"Online-direct can turn out to be more expensive than traditional GDS distribution"
Published: 07 Jul 2008
EFT Travel Distribution Middle East 2008
The online travel retail business in the Middle East region is projected to touch US$250 million-mark by 2011, according to Euromonitor International.
During the first EyeforTravel's Travel Distribution Middle East conference, recently held in Dubai, Euromonitor stated that the Internet travel retail pie is expected to grow from 2.3% in 2007 to 3.8% by 2011.
Speaking to EyeforTravel.com's Ritesh Gupta, Euromonitor International's Travel & Tourism Research Manager (EMEA) Clement Wong shared that although Internet retail will experience high growth rates, most of travel retail will still be done offline in the next five years, and online travel will be driven predominantly by the expatriate community.
"Growth potential is coming predominantly from the expatriate market who are used to booking travel online. The expatriate markets in the other countries in the region, although growing, are still not as significant yet as compared to that of the UAE," said Wong.
However, a company like Air Arabia, which owns the first and largest low-cost carrier (LCC) in the Middle East and North Africa, says the web has already become a preferred tool when it comes to marketing to the masses.
"Air Arabia has witnessed huge increase in its web traffic over the past five years. Currently, 30% of the total sales is done through the company website. We aim to grow web sales into 50% in the next couple of years. As we open additional hubs, (our) website will become a more centralised tool for bookings and sales," A. K. Nizar, Head of Sales, Air Arabia said during the same conference.
Nizar said that LCCs have set new criteria for distribution, adding that Air Arabia was the first airline in the Middle East to adopt e-ticketing, first paperless airline in the region and it established an effective distribution network on its own (comprising www.airarabia.com, call centers, travel agents and distribution shops).
He referred to following as significant developments:
· Consumer direct business is growing
· Vacation/holiday divisions emerging
· Low cost travel phenomena
· Travel agents still book international flights
· Middle East has the highest number of aircraft on order
· Air travel in this region is growing at double world's aviation growth rate
· Online penetration is expanding (the region, which had 3.3 million Internet users in 2000, has grown to 42 million users in 2008, registering the highest percentage growth worldwide)
On airlines, Wong said, "Air Arabia is a good example of how Internet retail has grown differently from how it has developed in Europe and the US. Bookings are made online and payment could be made via a multitude of offline channels such as banks, post offices, travel agents..."
"The legacy carriers such as Emirates and Qatar have established themselves as an online direct supplier. There are opportunities yet to be fully exploited such as mobile travel retail, especially so when mobile penetration in the region is much higher than Internet penetration," he said.
During the conference, Peter Pohlschmidt, Manager - e-commerce, Qatar Airways pointed out that online-direct can turn out to be more expensive than traditional GDS distribution if not properly controlled. He referred to various costs related to marketing/advertising, customer servicing, credit card fees, fraud, transaction cost, booking engine and payment gateway.
Overall, some of the hurdles for e-commerce business are related to low credit cards penetration, online payment getaway and 13 different currencies.
From an online intermediary perspective, Walter Lo Faro, Director of Market Management for Middle East & Indian Ocean, Expedia said the local reputable companies are key for the Middle East to culturally 'open' to e-commerce.
"Sites must be the most updated source of information, featuring equal if not enhanced services. This is after all the most cost effective marketing and distribution channel," said Lo Foro.
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