Web Site Optimization: Travelocity Changes Course

 
 
By David F. Carr  |  Posted 2006-09-06
 
 
 

Ten years ago, Travelocity was a trailblazer, making it first to market to sell airline and other travel reservations over the Web. By 2002, however, it was eclipsed by competitors such as Expedia, which at the time pulled in nearly five times as much revenue—$1.5 billion, compared with $308 million for Travelocity.

Today, Travelocity is regaining market share. In the first quarter of 2006, its revenue of $234 million, while still less than half of Expedia's $494 million, represents year-over-year growth of 59%. In contrast, Expedia grew revenue by just 2%. Some of Travelocity's growth was driven by the recent acquisition of Lastminute.com, which sells travel and event tickets and other products at a discount. But even excluding Lastminute.com, Travelocity grew sales by 24%.

Travelocity attributes the gains to improvements in its Web site performance and customer service—both enabled by technology—that are fueling a change in its business model. For example, executing searches for flight possibilities faster and sending out e-mail alerts in response to airfare price reductions have improved sales.

Guided by a rigorous study of customer buying patterns, the company focused its development efforts on incrementally testing and improving Web site performance to more efficiently search databases and data warehouses to find customers the best price.

The Travelocity Web site runs on Linux and other open-source technologies, such as the Apache Software Foundation's Tomcat Java application server and Struts Web application framework, with Oracle as its primary database back end. Although Travelocity migrated to this platform from an earlier one that revolved around Unix and C++, chief technology officer Barry Vandevier says the more significant Web site improvements were the result of methodical refinements—rewriting software routines and database queries, testing, and rewriting again until the system could deliver better travel search results and do it more quickly.

How far as Travelocity come? Consider this: When the company launched, it collected commissions from airlines and hotels and sold advertisements on its Web sites—essentially a passive business model. After the Sept. 11, 2001, terrorist attacks—and the chill on air travel—many airlines were driven into bankruptcy or to the verge of it.

In rapid succession, airlines slashed commissions paid to travel agencies such as Travelocity. Airlines, as well as other travel suppliers such as hotels and cruise operators, shifted away from fixed commissions to incentives—typically payments that are all or nothing, depending on whether Travelocity succeeds in meeting a sales goal set by the supplier.

"We recognized that we were going to have to become a more active travel retailer," says John Elieson, Travelocity vice president of revenue management.

Lower commissions or negotiated incentives meant that boosting the volume of sales was more important than ever, and Travelocity had to better understand customers' buying patterns and cater to their needs, Elieson says.

Travelocity's earlier passivity had a lot to do with why it fell behind in the first place, says Henry Harteveldt, an analyst at Forrester Research. "Expedia was more focused and more aggressive, and they realized they could make a lot of money selling hotel rooms and packages, whereas Travelocity kept focusing on airline tickets," he explains.

Expedia had started building more of its business around "merchant" products, where it would buy blocks of hotel rooms or airline tickets wholesale and sell them at a profit, rather than depend on commissions. But it wasn't until after commissions evaporated that Travelocity began focusing on developing its own merchant travel packages.

To build back market share, Travelocity focused on speeding up its Web site and doing a better job of finding the lowest prices for its customers. The performance targets and understanding of customer behavior that drove these changes came largely from an operations research group within Travelocity's parent company, Sabre Holdings, which helped Travelocity with a formal analysis of its business.

For example, the group found a "potential gold mine" of information about customer behavior in Web site logs that Travelocity had been using mostly for technical troubleshooting, according to Ross Darrow, a senior principal with the Sabre operations research group. He was one of several members of the Sabre team who spoke about the project at a recent Miami conference of Informs (Institute for Operations Research and the Management Sciences), where Travelocity was a finalist for an award for excellence in operations research.

By examining Web server log data on customer searches for flights and comparing it with bookings, the researchers could draw a connection between how quickly the Web site delivered a list of potential flights and how frequently customers purchased. Although it seemed logical that performance was a big factor, "No one had proved that reducing response time would increase bookings," Darrow points out. But when they ran the numbers, he adds, "It was much larger than anyone had anticipated."

The data showed that customers would be more likely to buy if Travelocity put more effort into getting them an answer quickly, rather than returning a more comprehensive list of search results but taking longer to do so. Partly as a result of that guidance, Travelocity's development team delivered a new version of the Web site that performed 30% faster, which translated into a 55% conversion rate improvement (meaning that shoppers were that much more likely to become buyers). Travelocity did not provide the underlying numbers behind these percentages.

NEXT PAGE: Emphasis On Performance

Emphasis On Performance

Vandevier, Travelocity's chief technology officer, says he had always put a high priority on performance. "But the operations research folks really helped us validate the idea that response time and performance of the product to customers had a direct impact on [market] share and revenue," he says.

The performance and conversion rate gains were achieved by a combination of incremental improvements in Web site performance over the past several years, plus a major overhaul of the Web site software rolled out in late 2004 and early 2005, Vandevier says. Searching for available travel options is a complex process, involving multiple database searches, real-time inquiries into the systems of travel suppliers such as airlines, and the execution of proprietary algorithms for ranking and sorting the options.

Improving the performance of the overall system meant setting performance goals for each of those subsystems and incrementally ratcheting them up. The Web site team used tools such as JProbe, the Java performance analysis utility from Quest Software, to identify and eliminate performance bottlenecks in their software, and Mercury Interactive's LoadRunner to test for performance and scalability.

"First and foremost, you've got to have targets and goals, and your design has to be focused on achieving them," Vandevier points out. The operations research data helped him set more rigorous goals, he says, "and it's played a part in a lot of our product development ever since. We now include a response time element in every factor of our operations."

The performance targets were part of a broader effort to create a mathematical model of how customers choose between travel options, based on the utility of any given travel option, where utility is a factor of price, departure time, trip time and airline choice. Given an understanding of how important those things are to different types of customers—gained from Travelocity's study of actual purchase behavior—Travelocity could tweak the way results were displayed to ensure that the options most likely to entice a purchase would stand out. After each change, the researchers compared actual purchase data with the improvement predicted by their models and used that data to further refine the models.

A major finding was that, as of 2004, Travelocity was less likely than its major competitors to find the lowest airfare between two cities. Eliminating that gap became a major goal of the new version of the Web site Travelocity introduced at the beginning of 2005, Vandevier says, and required the Web site to analyze many more travel options and combinations of those options without sacrificing performance.

As a search problem, finding the lowest fare is more complicated than it might seem because of the multitude of possible flight combinations, including those that involve piecing together flight segments from multiple airlines for a single round trip. The researchers were able to attribute 60% of the cases where Travelocity failed to find the lowest fare to "unexplored fare combinations" where the Web site software had failed to cover all of the possibilities, says Faker Zouaoui, a researcher with Sabre's marketing department.

That shortcoming was costing Travelocity about a 10% gap in market share between itself and competitors among cost-conscious buyers, according to Zouaoui's analysis. Again, Travelocity used this knowledge to realign development priorities, this time toward a more comprehensive search of flight combinations. According to Vandevier, this was mostly a matter of refining to cover a broader spectrum of travel options and their combinations. Within three days of the implementation of a more thorough low-fare search, Travelocity was able to measure a 36% reduction in that market share gap, and over time it cut that gap by 55%, Zouaoui says.

Lance Jones, an analyst who studies Web site consumer satisfaction for Keynote Systems, says he can see the impact of Travelocity's efforts in his surveys of the air travel market. "Price satisfaction did improve substantially," he says.

Between 2004 and 2005, the number of study participants who reported they didn't feel they found a good price on Travelocity's site dropped from 18% to 6%, Jones says.

NEXT PAGE: Mining For Deals

Mining For Deals

Another approach to targeting cost-conscious buyers came from Travelocity's customer relationship management group and its Good Day to Buy program. Every night, the program mines the firm's Teradata data warehouse to compare the latest airfare price updates with the previous day's fares. When the system detects price drops of more than 20%, it matches them with registered members of the Web site who have shopped for travel on that route without buying a ticket and sends those customers an e-mail alert, according to Laura Johnston, vice president of customer relationship management and loyalty for Travelocity.

Travelocity customers who receive one of these e-mails related to a destination they have recently researched are seven times more likely to make a purchase than recipients of a generic marketing e-mail. In fact, this turned into one of the most successful e-mail marketing campaigns ever for Travelocity, generating an additional $4 million in revenue when it was launched in 2004 with an additional $6 million expected this year.

The Good Day to Buy program started in January 2004 as a small effort run manually by the marketing department, with employees assigned to analyze price changes and send out

e-mail alerts three times a week. Between August and September of that year, Johnston says she realized this approach was so effective that Travelocity should be doing it every day, and she got the firm's data warehousing team to develop an automated routine for running the analysis every night in Teradata.

Successes like this nothwithstanding, Travelocity's turnaround is far from complete. Although Sabre earned $196 million in 2005, Travelocity's operating loss was $2.8 million. In comparison, Expedia had net income of $163.5 million in 2005.

Sabre CEO Sam Gilliland, appearing in a video clip shown at the Miami conference, said that when the operations research project started in 2002, "We didn't know exactly what we could achieve at that time, but we knew we could dramatically improve the business." Today, Travelocity is still "not nearly where we want to be" but it has a far better understanding of what customers are buying and what they are likely to buy. In Gilliland's words: "Before, we were in essence flying blind."

NEXT PAGE: Travelocity Base Case

Travelocity Base Case

Headquarters: 3150 Sabre Drive, Southlake, TX 76092
Phone: (682) 605-1000
Business: Online bookings of air, hotel and cruise reservations.
Chief Technology Officer: Barry Vandevier
Financials in 2005: Travelocity, a division of Sabre Holdings, contributed $830 million to Sabre's $2.5 billion in revenue. Sabre earned $196 million in 2005, but Travelocity had an operating loss of $2.8 million.
Challenge: Regain lost market share in the face of increased competition from other online travel agencies and the individual airlines, while trying to make up for reduced commissions.

BASELINE GOALS:
  • Return Travelocity business unit to profitability; it reported an operating loss of $2.8 million in 2005, down from losses of $100 million in 2003 and $20.5 million in 2004.
  • Improve Travelocity's revenue another 40% this year, to $1.2 billion.
  • Find the lowest airfare more reliably. The number of consumers who felt they didn't find a good price on Travelocity dropped from 18% in 2004 to 6% in 2005, a Keynote Systems survey shows.

    Travelocity: Rising in the Rankings

    Between 2004 and 2005, as Travelocity put a new version of its Web site software into production, it substantially improved its performance as measured by a Keynote Systems customer experience study.

    Keynote conducted its study of air travel booking Web sites, including those of the individual airlines, by recruiting a panel of 2,000 computer users to perform a series of common shopping tasks on each of the Web sites evaluated. In addition to polling users about their experiences, Keynote based its results on data gathered by a browser plug-in that let it track actual user behavior to detect, for example, problems such as confusing user interface or navigation schemes.

    2005 Rank Brand Impact* Conversion Impact** Customer Satisfaction***
    1 Orbitz Travelocity Orbitz
    2 Expedia Orbitz Travelocity
    3 Travelocity Expedia Expedia

    In 2004, Travelocity was ranked No. 6 for brand impact, No. 2 for conversion impact, and No. 4 for customer satisfaction.
    * Brand impact index: Based on metrics that indicate how positive or negative an image people have of the company, not the Web site. Keynote asks people to associate certain adjectives with the company for their impressions. Questions are asked before and after visting the Web site.
    ** Conversion impact index: Involves about eight metrics relating to how likely people are to engage with the site in the future (e.g., likely to return, likely to purchase, would recommend the site).
    *** Customer satisfaction index: Based on each quantitative metric used in the customer ratings process; essentially the quality of the site experience, as opposed to the impact of the experience measured by the brand and conversion indices.