European Online Travel

Report 2008
 EyeforTravel Research
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EyeforTravel Ltd, July 2008

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 European Online Travel Report 2008

Table of Contents
Table of Contents

Executive Summary 9
Methodology 16

Chapter 1: European Travel Market 17

1.1 Trends 17
1.1.1 The European travel market in perspective blue 17
1.1.2 Online versus offline market performance blue 21
1.2 Online Penetration and credit card usage 26
1.3 Top European Online Travel Markets 33
1.3.1 Overall 33
1.3.2 United Kingdom 34
1.3.3 Germany 39
1.3.4 France 44
1.3.5 Nordic region 48
1.3.6 Middle European 52
1.3.7 Southern Europe 55
1.3.8 Eastern Europe 61
1.4 Forecasted Growth 65

Chapter 2: Travel Products in Europe 71

2.1 Transportation 72
2.1.1 Air transport developments 73
2.1.1.1 Overall 73
2.1.1.2 Online revenue and sales models; traditional airlines
versus low cost carriers 76
2.1.1.3 Online revenue by market 80
2.1.2 Train transport 86
2.1.3 Other transport methods; car rental, car ferry and bus transport 90
2.2 Accommodation 94
2.3 Package Tour 105
2.4 Cruises 111

Chapter 3: Online Distribution 115

3.1 Intermediaries 115

3.2 Direct (Supplier) vs. Indirect (Online Intermediary) sales 119
3.3 Travel Technology 124
3.3.1 Opportunities 124
3.3.2 Challenges 125

Appendices, Glossary 129

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 List of Figures

List of Figures

Figure 1: Global growth in outbound tourism, by region (including business travel) 17

Figure 2: European travel market size 18
Figure 3: European travel market, by country 19
Figure 4: Leading European outbound travel markets 19
Figure 5: European travel market, by sector 19
Figure 6: European travel market, by sector and country 20
Figure 7: Sector proportion of European travel market, by country 20
Figure 8: Leading destinations of European outbound travellers 21
Figure 9: European travel market size: online vs. offline 22
Figure 10: European travel market size: online vs. offline 22
Figure 11: European travel market size in 2007: online versus offline, by country 23
Figure 12: European travel market, by country 23
Figure 13: European travel market size in 2007: online versus offline, by sector 24
Figure 14: European online travel market, by sector 24
Figure 15: European online market growth, by sector 25
Figure 16: Sector proportion of European online travel market, by country, 2007 25
Figure 17: Sector proportion of European online travel market 26
Figure 18: Internet penetration: percentage of individuals who accessed the internet
in the last 3 months 27
Figure 19: Broadband penetration, per capita, per country 28
Figure 20: Broadband penetration growth rate 2006-2007: per capita per country 28
Figure 21: Number and value of card transactions (excluding e-money function) 29
Figure 22: Total number of cards issued, per country 29
Figure 23: Number of cards issued per inhabitant (2006) 29
Figure 24: Effect of online research on brand chosen 30
Figure 25: Top 10 websites visited at least once a month by European internet users 30
Figure 26: Top 10 most popular products bought online by online shoppers 31
Figure 27: Percentage of individuals who ordered travel and holiday accommodation
over the Internet in the last 12 months 31
Figure 28: Trends in online expenditure per online travel buyer, by country (€) 32
Figure 29: Countries as percentage of overall online market 33
Figure 30: Per capita online spend (€) 33
Figure 31: Trends in UK online travel market 34
Figure 32: Top UK holiday destinations 35
Figure 33: UK Online travel market in 2007, by sector 35
Figure 34: UK travel market sectors as a percentage of total travel market, 2007 36
Figure 35: Trends in UK online travel market, by sector 36
Figure 36: UK online travel market, growth rates, by sector 37
Figure 37: Trends in UK online travel market, direct versus intermediary sales 37
Figure 38: Trends in UK online travel market, direct versus intermediary sales as
percentages 38
Figure 39: Most popular travel websites in 2007 38
Figure 40: Trends in German online travel market 39
Figure 41: Top German Holiday destinations 40
Figure 42: Trends in German online travel market, by sector 40
Figure 43: Trends in German online air travel market 41
Figure 44: German Online travel market in 2007, by sector 41
Figure 45: German online travel market, growth rates, by sector 42
Figure 46: German travel market sectors as a percentage of total travel market, 2007 42
Figure 47: Largest tour operators in Germany 42
Figure 48: Trends in German online travel market, direct versus intermediary sales 43

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 European Online Travel Report 2008

List of Figures
Figure 49: Trends in German online travel market, direct versus intermediary
sales as percentages 43
Figure 50: Largest Travel agencies 44
Figure 51: Trends in French online travel market 44
Figure 52: French Online travel market in 2007, by sector 45
Figure 53: Trends in French online travel market, by sector 45
Figure 54: Trends in French online air travel market 46
Figure 55: French online travel market, growth rates, by sector 46
Figure 56: French travel market sectors as a percentage of total travel market, 2007 47
Figure 57: Trends in French online travel market, direct versus intermediary sales 47
Figure 58: Trends in French online travel market, direct versus intermediary sales
as percentages 47
Figure 59: Most popular OTAs in France 48
Figure 60: Trends in Nordic online travel market 48
Figure 61: Trends in Nordic online travel market, by sector 49
Figure 62: Nordic travel market sectors as a percentage of total travel market, 2007 49
Figure 63: Trends in Nordic online air travel market 50
Figure 64: Nordic Online travel market in 2007, by sector 50
Figure 65: Nordic online travel market, growth rates, by sector 50
Figure 66: Trends in Nordic online travel market, direct versus intermediary sales 51
Figure 67: Trends in Nordic online travel market, direct versus intermediary sales
as percentages 51
Figure 68: Trends in Middle European online travel market 52
Figure 69: Trends in Middle European online travel market, by sector 52
Figure 70: Middle European travel market sectors as a percentage of total travel
market, 2007 53
Figure 71: Middle European Online travel market in 2007, by sector 53
Figure 72: Middle European online travel market, growth rates, by sector 54
Figure 73: Trends in Middle European online travel market, direct versus intermediary
sales 54
Figure 74: Trends in Middle European online travel market, direct versus intermediary
sales as percentages 55
Figure 75: Southern European online travel market, by country, 2007 55
Figure 76: Trends in Southern online travel market - total 56
Figure 77: Trends in Southern online travel market - by country 56
Figure 78: Southern European travel market sectors as a percentage of total travel
market, 2007 57
Figure 79: Southern Online travel market in 2007, by sector and country 57
Figure 80: Trends in Southern online air travel market 58
Figure 81: Trends in Southern online travel market, by sector 58
Figure 82: Southern online travel market, growth rates, by sector 58
Figure 83: Trends in Southern online travel market, direct versus intermediary sales 59
Figure 84: Trends in Southern online travel market, direct versus intermediary
sales as percentages 59
Figure 85: Top Spanish high street travel agents, 2007 60
Figure 86: Most visited Spanish travel websites (‘000) 60
Figure 87: Trends in Eastern online travel market 61
Figure 88: Trends in Eastern online travel market 62
Figure 89: Trends in Southern online travel market, by sector 62
Figure 90: Eastern online travel market, growth rates, by sector 63
Figure 91: Trends in Eastern online air travel market 63
Figure 92: Eastern Online travel market in 2007, by sector 63
Figure 93: Trends in Eastern online travel market, direct versus intermediary sales 64
Figure 94: Trends in Eastern online travel market, direct versus intermediary sales as % 64

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 List of Figures

Figure 95: European travel market size - online versus offline 65

Figure 96: European market growth rates, past and future 66
Figure 97: Trends in European travel market, by sector, past and future 66
Figure 98: Internet penetration, last three months 67
Figure 99: Percentage of individuals who ordered travel and holiday
accommodation over the Internet in the last 12 months 67
Figure 100: Trends in European Online travel market 68
Figure 101: Trends in European Online travel market, by country 68
Figure 102: Growth rates European online market, by country 68
Figure 103: European Online travel market, by sector 69
Figure 104: Online distribution, by country 70
Figure 105: European Travel market, by sector 71
Figure 106: European Online travel market, by sector 72
Figure 107: European transport market size in 2007: online versus offline, by sector 72
Figure 108: International airline passenger traffic market shares in 2007, by region, in
terms of Revenue Passenger Kilometres (RPK) 73
Figure 109: Air passenger traffic in Europe 2007 (actual ticketed passengers) 73
Figure 110: International scheduled passenger traffic 74
Figure 111: International scheduled passenger traffic, capacity and load factor 74
Figure 112: Jet fuel prices on May 23rd 2008 75
Figure 113: Trends in the European airline ticket market, by type 76
Figure 114: Airline market growth, by type 76
Figure 115: Europe’s largest airlines, by total scheduled passengers carried 2005-2007 77
Figure 116: Trends in air ticket sales - Online versus offline 78
Figure 117: Percentage of airticket sales online 78
Figure 118: Trends in online airticket market, by type 79
Figure 119: Top traditional airlines (brands), by overall scheduled passenger revenue,
2007 79
Figure 120: Major European Low Cost Carriers by estimated online revenue 80
Figure 121: European airticket market, 2007, by type and country 80
Figure 122: Trends in online airticket market, by country 81
Figure 123: Online percentage of all sales, by country 81
Figure 124: Online air ticket sales, by type and country 82
Figure 125: European airports, passengers 83
Figure 126: Top 25 European airports, according to low cost arrivals in the first 6
months of 2007 84
Figure 127: Low Cost Carrier movements and market shares in Europe 85
Figure 128: Trends in European Train travel market, by country 86
Figure 129: Trends in European train ticket sales - Online versus offline 87
Figure 130: Percentage of train ticket sales online 88
Figure 131: Trends in online train ticket market, by country (2007) 88
Figure 132: Trends in online train ticket market, by country 88
Figure 133: Proposed high speed rail network 88
Figure 134: Trends in European transport market, by sector 90
Figure 135: Trends in European ‘other’ transport sector, by country 91
Figure 136: European ‘other’ transport sector 2007, by country 91
Figure 137: Online European car rental and car ferry markets, by country 92
Figure 138: Trends in Online car rentals, by market 93
Figure 139: Trends in Online car ferry sales, by country 93
Figure 140: Trends in UK Online coach ticket sales 94
Figure 141: Top 25 European airports, according to low cost arrivals in the first 6
months of 2007 95
Figure 142: Average hotel prices in 2007, compared to 2006 96
Figure 143: Average hotel room prices in 2007, by country 97

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 European Online Travel Report 2008

List of Figures
Figure 144: Trends in European hotel market, by sector 97
Figure 145: Trends in European hotel market, by country 98
Figure 146: Trends in hotel stays, by country (million nights spent) 98
Figure 147: Trends in European hotel expenditure, by country 99
Figure 148: Trends in hotel expenditure - Online versus offline 99
Figure 149: Trends in hotel expenditure - Online versus offline as percentages 99
Figure 150: Percentage of hotel sales made online in 2007, by product and country 100
Figure 151: Growth rates in online hotel expenditure, by country 100
Figure 152: European online accommodation market 2007, by sector and country 101
Figure 153: European online hotel distribution, by country 101
Figure 154: Top hotel chains by estimated online sales in the European market 102
Figure 155: Europe’s largest hotel chains 103
Figure 156: Europe’s largest hotel brands 104
Figure 157: Trends in European package tour market, by sector 105
Figure 158: Trends in European hotel market, by country 106
Figure 159: Package tour participants 2007, by country (‘000 people) 106
Figure 160: Trends in European package tour expenditure, by country (€ pp) 107
Figure 161: Trends in package tour expenditure - Online versus offline 107
Figure 162: Trends in percentage of package tour sales - online vs. offline 108
Figure 163: Percentage of package tour sales made online in 2007, by country 108
Figure 164: Growth rates in online package tour expenditure, by country 109
Figure 165: Online package tour sales, by country 109
Figure 166: European online package tour distribution, by country 110
Figure 167: Top tour operators by estimated online sales in the European market 111
Figure 168: Trends in European cruise market 111
Figure 169: European cruise market 2007, by country 112
Figure 170: Trends in European hotel market, by country 112
Figure 171: European cruise passengers, by country (‘000s) 113
Figure 172: Cruise destinations, by country (%) 115
Figure 174: European intermediary online revenue, by sector 116
Figure 175: Trends in European intermediaries, by sector 116
Figure 176: Trends in European online intermediary revenue, by country 117
Figure 177: European intermediary online revenue, by country as percentages 117
Figure 178: Online intermediaries 2007 in the European market 118
Figure 179: Online intermediaries in the European market, by country 118
Figure 180: Trends in online distribution proportions 119
Figure 181: Trends in online European distribution 120
Figure 182: Distribution in European online travel market, by sector 120
Figure 183: Trends in online distribution, by product 121
Figure 184: Proportion of each distribution method, by travel product 121
Figure 185: Trends in air ticket distribution 122
Figure 186: Trends in hotel distribution 122
Figure 187: Distribution in European online travel market, by country 123
Figure 188: Proportional distribution in European online travel market, by country 124
Figure 189: Proportional distribution in European online travel market, by country 127

Appendix A List of Low Cost Carriers in Europe by country 129

Appendix B Annual leave by country 130

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 Executive Summary
European Online Travel Report 2008

Executive Summary

European consumers travel more

The European market accounts for a vast majority of international travel, sustained by
a healthy and growing economy, an abundance of countries at its doorstep and the
associated tendency of Europeans to take many trips abroad. A steady rise in GDP
and spending power accompanies this parallel increase in travel. Even with looming
global depression and rising oil prices, the European economy as a whole continues to
perform well and 2007 travel revenue exceeds the previous year’s financial figures by
4%, approaching an estimated Euro 256 billion in sales. The UK and Germany remain the
biggest source markets.

Emerging travel markets in Eastern and Southern Europe

As Eastern and Southern European GDP and spending power grows, they too are now
tapping into the former luxury that is travel. Over the 2002-2007 review period, compound
annual growth rates in expenditure have been highest in Southern and Eastern Europe,
at 5%. Growth in online travel is also markedly more pronounced in these regions, where
lower saturation rates of both internet penetration and travel expenditure have left more
room for development. Online Travel Agents are starting to target CEE as a third wave
target market.

The sector breakdown of the overall European travel market remains stable

Airline tickets accounted for a third (33%) of all European travel expenditure in 2007,
followed closely by accommodation (32%). Package tours make up just under a fifth (18%),
whereas other transport trails slightly behind accounting for 14% of travel expenditure.
These proportions have remained relatively stable over the years. A regional analysis of
the European travel markets has continued to reveal diverse patterns in terms of overall
travel product expenditure as well as distribution. Air tickets account for the majority of
sales in most markets apart from Germany, the UK and Middle European markets are
the biggest spenders on airline tickets, whereas other countries spend more on other
transport for example.

Healthy marketplace for European hotels

The European hotel sector is currently looking very healthy indeed, boosted by increased
demand and supply. Occupancy rates have remained fairly stable but ADR and RevPAR
have increased indicating better value sales. Europeans spent an estimated EUR 81 billion
on accommodation in 2007, including travel within and outside of Europe. The majority is
spent on hotel accommodation and other accommodation such as camping, hostels, etc
make up 18% of the total. Southern Europeans spend the most on accommodation and
next up are the Germans and these markets account for half of all hotel nights in Europe.
However, it is the UK that spends over the average on accommodation pppn.

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 Executive Summary

Expanding demographic of Internet users

Around 20% of European households now have broadband connections, highest

penetration in Nordic and Middle Europe and fastest growth recognised in Eastern and
Southern European nations. Well over half of Europeans have claimed to have accessed
the Internet in the last 3 months, 5% more than 2006 and a CAGR of 11% over the last 5
years. The Nordic region is the most internet savvy, with 81% internet penetration. Growth
is more accelerated in the less saturated markets of Eastern and Southern Europe where
online populations have grown with a CAGR of 22% and 13% respectively over the last 5
years. Growth in credit card penetration in Europe has been reported and the number and
value of card transactions has been growing at a 13% CAGR since 2000.

The online sales ‘revolution’ is not only extending to the emerging markets, there is a
marked democratisation of the internet within all markets, with different population
segments going online, notably the female population and ‘silver surfers’ who are looking
for different products, creating new opportunities for marketing.

The European online travel market reaches EUR 50 billion

The relatively steady growth of the overall European travel market since 2002 masks a
true explosion in online sales. The steady growth over the past 5 years is in fact fully
accounted for by its online channels, as offline sales neither increased or decreased, with
a CAGR of 0%. The online market has grown at a 41% CAGR in the 2002-2007 review
period. Online market expenditure on travel products approached an estimated Euro
50 billion in 2007, a more than five fold increase from just under EUR 10 billion in 2002,
representing a substantial CAGR of 41%. Online sales now account for a fifth (20%) of all
travel sales, coming from under a twentieth (4%) in 2002. Offline travel expenditure still
accounts for the vast majority of sales, but remained relatively stable in 2007, at around
EUR 205 billion. The online market is closing in on the offline market in Europe but there
still remains much room for growth in the online marketplace.

Marked online growth in the hotel sector

All online travel market sectors grew at least a fifth in value in 2007, though the hotel
sector saw the fastest growth at 36%, as suppliers are becoming increasingly internet
savvy and marketing their inventory through a variety of distribution channels. Plus,
intermediaries and GDS’s are tapping into the vast array of independent hotels Europe
beholds, by continuously increasing their inventory.

There has been a six fold increase in online hotel sales in the last 5 years and reached EUR
9.5 billion in 2007, a 43% CAGR over the review period. The UK is currently the market
leader for online hotel sales. Online sales now account for 12% of overall European
expenditure on hotels and other accommodation and is expected to rise to around 21%
by 2011. Other accommodation remains predominantly booked offline, with just 5%
online penetration. However hostel intermediaries, led by the two leading consolidators
in the market, have made spectacular progress with an 87% CAGR over the last 5 years.
The European accommodation market is somewhat different from the US in terms of
direct vs. indirect online distribution and currently 70% of sales are indirect. This reflects
the fragmented nature of the European hotel market, dominated by independent rather
than chained hotels.

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 Executive Summary
European Online Travel Report 2008

Airlines continue to dominate the European online travel market

Low Cost Carriers have had a significant influence over the size and growth of the online
travel market in Europe. In fact, the airline sector currently makes up over half of the
online travel market in Europe and the near exclusive online distribution of LCCs and rapid
growth in this type of transport has certainly been a key driver. Traditional carriers are
certainly following suit and improving online presence.

Travel verticals reveal different distribution patterns but all reveal growth in the
online channel

Airline ticket sales are now more evenly distributed between online and offline channels,
whereas the vast majority of hotel bookings are made offline. Hotel beds are still largely
distributed via offline channels due in part to supply side dynamics and a large proportion
of independent and family owned hotels which are yet to be distributed online. Online
booking of cruise holidays is negligible so far, but in light of a recent boom in this type of
holiday, opportunities for online branding and marketing are extensive. The train sector
has seen the most continuous growth figures over the last five years, with a CAGR of 46%.
It is the airline sector that remains to generate the most online revenue, reaching EUR 27
billion in 2007.

UK remains largest online travel market

The UK remains the single strongest performing market in terms of revenue and
achieving nearly double the online ales of its closest contender Germany. The size of the
UK online travel market has grown 18% on the previous year and account for 29% of all
travel market value, trailed by Germany and France, all together making up about 62%
of all online expenditure. Growth rates have slowed down but the UK remains one of the
most dynamic markets, driven by innovative players and savvy customer base. The Nordic
region has the highest amount of online sales and the UK is a close second, whereas
Eastern European residents spent just 12% of all travel related products online.

Germans spend the least per capita online

Germans are second in Europe in terms of overall travel market value but they spend the
least per travel buyer out of the leading travel markets in Europe. The online travel market
has grown in Germany by 24% but still only accounts for 15% of overall travel sales. The
figures here indicate enormous room for expansion.

Regions continue to perform differently

The French online travel market is third largest in Europe and has been growing at a faster
pace than Germany and the UK, though values are lower. The Nordic region (Denmark,
Finland, Iceland, Norway and Sweden) is arguable the most digitalised in Europe. The
region boasts the highest proportion of online bookings, at 31% online penetration.
Middle Europe (Netherlands, Belgium, Luxemburg, Switzerland, Austria and Republic of
Ireland) hides some variety when it comes to travel buying behaviour. But all in all they are
responsible for 10% of the total European online travel market, reflecting a 24% growth
over 2006 and a substantial CAGR of 40% over the last 5 years. Southern Europe (Spain,
Italy, Portugal and Greece) accounts for 13% of the European online travel market and

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 Executive Summary

Spain has the major share of that. The internet is definitely gaining more importance, as
is travel, and hand in had the online travel markets are growing. Suppliers are adapting
their businesses and taking advantage of online sales platforms.

Tremendous growth expected in Eastern European travel markets

Eastern Europe accounts for just 3% of the total European online market, generating
EUR 1.5 billion in 2007. Internet and broadband penetration are very low, posing a
structural barrier for immediate growth, however the online travel market is set to grow
tremendously over the next few years.

An interesting pattern has surfaced in the analysis of spend per online travel buyer,
with Eastern European e-travellers spending one of the highest per capita values. It is
suggested that luxury or higher end products may currently dominate the online market
here through broadband connections being limited to richer households. As connectivity
expands in the region more mainstream products are expected to take off.

More European markets set for an explosion in online travel

Conditions for online travel buying are at their best in Nordic countries and the UK,
where practical settings through the adoption of broadband and credits cards are
complemented by cultural and supply side factors - notably trust in e-payment systems
and an ever increasing number of online suppliers. Slower take up of online travel buying
in Southern Europe and France are due to less digitalised societies and scepticism towards
e-buying. However, e-travel is becoming more and more prevalent in these countries. In
Eastern Europe we find conditions similar to that of Southern Europe a few years ago,
where internet penetration is booming and travel suppliers are joining the hype, setting
conditions for growth.

UK expected to lose some market share in the European online travel market

As internet broadband and credit card penetration continue their hold over the daily lives
of Europeans, e-commerce will become more prevalent in countries that are currently
more aversive to the trend. Growing exposure to online buying and subsequent trust is
expected to develop steadily, as well as the amount of travel buyers in each market. The
online travel market is forecast to grow at a CAGR of 14% until 2011, as growth rates slow
in more mature travel markets. Growth will be ruled by innovation and diversification
and accelerated by the expanding travel markets both online and offline in Southern and
Eastern nations. The UK is expected to lose some market share in the overall European
online travel market as other regions start to gain prominence.

Room for brands to develop online

In terms of direct vs. indirect distribution, little change is expected over the review period.
In the more mature markets, the major players have become known and are even starting
to consolidate. In markets with strong intermediaries more sales will continue to go
through the brand names. Whereas in Nordic countries with less established OTAs there
is a stronger direct distribution pattern and suppliers will continue to sell most of their
travel product direct. Eastern Europe is a case apart, as the market is still relatively open,

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 Executive Summary
European Online Travel Report 2008

and whether direct or indirect, the travel industry is called upon to build strong brands
for the future.

Fastest growth seen from LCCs and cruise

Europe has a large number of LCCs and a rapidly expanding market. The UK accounts for
nearly a quarter of total European air sector revenue. Eastern European airline sectors
have grown substantially and have been driven significantly by LCC home grown brands.
Low cost ticket sales have grown the quickest over the last 5 years in Europe at a 29%
CAGR and cruises also grew in importance too at a 13% CAGR. Other sectors, however,
did just marginally well, growing in line with the general economy indicating the overall
European travel market is maturing. It is the online market where we find substantial
growth rates.

Airline sector pushed further to increase efficiency through online distribution

platforms

The transport sector as a whole accounts for the largest amount of sales in the European
travel sector, accounting for 48% of sales at a valued of EUR 121 billion. The majority of
this (73%) is sold offline. Profit margins are increasingly pressurised in the airline sector and
companies are striving to maximise their efficiency. Restructuring distribution is one way
airlines are tackling this and online channels are therefore receiving increased attention and
their ancillary revenue strategies are helping to push online sales for other sectors too.

Rail travel gaining prominence

In light of current issues in the air transport sector relating to rising fuel prices,
inconvenience of check-in, additional security measures and growing environmental
concerns, rail travel is certainly gaining popularity amongst European travellers. Although
the offline market is expected to stagnate, the online market will continue to do well,
especially in Southern Europe. The development of the European high-speed rail network
is also something to be watched.

Online sales are catching up in other sectors such as car rental and car ferries and Germany
performed particularly well in the online car rental sector, aided by strong direct sales and
price comparison sites. Fragmentation in the car rental sector is a major barrier to online
distribution and as in the hotel sector strong brand names are advantageous here.

Traditional packages are making way for ‘experience’ travel and the offline market
is declining in favour of online sales

The focus is on ‘travel experiences’ and an increasing demand for dynamic packages and
more niche travel products. The traditional European package tour across Europe seems
to be stagnating at an estimated EUR 46.5 billion. An exception can be noted for Eastern
Europe where all in one packages are seeing signs of growth. The Germans currently
consume the highest volume of package tours, though spending less per person. Eastern
Europe has seen a CAGR of 10% over the last 5 years, but the UK for example is losing
ground with a negative CAGR of 6%. The stagnation in the market is strongly due to the
erosion of offline sales.

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 Executive Summary

There is a very healthy growth in the online package tour market, a CAGR of 40% (2002
- 2007) and an expected 16% over the next 4 years. The online penetration in the package
tour sector is now at 15% and expected to reach 28% by 2011. The market is demanding
tour operators to be innovative in dealing with the challenges in their sector as a
multitude of direct suppliers are tapping into the tour operators’ customer base and the
focus on ancillary revenues is driving the value of dynamically packaged products. The
markets vary enormously in terms of the role of intermediaries in the package tour sector,
with reasons behind this being the strength of existing brands in the offline market. At
the start of 2007 the merger of the biggest tour operator’s show signs of restructuring
led by these challenges.

Rising demand for cruise products

Cruises are making their way into the hearts of Europe’s new travel generation and
although it remains the smallest sector, it has seen the largest average growth rate in the
overall travel market, at 13% over the last 5 years. It now accounts for an estimated EUR
6 billion. The UK and Germany account for the majority of the revenues, but growth can
be seen in Southern European countries, especially Spain and Italy. The vast majority of
cruises are still booked offline.

Online travel agents remain an important distribution channel for Europe

Online travel agents still have a significant role to play in Europe. High fragmentation
of travel product in Europe continues to spur the survival and growth of the indirect
channel and creates a healthy environment for OTAs. Intermediaries generated estimated
revenues of EUR 16.8 billion in 2007, about 34% of the online travel market. Intermediary
revenue is expected to keep growing at a similar rate of the total online travel market.
Airlines account for a large proportion of OTA sales (46%) and around 36% are hotels.
Hotels are expected to continue to account for the largest growth figures, as the large
number of intermediary sales find their way online.

Intermediaries have the highest revenue in the UK, in line with higher online sales in
general. Growth has once again been pronounced most in Eastern and Southern Europe.
Intermediaries lack strength in the Nordic and Middle European markets, where they
were bypassed by direct suppliers. In Europe the top sectors for online revenue, airline
and accommodation, have nearly diametrically opposed distribution patterns. The vast
majority (72%) of air tickets are sold directly to the consumer and in the accommodation
sector, the vast majority (70%) of online revenue is channelled through intermediaries.
Regionally there are noted differences in penetration of intermediaries. Direct sales
are responsible for the majority of online sales in all markets, however their relative
share varies significantly. The European Online Travel Report 2008 investigates these
differences.

Chapter One examines the overall performance and developments in the European travel
market including online vs. offline distribution as a regional whole and by sector. Internet
penetration, broadband penetration and credit card use are also reviewed. The chapter
presents an in-depth discussion of trends in the top markets and other regions - UK,
Germany, France, Nordic 5, Spain, Italy, Portugal, Eastern Europe, Middle Europe and
Southern Europe and also looks at forecasted growth. Chapter Two explores the travel

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 Executive Summary
European Online Travel Report 2008

sector distribution trends – airline, car rental, cruise, car ferry, rail, accommodation and
package tours. Chapter Three explores the role of the online intermediaries and provides
an analysis of the main OTAs and their activities. There is also a discussion of the direct vs.
indirect distribution trends in the different markets and the report ends with a brief look
at travel technology and the role of the GDS in EMEA.

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