LAUNCH a dot-com company in the current climate and the chances are you’ll make a tidy sum.
The City is obsessed with on-line companies, the value placed on such companies being totally at odds with their actual performance. Most have yet to make a penny.
Yet the future of these start-up Internet travel companies appear distinctly insecure as the major operators and agents begin to launch their own e-commerce products.
Thomas Cook unveiled its new-look Web site last week which enables customer to make on-line bookings with in-house products. Around 2m holidays are featured on the site.
Thomson also announced its own e-commerce strategy on Thursday with First Choice expected to follow shortly.
Industry observers have predicted that these developments could now threaten the start-up companies as operators begin to starve them of product.
Malcolm Preston of accountants PricewaterhouseCoopers warned that some could struggle. “We have seen a plethora of dot-com companies spring up around the marketplace. You have got to ask whether there is going to be enough room for all of them,” he said. “I would be surprised if there is.
“The low-cost airlines brought something new to the market as they started offering a cheaper alternative to the existing product. More people now fly than did in the past. But many Internet propositions are not bringing anything new to the market – just another route to it.”
He added that recouping the enormous marketing spend on establishing brand recognition will be a massive task in itself.
“On a healthy pre-marketing net profit of 5%, they will have to sell £20m worth of holidays just to claw each £1m of that back,” said Preston.
Thomas Cook Interactive business director Bill James said the brand was vital in establishing an Internet presence.
“A lot of people have accessed our site by typing in the Thomas Cook name,” said James. “It’s one thing having a Web site but if customers don’t know where to look, it’s of little use. It sounds glib to say but the brand is very important. Start-up companies will take a long time to establish a brand, which puts us in pole position.”
Airtours has already given a strong indication of its future intentions with managing director Tim Byrne virtually ruling out any meaningful relationships with e-retailers.
“All these dot coms are seen as the greatest thing since sliced bread. But we own the content and we are not going to let third-party distribution take control of it,” he said.
Thomson chief executive Charles Gurassa also said he would be “cautious” about co-operating with start-up companies. “I would be very reluctant to let third-party sites have access to our product. Why should I. Why give product to another site when we can do it ourselves.”
Lastminute.com executive vice-president Charlie McKee conceded that e-retailers will need to bring to the market something over and above the traditional high-street agents.
But he added: “We will be OK because we target a niche market. The industry is moving into e-commerce but at this point, we have not been affected by suppliers withdrawing their product.
E-companies such as 21st Century Travel, which will launch within the next few months, believe there is a future for start-up retailers that search operator systems for availability rather than receive pre-packaged product.
Commercial director Jo Rzymowska said:”Around 50% of customers want true independence which we would provide.
“The major tour operators know this and are keen to work with one or two key sites.”
Some industry observers believe in the future, start-up firms will largely be reliant on selling specialist operators’ product. But with Airtours, Thomson, First Choice and JMC controlling 80% of the package market, not all sites will survive.
“Operators outside the top three or four may not have the finance or inclination to set up their own bookable sites but will want a presence on one of these start-up sites,” said one. “But there will never be enough product to go round.”
Holidays by Phone managing director Steve Endacott added: “Unless you have access to stock, you are under threat. But operators need to be careful. They think that travel is the be all and end all, yet people only book holidays once or twice a year. They need to create communities and be in contact with customers regularly.”
He predicted the full benefit of offering on-line package bookings will not be felt for another three years. “People have migrated from shops to the phone and it will take time for them to take the next step.”