travel reservations that year.
MERGER WITH PREVIEW TRAVEL CREATES A CATEGORY LEADER
Toward the end of 1998 Travelocity unveiled an upgraded Web site that reduced the number of screens required to book a flight from 13 to three. In the first half of 1999 it added personalization features and richer content. In a move that consolidated two of the top online travel services, Travelocity merged with Preview Travel in October 1999. The new company would be called Travelocity.com and would be headquartered in Fort Worth, Texas. In addition to creating a category leader in online travel services, the merger had the effect of making Travelocity a publicly traded company and giving it access to equity markets, because Preview Travel was a public company. The merger also separated Travelocity from its parent company, Sabre, which continued to be Travelocity’s principal technology partner. Sabre also provided technology for other online travel services, including Priceline.com and Hotwire. Sabre retained a 70 percent ownership in Travelocity, while Preview’s shareholders owned 30 percent. In addition, Sabre contributed $50 million in seed money.
The merger of Travelocity and Preview Travel created the third most-visited electronic commerce site in the world, behind Amazon.com and eBay. The new Travelocity had about 17 million registered members and 8 million monthly visitors. It was the preferred travel provider for all of the major portals, including America Online, Excite, Go Network, @Home, Lycos, Netscape, USA Today, and Yahoo!. According to Forrester Research, online travel purchases were projected to increase from about $8 billion in 1999 to $32 billion by 2004. Another research firm, PhoCusWright of Sherman, Connecticut, predicted that online travel purchases would reach $20 billion by 2001.
Prior to the merger both Travelocity and Preview Travel sustained losses in order to gain customers and build market share. For 1998 Travelocity reported a loss of $21 million, while Preview Travel lost $27 million. For all of 1999 Travelocity and Preview Travel had combined revenue of $90.9 million and a combined loss of $49.8 million. While the merger between Travelocity and Preview Travel was pending, Microsoft’s Expedia went public with a successful initial public offering in November 1999. According to Media Metrix, Expedia had slightly more traffic than Travelocity during the 1999 holiday season.
As part of their strategy to gain market share, Travelocity and Preview Travel entered into an agreement with name-your-own-fare service Priceline.com. The three companies agreed to refer customers to each other’s sites and collect referral fees when purchases were made. The arrangement gave Travelocity and Preview Travel access to Priceline.com ‘s reverse auctions and enabled them to serve customers that were looking for the cheapest fares. Principal competitor Expedia countered by announcing its own plans for a name-your-own-price scheme for airline tickets.
The merger between Travelocity and Preview Travel was completed in March 2000, and in April the new Travelocity launched a $50 million advertising campaign to attract new customers. The print and TV campaign positioned Travelocity as the place where people could take control of their travel arrangements. The radio component of the ad campaign portrayed Travelocity as the online site that listed 45,000 hotels, 700 airlines, and 50 car rental companies. According to Media Metrix, Travelocity had combined traffic of more than 8 million visitors in February 2000, making it the top online travel site in terms of traffic. Expedia had 5.3 million visitors, while Travelocity by itself had 5.1 million.
Travelocity completed its integration with Preview Travel by mid-2000 and introduced a redesigned Web site. New features included a group shopping tool, a message board, customer reviews, and wireless travel services as well as a redesigned home page. At the end of June Travelocity had 21.6 million registered members, up from 19.2 million at the end of the first quarter. In September Travelocity teamed with American Airlines Publishing to launch Travelocity Magazine, a bimonthly title with a controlled circulation of 250,000. The new magazine was a logical extension of the Travelocity brand and enhanced the company’s position as a provider of tools for travelers who wanted to take control of their travel planning. In October Travelocity sold its 10 millionth airline ticket.
By the end of 2000 Travelocity supported Web sites in Canada, the United Kingdom, and Germany, with agreements in place to launch a site in Japan in 2001. Travelocity was first able to serve customers outside the United States in September 1997, when it altered its infrastructure to support global pricing and taxation. International customers were served by Travelocity’s main site in the United States, with tickets delivered through Sabre’s international network of more than 10,000 travel agents. In mid-1998 Travelo-city established a customer service center in Cardiff, Wales, to support its United Kingdom customers. It partnered with a U.K. travel agency to provide local content for a Web site designed specifically for the United Kingdom. Travelocity Canada was established in April 1999, and a bilingual customer service center was opened in Ottawa. Travelocity then focused on Germany and launched Travelocity Germany. A mid-2000 agreement with Japan Airlines, All Nippon Airways, and 11 other international carriers resulted in the subsequent launch of Travelocity Japan in 2001.
For 2000 Travelocity’s gross travel bookings reached $2.5 billion, more than twice that of 1999 and a significant percentage of the $11 billion spent in online travel during the year. At the beginning of 2001 Travelocity was the top-ranked online travel provider with 8.72 million visitors in January 2001, or 18 percent market share, according to Nielsen/NetRatings and Harris Interactive. The other top four online travel providers were Southwest Airlines, with 5.1 million visitors (14 percent market share); Expedia, with 4.8 million visitors (11 percent); Priceline.com (3.4 million visitors, 9 percent); and Delta Airlines (3.0 million visitors, 8 percent).
STRIVING FOR PROFITABILITY
Travelocity faced new competitive pressures from the airlines in 2001, including two new airlines-backed online ticketing services by Hotwire.com and Orbitz.com. In addition, the airlines capped commissions at $10 per ticket for all airline tickets sold online or offline, and some airlines—notably Northwest and KLM—eliminated commissions for tickets sold online. In March Travelocity also stopped booking flights on Southwest Airlines after the two companies experienced customer service problems. It also began charging $10 commissions on flights booked on Northwest and KLM.
Travelocity celebrated its fifth anniversary in March 2001 by launching new services, including a travel club (Travelocity Preferred Traveler) and Goodbuy, a negotiated fare service for 20 airlines and rooms at 2,500 hotels. A new feature, Option Finder, searched for alternate airports and departure dates. For the quarter ending March 2001, Travelocity reported a profit of $618,000 before special items and a positive cash flow. However, special items totaling $26.4 million resulted in a quarterly loss of $22.1 million, compared to $9 million for the same quarter in 2000. Travelocity’s stock rallied on the news and increased more than 134 percent from January through the end of April. Travelocity’s second quarter was also profitable on a pro forma basis, excluding the write-off of goodwill.
During the year Travelocity added new products and services. An investment in Viator added that company’s database of sightseeing tours, attractions, and other destination activities in 33 countries to its offerings. A partnership with American Classic Voyages Co. enabled Travelocity to offer Hawaiian cruises. In July Travelocity launched its Bon Voyage e-mail service, which recommended activities, events, and personalized special offers to its members. A toll-free telephone service was also offered to provide customers with offline support. Internationally, Travelocity announced it would acquire Air Tickets Direct, a U.K.-based online travel agency with a dedicated call center for offline sales support. The company also entered into agreements with British Airways and Lufthansa, and it began offering the entire range of 73 European rail passes.
In the quarter ending September 30 memberships increased to 30.4 million, an increase of 1.7 million over the previous quarter. While the online travel industry was the best performing sector of the Internet economy for the first eight months of 2001, the terrorist attacks of September 11 had a dramatic impact on online travel providers. Online bookings dropped to only 30 to 40 percent of their previous levels. At the beginning of October Travelocity announced it would close its call center in Sacramento, California, and reduce its workforce by 19 percent, or 320 jobs. The company had about 1,700 employees before the cutbacks and planned to institute a hiring freeze. Given the uncertainty of the times, it remained to be seen if Travelocity could achieve profitability.
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