Online Travel Continues To Rise

Despite tough economic conditions, a tense political climate and fewer travelers, the online travel market in North America performed surprisingly well in 2002. According to a new report from PhoCusWright Inc., “Online Travel Overview: Market Size and Forecasts 2002-2005,” online leisure/unmanaged business travel grew 37% to over $28 billion while the overall travel market declined 5%.

By 2002, 15% of all travel was booked online, and slower but steady growth is predicted for the next few years, assuming improved economic conditions by the second half of this year or early 2004. Online market penetration varies widely by segment; for example, one in five airline tickets is sold online in North America, but that percentage falls to 9% for hotel reservations and 4% for cruises and vacation packages.

PhoCusWright foresees some shift in market segmentation between now and 2005, when the percentage of travel booked online is likely to double and reach over 30%. Today’s largest segment, airlines, despite significant online growth, will lose market share as online travel retailers continue to diversify. Airlines’ current 54% share of the online travel market will fall to 49% in 2005 as other segments, including international sales, cruises, vacations, car rentals and hotels grow at a faster pace.

In 2002, the largest gains in the online travel market were posted by the smallest segments,  vacation packages and cruises, which grew 75% and 64%, respectively. Combined, these two slices of the online travel pie represent only 4% of the market.

The online vacation package market will reach $1 billion this year, up 74% from last year, according to PhoCusWright. Online cruise sales will reach $900 million this year, up 61%. Even though only 10% of packages and cruises will be booked online by 2005, it’s an important part of the equation as many consumers will make their travel decisions online, even if they ultimately purchase offline. As a matter of fact, about half of online cruise sales are researched online but purchased offline using the toll-free number on the travel Web site.