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 serviceboth enabled by technologythat 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 refinementsrewriting 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 sitesessentially a passive business model. After the Sept. 11, 2001, terrorist attacksand the chill on air travelmany 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 incentivestypically 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.
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