If anyone in the travel business can find an upside to shrinking travel budgets, it's an online booker, whose customer base consists entirely of bargain hunters.
The tighter the purse strings, experts say, the greater the chance a traveller will look for deals at online travel agencies (OTAs) like Expedia, Priceline, or Orbitz Worldwide.
"As suppliers like airline and hotels see softness in demand, they need to find ways to create demand and work with intermediaries like OTAs," said Henry Harteveldt, a travel industry analyst at Forrester Research.
He said US economic weakness would pose problems for the travel industry but that online travel agencies could actually benefit from those woes.
Shares of online travel agencies have been mixed so far this year. Expedia shares are down about 30% year-to-date. Orbitz shares are down nearly 20%. But shares of Priceline are up about 11%.
Forrester data from the first quarter show that 24% of Americans were considering cutting back the number of leisure trips they take and 29% said they were considering spending less money on leisure travel.
That contrasts with only 13% of travellers considering taking more leisure trips and 17% who said they were thinking of spending more money on leisure travel.
Other evidence that a wave of weaker demand is heading for the travel industry is plans by several major carriers like American Airlines and United Airlines to significantly rein in capacity - the number of seats for sale - in the fall.
HIGHER FARES
Capacity cuts most likely will result in higher air fares as carriers attempt to pass on record high fuel costs to their customers. Travellers already are feeling the pinch after 13 industry-wide fare hikes this year.
Online travel agencies, by virtue of their diverse operations, say they are uniquely positioned to thrive while travel suppliers suffer.
Orbitz Chief Executive Steve Barnhart noted in particular his company's ability to attract bargain hunters to comprehensive leisure travel package deals that bundle transportation, lodging, car rental and other attractions.
"We have an offering that is working very well in this time, and frankly, packaging is working very well for us," he told Reuters in an interview on Friday.
These advantages also appeal to travel suppliers who sell inventory on their sites.
OTAs have already demonstrated a resilience to economic weakness as they extended a long trend of increased bookings in the first quarter when the economy posted sluggish growth.
The US economy expanded at an annual rate of 0.9% in the first quarter of 2008, compared with 2.2% growth for 2007.
Meanwhile, in the first quarter of 2008, Expedia's bookings jumped 20% in the quarter from the year-ago period. Priceline said its bookings increased 76% year over year. And Orbitz saw its bookings steady.
The primary growth driver, according to all three publicly traded online travel agencies, was international bookings. Companies with operations around the world can offset the impact of economic weakness in one country with growth in a country that is not suffering.
"The diversification we have globally helps quite a bit," Barnhart said.
By Kyle Peterson, Reuters
