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Europe sends online travel sites into slow lane

August 09, 2012 | Online Travel

According to analysts, online travel agents will see more weakness for at least the next quarter, as European consumer confidence slows, and the weakness of the euro against the U.S. dollar hurts the value of international bookings for U.S. based OTAs.

Online travel agents receive higher commissions from hotel bookings than airfares, which is why travel agencies have a gloomier outlook than airlines at the moment. Airlines have an advantage over hotels by being able to nimbly adjust to changes in demand. They can reduce available seats quickly by taking planes out of service or swapping different-size planes among routes, which also leaves fewer seats for online travel agents to offer customers. Hotels are stuck with a more constant capacity because they always have the same number of available rooms. Their only lever is to reduce room rates.

"In a soft scenario, you might see airfares still strong and maybe even growing … whereas on the hotel side the rate goes down," Rheem said. "From a consumer perspective, that's great. There are a lot of great deals out there. But from a business perspective, for hotels it's a lot more challenging."

While Wednesday was a brutal day for their stock prices, online travel agents will likely see demand that is "still quite strong" and will continue to be because they help consumers shop around for travel services — especially important when consumers are being money-conscious, Rheem said. "That proposition remains strong even when a marketplace might be soft."

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