OTAs Gain Share Down Under, But Traditional Agents Stay Strong

Online travel agencies grabbed a significantly larger share of the total travel market in Australia and New Zealand last year. But not all the news out of Down Under is bad.

The good news in this heated market is that conventional agencies are holding their own in the battle for lucrative international bookings.

Online travel agencies will own 41% of the total travel market by 2013, up from 36% in 2011, according to a recent report from PhoCusWright.

“Agencies in Australia and New Zealand absolutely have to be online. They have seen some of their market share go to the pure online players,” said Douglas Quinby, senior director of research for PhoCusWright.

“But at the same time, you have significant demand for international outbound,” Quinby said.  

“There is definitely room for traditional retailers, especially those that offer the kinds of service the Internet isn’t very good at – creating complex international itineraries and supporting travelers who have complex travel decisions to make.”

Rate of growth will slow
The new PhoCusWright report, “Australia and New Zealand Online Travel Overview Fifth Edition: Surges & Slowdowns,” shows stunning growth in 2011.

Last year, gross online travel bookings jumped 7% in local currency last year, the equivalent of 21% growth in U.S. dollars, thanks to currency fluctuations.

That’s double the growth rate of the overall Australia and New Zealand travel market, though online travel is expected to slow down as we head into 2013.

“There is robust growth among online agencies and supplier directed channels,” Quinby told Travel Market Report. “There is also some headroom for growth because the hotel market is relatively fragmented.

“At the same time, the overall market is going to slow down. Some of the bigger OTAs are starting to feel the headwinds of deceleration as the ANZ market matures.”

Dominant carriers
Quinby sees parallels between ANZ and Canada. Both have large geographic areas and a relatively small population. Both have a vibrant outbound market. And both have a small number of carriers controlling the air market.

In Australia and New Zealand, even the largest OTAs – Wotif, Webjet and Expedia – lag behind Qantas, Virgin Blue and Air New Zealand, the oligopoly that rules the market.

By contrast, Europe, North America and Asia all have multiple carriers competing in almost every market. “I’ve got multiple options if I want to fly from New York to LA or London to Berlin or Berlin to Beijing,” Quinby said.

“But if I’m flying from Sydney to Perth, there aren’t so many options. I know the players and I’m much more likely to book through a supplier website than an OTA or a metasearch engine like I might do in the US, Europe, or most of Asia.”

The three carriers that dominate the market Down Under “are the beneficiaries of being very big fish in a very small pond,” Quinby said.

Mature market
But the Australia-New Zealand pond is no longer growing quickly. Online penetration there is already among the highest in the world – about 40% and heading toward 41% – and there is no longer room for double-digit growth year over year.

The situation is similar to the U.S., Quinby said. When online penetration gets to about 40%, the market is essentially mature. Volume will expand during good economic times and shrink during downturns.

“In that kind of environment, it’s a cat fight for market share,” he said. “They have to steal each others’ business and take any growth out of somebody else’s market share.

“As growth slows, home-grown online and traditional agencies are stepping up the fight, as are some of the global OTAs,” he said. (See sidebar.)

Expanding into new territory
“The online players can no longer depend on frothy growth as consumers shift channels en masse,” Quinby said. “They need — and have — growth plans on multiple fronts.”

Wotif, which has been largely hotel-focused, is moving into air sales. Webjet, which has been almost entirely air, is moving aggressively into the hotel sector.

In addition, outsiders Booking.com and Expedia are both pushing into the ANZ market. At the same time, Webjet has launched in the U.S., and Wotif is moving into Southeast Asia, including a joint venture in Vietnam.