"Log On, Take Off"

In the small mediterranean resort of Kalkan in Turkey, Osi's cybercafe is humming. In one corner backpackers are accessing their e-mails. In another more well-heeled tourists are staring at their screens, seeking the best yacht charters. Not far away Korsan, a lively waterfront restaurant, is taking table reservations and apartment bookings online.

The Internet is changing everything about life on the road from how travelers research destinations to how they find the perfect hotel room, buy airline tickets and keep in touch. Nearly 3,000 cybercafes are operating worldwide. Dedicated sites cover a galaxy of needs, including global weather updates, events guides, currency rates and trouble spots. Few in the travel industry may be making money online so far. But one thing is certain. No one is ignoring the Internet.

"All travel companies in all sectors now realize that they have to move forward," says Antonio Silano, director of planning at The Marketing Store, a leading international marketing agency. "They all realize the power of e-enabling their business." According to Forrester Research (an independent research and analysis firm), global online travel was worth about $5 billion in 1999 and should grow to $29 billion by 2003. With the travel industry itself poised for massive expansion the European market alone is currently worth about $80 billion a year and is set to double by 2020 travel is already the sector leader in online sales. The problem in such a fast-changing marketplace is how to harness the Net.

"The travel industry is rigidly defined by three kinds of players," notes Silano. "First, there are suppliers of hotel rooms, cars, airline seats and so on. Second, there are aggregators organizations with mainframe systems that allow travel agents to plug in and exist. Third, there are retailers who act as experts, fare finders and travel coordinators. The Internet is causing all three groups huge headaches."

E-travel challenges each of these conventional pillars. The Net offers convenience 24 hours a day, seven days a week, and online travel providers have squeezed margins and prices. Their overheads are low, some are moving to low-cost ticketless systems and many are coming up with popular new services that allow customers more individual flexibility in making travel arrangements.

Yet turning a profit remains a problem. "The companies making money at the moment are low-fare airlines with an online business model such as Ryanair and easyJet," says Peter Nordstrm of the Swedish e-business consultancy Cell Strategy. Such new organizations do not face the pitfall of integrating modern technology into old-fashioned systems.

The most promising sites are well-focused and increasingly include corporate travel solutions. U.S.-based Expedia a Microsoft-owned site that acts as an agency for airlines and hotels as well as a travel adviser for individuals is the one to beat. So far it has moved cautiously in Europe, operating only out of the U.K. and Germany. "We don't believe we have to be in all countries at once," says Simon Breakwell, who heads Expedia in Europe. "Germany, France and the U.K. will represent 69% of the European online travel market next year. When we move into Sweden, Italy and Spain in the next couple of years, that will represent 80% of the market."

Expedia, Travelocity and other mass market sites are driven by a belief in enabling technology. It is this, says Breakwell, which offers customers maximum flexibility. French-based Travelprice offers another approach. "It may be hackneyed but it's still true. The secret of success is to think globally and act locally," says Travelprice ceo Roland Coutas. "Each travel market is different. In Germany people like to travel together in big groups. In France we never want to see our neighbors on holiday. And there are different dynamics. In Canada the winter is the main time for holidays. People want to go south to be warm. You have to reflect these cultural differences. You need a global backbone but very localized services."

Only a handful of sites are delivering on the full potential of online booking. Getting the technology right and adapting to customer thinking is proving tricky. "Something as simple as local call centers well connected to your website can make all the difference," Coutas says.

There are other issues. Many people browse online. Fewer make purchases, not least because of lingering fear of credit-card fraud. Most sites offer booking services only to country-of-origin surfers and many are tortuously slow. Others still force customers to pick up a phone to book. In a worst-case scenario, bankers Bear Stearns have predicted that up to 80% of travel sites could be out of business within three years.

Even at risk are apparently successful sites such as ebookers and lastminute.com in Britain, which have concentrated on excess inventory sales of airline tickets. Lastminute.com, which has twice the U.K. market reach of Expedia, lost $20 million in the three months to June. Co-founder and ceo Brent Hoberman says the company is now reducing its dependency on travel.

Such a move may not come a moment too soon as the traditional kings of the travel business airlines, hotels and tour operators gear up to fight back. "The first generation of Internet activity has been very much about reducing the cost of sale," says David Guillebaud, vice president of Arthur D. Little's worldwide travel and tourism practice. "It has been about getting direct to the customer. Now most of the airlines, and hotels to a lesser extent, are trying to see how they can make money on the Internet by controlling prices and distribution." Airlines, in particular, are taking the battle into the enemy's camp. At present the major carriers sell about 5% of tickets online. This will soon change. Three large airline consortiums in the U.S., Europe and Asia, have formed to compete head-on with Internet agencies by peddling tickets online direct to the customer. But in the long run airlines will need to set up a more sophisticated system of paperless ticketing if they want to use the Net efficiently and successfully. "The move toward e-ticketing is inevitable," argues Cell Strategy's Nordstrm.

Hotels in Europe sell relatively few rooms online only 3% of the total, although large chains such as Marriott International and Hilton International report fast growth. In August five major European hotel groups announced a joint Web initiative to sell each others' rooms. Independent hotels 80% of the European market are now joining in. "The Internet has clearly benefited the small, independent and family-run hotels," says the Market Store's Silano. "Many small hotels and guest houses in the Lake District of Italy are reporting occupancy growth between 40% and 60% year on year."

Conventional tour operators and travel agents are also responding. As airlines, driven in part by Net bargains, cut commissions, travel agents have had to scramble to reinvent themselves. "Existing agents have been slow to exploit their customer relationships," says Cell Strategy's Nordstrm. "They have not made the essential change from order takers to solution providers." Some, like American Express and Carlson Wagonlit, have now tightened their links with business clients. Smaller agents are reacting, too, often by charging customers a fee or by focusing on upmarket or specialized niches. Meantime large tour operators such as Thomson and Airtours in the U.K. and Germany have committed $140 million each to put their holidays online.

Online car hire notorious for its hidden charges and delays is the main laggard. Many of the major players such as Hertz and Avis offer little more than standard rates and exclude prepaid deals. Three Web-friendly exceptions: Online-only easyRentacar, Holiday Autos (the world's largest rental car broker) and the German car rental firm Sixt, with its user-friendly site. "Most sites are pretty bad, with pre-booking of up to three days required," says Nordstrm.

Almost everyone in the travel industry accepts that the Internet revolution has barely begun. For the traveler, it will mean increasing convenience. Take, for instance, finding flight information. "You'll be able to do a lot of things at home or in the office which today you have to do at the check-in desk," says Leo Dowling of SITA, the information systems consortium owned by 700 of the world's airlines. It will also mean ever-greater transparency. Recently, the travel agent's favorite reference book, the OAG Gazeteer, covering nearly 700 resorts and 11,000 hotels worldwide, went online at Virgin Net's travel site.

Sites will also grow more comprehensive and extend their global reach. Yet already few people are incommunicado. In the Picos de Europa, a mountainous region in the north of Spain, tour guide Jim Thomson greets groups by checking their names on his Handspring (a Palm Pilot clone) from details e-mailed over the Net. Soon he will be able to prepare in advance for every contingency dietary requests, bike sizes, room requirements by accessing his company's mainframe booking system. In his spare time Thomson is compiling details of walks on his PC and beaming them via his HandSpring to others to use.

"The more information we can access easily, the more we can improve people's enjoyment of their holiday," says Thomson. And the aftermath as well. At least a dozen Internet sites let you share your holiday photos with the folks at home.

Reported by Steve Homer