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News for the Hospitality Executive

Online Hotel Booking Sites Experiencing
 Big Surge in Look-to-Book Ratios

A Few Years Ago a Couple of Hundred Lookers Would Turn into
 One Buyer, Now it is 10,000 or Even 100,000 Per Buyer

By Eric Torbenson, The Dallas Morning NewsMcClatchy-Tribune Regional News

December 30, 2009 --Online travel shoppers are clicking their hearts out, but not many of them are actually booking hotel rooms, buying airline tickets or renting cars.All that looking -- minus the booking -- costs online travel companies additional server space and technology infrastructure. And it could get worse before it gets better.

Analysts say a combination of the thrill of finding the deal, an explosion of new ways to shop with mobile devices and a flourishing of new travel buying sites will push up the cost of buying travel online.

"Eventually this trickles down to the rates that companies pay for all these shopping sessions, and they'll pass it along to consumers," said Henry Harteveldt of Forrester Research, who follows online travel. Nearly 90 percent of travelers use the Internet at least once a month to shop, his research shows.

Though buying travel online has been around for a decade, shopping has taken off as recession-weary buyers hunt for the lowest prices. Whereas a couple of hundred lookers would turn into one buyer just a few years ago, it's up to 10,000 or even 100,000 per buyer on some sites.

"We've had a 48 percent increase in transaction volume this year," said Mel Kemp, senior vice president of operations for Dallas-based Pegasus Solutions Inc., which runs 4 billion transactions a month through its computers as it matches up travel buyers and hotels. "The rate of increase keeps growing geometrically."

Each time someone checks whether there's a hotel room available through an online travel agency, it creates a transaction for Pegasus and others, even if the consumer doesn't click through and buy anything.

Those looks add up faster today because many travel sites allow one search to dig through dozens of travel site inventories at once, creating multiple transactions for travel distribution systems to chew through just from a single search.

Using sites that check dozens of other travel sites at the same time -- a big selling point for online travel agencies to assure the best pricing -- create a much bigger load on the system.

Some travel sites also let customers watch itineraries for price drops; that means the single request for a room or car or flight keeps pinging travel databases for the same itinerary over and over, further clogging the electronic works.

It adds up quickly, and no one knows where the trend goes from here, Kemp said. "That's the million-dollar question."

Despite the spike in lookers, Pegasus, with more than 90,000 hotels in its network, has reined in its costs per transaction with a series of technical tricks and by getting more space for the increased travel shopping volume.

It's used system caches for information and transactions to take off the pressure from huge volumes of shoppers. It's also given its best customers dedicated computer space to process transactions and continues to invent faster ways to complete bookings.

Privately held Pegasus' capital spending on things like more computer servers has "remained relatively flat," Kemp said.

Pegasus makes money from commissions on booked travel and by building reservation systems for hotels. An analyst familiar with Pegasus' work in controlling its costs thinks that eventually travel data processors like it are going to have to absorb the higher costs.

"It's going to get worse, there's no doubt," said Lorraine Sileo of PhocusWright, a travel research company. "But it's going to end up being the cost of doing business because we're booking half of all travel online."

The problem for big players in the online travel market is that "customers have no loyalty to these sites," Sileo said. "That's why this high look-to-book ratio hurts because often these sites end up sending business to their competitors after people shop around."

Over at Southlake-based Sabre Holdings Corp., a new deal with Hewlett-Packard Co. for dozens more computers has helped keep data processing costs in line as shopping visits to Sabre's have risen. also earns money through booking commissions.

Price-conscious travel shoppers are hearing competing messages on where to find the best deals.

Travel portals like tempt customers to book packages at discounts and tout big savings, while providers such as Fort Worth-based American Airlines Inc. advertise that consumers can get the best deal at its own Web site and encourages travelers to have a direct relationship with the carrier.

The mixed messages contribute to the big surge in look-to-book ratios as online travel agencies find themselves competing with their suppliers.

"Are we going after the same customers and would we all like to have the direct relationships with them? You bet," said Sabre chief executive Sam Gilliland. Although it costs money to host those shoppers, the longer they stay on Travelocity, the more likely they are to buy.

While all the online shopping may be hard to keep up with from a technology standpoint, it suggests a rebound in demand.

Sabre's look-to-book numbers have been improving, an encouraging sign for travel, he said.

Booking trends appear favorable at Pegasus, too, with booking revenue in November exceeding the year-earlier numbers for the first time this year.

Online shopping is likely to continue to swell because of the ease of shopping from smart phones and increased interest from international travelers, Harteveldt said.

"Some people have a hard time deciding what the right product is for them," he said. "Others are just shopping because they're daydreaming."


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