Impact of E-commerce on Travel and Tourism:

An Historical Analysis

Farrokh Mamaghani

Professor of Information Systems

Bittner School of Business

St. John Fisher College

3690 East Ave.

Rochester, NY 14618

Email: fmamaghani@sjfc.edu

Phone: 585-385-8437
 Abstract

E-commerce, which takes the world by storm in recent years, is bringing new business

opportunities to global travel and tourism industry. A survey from Media Metrix, a US

leader in Internet and digital media measurement, shows that some 14 million people

used the Internet in 1999 to book 7 billion US dollars in travel, and the number of people

booking travel is expected to rise to 75 million by the end of this year. With the rising of

the Internet boom, the tourist sector would by no means be left behind. Tourism-related

institutions and Internet companies are joining hands in tap this potential market. A

WTO report says that people who expect global communication and access to instant

information also have the same demands for tourism and travel data. This paper is a

historical analysis of e-commerce penetration in travel and tourism industry and

addresses the changing consumer and industry behavior. The analysis identifies

consistent customer experience across different channels with airlines, booming

international and domestic travel in emerging economies with limited Internet access,

and emerging new technologies such as mobile devices and global positioning system

and their impact on travel planning and providing value added services to consumers as

the major challenges facing this industry in future.

Introduction

Information technology has introduced ecommerce through the development of the

Internet and the World Wide Web. These developments have impacted both consumer and

industry behaviors in the areas of travel and tourism.

Consumers have more options regarding vacation and budget planning. Ninety five

percent of web users have searched the Internet to gather travel related information.
Ninety three percent visited destination web sites and nearly one half used e-mail to

gather travel-related information (Xinran, Dae-Young & Morrison, 2006). Almost three-

fourths of online travel buyers used search engines prior to making their purchases. In

addition to the Internet, technology gadgets such as GPS’s, mobile phones, smart phones

and hand-held devices have improved consumers’ tourism and travel experiences.

Information accessibility regarding travel, destination, bookings, payments, hotels,

attractions, and the quality of maps are areas for improvement.

Information and Communication Technologies (ICT) have affected the travel and tourism

industry for at least 50 years, particularly in the areas of automation and networking of

distribution channels. Local travel agents that used the global distribution system have

adjusted marketing strategies and expanded services in order to realize increased

competitive advantage. Local tourism business comprehension and utilization of the

Internet has permitted increased visibility in additional market segments. Businesses have

increased services globally by registering with online travel agents, online advertising

agents, and inter-organizational reservation systems. In addition, many businesses have

developed websites which offer planning, booking and payment services online for added

consumer convenience. Businesses that have not made use of the Internet cannot compete

and therefore they must grasp the opportunity before they are out-competed by those that

have.

Information technology has played a central role in the growth and improvement of the

travel and tourism industry. The lasting effects of technology are improved information

accessibility, a higher level of competition, and a larger market of consumers and

businesses around the globe.

History of Information Technology Changes in the Tourism

and Travel Industry

During the pre-computerized time, the role of the travel agent was to advise clients on

travel destinations and to act as an intermediary in the complicated process of arranging

travel bookings. Even as late as the early 1990’s, consumers booked cruise travel and

tourism through travel agents as many companies did not offer direct bookings.

There were two waves of information technology that have had a major impact on the

industry. The first of these is the development of the direct reservation systems, such as

the American Airlines SABRE system. The second is the development of online sales

channels via the Internet.

SABRE

The SABRE system was developed by American Airlines in conjunction with IBM.

SABRE was launched in the early 1960’s. It was the first computerized airline reservation

system. Other airlines rushed to develop their own reservation systems: United Airline

created the Apollo system, TWA developed Programmable Airline Reservation System

(PARS), and Delta developed DATAS.

One disadvantage of the Semi-Automated Business Research Environment was the

consumers had no access to the SABRE reservation system (see Figure 1 below). The

consumers had to work with a travel agent to obtain airline tickets. This asynchronous

process was conducted over several hours or days.

Figure 1 – The Impact of E-Commerce Technology on the Air Travel Industry

Travel Provider Other Service Providers

Reservation & Ticket (e.g. Hotels, Car Rentals)
Offices

Travel Agencies

Corporate Consumers Individual Consumers

Source: Khosrow-Pour (ed) (2006).

Over ten years of Information Technology evolution, SABRE was the world’s largest

private real-time data-processing system, serving more than 10,000 travel agents

worldwide. It extended to the United Kingdom, paving the way for widespread

international expansion. In 1996, the SABRE Technology Group increased its popularity

by launching Travelocity.com on the Internet, a leading online business-to-consumer

(B2C) travel site.

Recent innovations include wireless connectivity via mobile consumer devices and the

use of hand-held devices by American Airlines gate staff. These made seat assignments

and printed boarding passes, which accommodate passengers who have missed

connecting flights. In the past, travel agents were central to these processes.
History of Travel and Tourism Industry

In the 1980s, some travel companies who purchased blocks of unsold seats from airlines

and were able to sell directly to the customer at a lower price than the travel agents could

offer. These companies used global distribution systems (GDS) pricing. This trend

fragmented the market, to some extent. Customers became aware of the differential

pricing strategies used by airlines and became more price-sensitive as a result (Gasson,

2006). Online travel agents started to use new technologies to access the direct

reservation system to multiple services in real time, allowing individual and corporate

customers to directly coordinate flight, car rental, hotel and other services, as shown in

Figure 2.
 Figure 2 – Structure of the Air Travel Industry Following E-Commerce Expansion

Travel Providers

Travel Travel Consolidators Travel Global

Provider & Provider (online and Packagers’ Distribution
Ticket Offices Website Face-to-face) Cruise, Tours System
Operator

Internet Brick &

Travel Mortar Travel
Agencies Agencies

Corporate Individual
Consumers Consumers

Source: Modified from Heartland, 2001

By the mid-1990s, the airlines engaged in price wars and profit margins were reduced.

Airlines sought to cap or to cut commission in an attempt to remain profitable. The

reservation system (e.g. SABRE system) was becoming outdated; often having

cumbersome, text-based interfaces, with difficult-to-negotiate menus and user-interfaces.

Travel agents who focused on corporate customers used information systems to provide

better fare-search and point-of-sales tools. These tools, such as ticket printing provided

short-term competitive advantages. During this time, travel agents still faced two
significant threats to their competitiveness: rebating (commission-sharing with corporate

customers) by competitor travel agents, and commission caps/cuts by the airlines.

While airlines were developing information systems to exploit new technologies and

structural changes in the competitive environment, travel agents were not in a similar

position. The travel market became segmented as travel agents increasingly targeted

corporate customers. Travel agents were able to provide value-added services like

negotiation of bulk fares and arranging complex itineraries (Gasson, 2006). Over a

period, direct reservation systems (e.g. SABRE system) became more prevalent and

encompassed a wider range of hospitality products and services, to become global

distribution service.

Consumers no longer needed travel agents to access the reservation system. In addition,

they were able to manage their own travel plans efficiently. With new structure, travel

agents had a smaller pool of individual customers that did not wish to spend the time

searching for lower-priced travel. The travel industry faced increasing threats with the

dynamic pricing of online and direct sales channels. Since consumers had opportunities

to find lower-priced travel online, many began to use the same method for additional

travel needs such as car rental, hotel, and airline ticket as a one stop shopping.

Information technology effectively had cut out the proverbial middleman. Online travel

agents, like Expedia, Lastminute and Ebookers, competed with traditional high street

travel agents. They promised lower costs, greater flexibility and wider choice. Today’s

travel retailers need increased knowledge about product and service offerings.

Knowledge plays a key role in not only selling breaks in recent years but cementing a

customer relationship that will mean more business in years to come (Hale, 2006).
Recent trends have affected the air travel product-market. SABRE evolved into a global

distribution service serving airlines, hotels, car rental, train and cruise lines from solely a

direct reservation system for airline tickets. Consumers became increasingly familiar with

the Internet, which was responsible for the replacement of traditional travel agents with

online travel agents. As an initial response to consumer Internet use, airlines attempted

disintermediation, by “cutting out the middleman”. By selling directly to the consumer,

airlines offered prices and value-added services unavailable to travel agents (Khosrow-

Pour (ed), 2006).

Internet-based travel bookings were booming. In 1998, just over two percent of the travel

market (by value) was transacted over the Internet. Analysts predicted a rise to seven and

a half percent by 2003 (Khosrow-Pour (ed), 2006). The proportion of online bookings

tripled in 2004 versus traditional call-center bookings, and the issuing of paper tickets fell

to an all-time low of only six percent from 24% in 2002. Air travel was trading more like

a commodity, with companies choosing the low-cost carrier 15% more often. On average,

the travelers saved $167 (25%) on domestic tickets by booking online in 2005. “The

reality is the evolving nature of the online booking engines makes them easier to use than

ever before.” (Anonymous, 2005).

The Internet’s ability to sort and compare large volumes of data commoditized the online

flights market. As flights became commoditized and price comparison engines became

more sophisticated, online travel agents had to expand their repertoire into different

niches of leisure services, such as theatre and concert tickets. While online travel agents

struggled to differentiate themselves and add value, the low-cost carriers prepared to

intensify their market share in the travel field.

Consumer Behavior

According to Forrester Research in 2007, “nearly 40 million US households will book

travel online, spending $86 billion on airline tickets, lodging, cars, intercity rail, cruises,

and packages.,” (Harteveldt, 2007). Travel was the top category in terms of spending for

all products purchased online, and it was growing. Online travel agencies were booking

half of the leisure and unmanaged business, but travel providers (air, hotel, and car) were

fighting hard to hold their market share. E-commerce and online marketing were

changing both the way we do business and how consumers perceived the products and

services the industry had to offer. E-commerce technology has changed consumer

behavior for planning, booking, and payment processes. During the planning process, e-

commerce created a virtual world that consumers were able to discover information about

airfare, hotels, car rental, destinations and even directions. Tourists collected destination

information prior to taking trips. Information gathering minimized consumer risk and

uncertainty on the travel destination decisions and also maximized the perceived quality

of travel experiences. As of November 2005, according to TIA, 79 million Americans

used the Internet to plan travel. For booking and payment, consumers were able to access

the third-party reservation systems anywhere they could access the Internet: at work, at

home, and elsewhere via mobile devices. They could do this at anytime.

The expanded awareness of globalization and availability of technology also enabled

consumers to access information and process transactions across the boundaries of

countries, cultures and languages (Laudon & Laudon, 2006). For example, a consumer

from the United States could purchase tickets from a domestic airline to travel within

Australia. Consumer interactions with online merchants often offered similar or improved
transaction processes to the traditional face-to-face experience. The advancement in

information technology allowed consumers with the time and tenacity to adopt a

completely Do It Yourself (DIY) approach to travel planning. According to Ben Jackson,

“UK travelers are embracing the ‘do it yourself’ phenomena in ever greater numbers and

indicators suggest that this trend will only increase”

(breakingtravelnews.com). This new trend of consumers believed in putting effort into

research and “doing exactly what we want to do, with nobody telling us how and

when.”(stpetetimes.com). In the US, as of November 2005, 65 million adults were

booking online, with predictions of substantial increases.

Business Traveler

In the fast pace world of business, minutes are spent like currency. The business world

moves with lighting fast pace. Business travelers continue to work from the time they

leave their office, while waiting at the airport, while sitting in a taxi cab or lounging in

their hotel rooms. Many hotel and airport venues offer wireless or high speed Internet

connection for customers. Access to the Internet from anywhere allows business travelers

to stay on the edge with latest market news and information. Internet video conferencing

capabilities allow business travelers to connect with their families at home while they are

on a business trips. Many executives hold conference meetings while vacationing and

enjoying the sun on the beach. In addition, corporate executives often access their

company’s network via secured networks to get business done. Information technology

has impacted business travelers by providing the connection to their job away from the

office.
Industry Behavior

The opportunity for online, traditional travel and tourism agents comes from both the

group of consumers who enjoy being served those who prefer the one-stop-shop approach

as well as consumers who prefer the “do it yourself” method. Agents and tourism

businesses need to increasingly find value added services and products that will attract

two separate market groups. In addition, agents need to adopt information technology to

stay competitive and efficient. James Granter said, “Live Connect also encourages

suppliers to develop websites so they can reduce phone calls from agents and drive

booking online. In that sense it’s a win-win for agents and suppliers.” (Carroll, 2007)

Travel agencies’ ability to research, compare prices and book online has increased

flexibility and control in order to customize travel packages for their consumer’s as well.

Increased competitions through globalization, changing customer lifestyles, and

perception of risk consumers attach to air travel have influenced the air travel industry.

Internet trends include increased consumer knowledge about product offerings, higher

customer expectations of convenience, added value through the customization of

offerings, increased consumer affluence and the more intense exploitation of leisure time

to “get away.” Customer relationship management software, with its ever-increasing

sophistication of data mining and customer relationship management, seamlessly

connects between systems and the ubiquitous availability of trust-worthy, secure online

purchasing.

Challenges to the travel industry in the wake of information technology include finding

unique ways to attract and maintain consumers. According to the Travel Industry

Association, “Because travelers follow predictable patterns in their planning, travel

marketers need to consider their visibility and presence in the places travelers would look

to shop for destinations both online and offline. This may affect a wide range of

marketing communications such as media placements, cooperative marketing agreements

with destinations, online link strategies, use of referral websites that evaluate travel

destinations, participation in weblogs (“blogs”) or podcasts that involve destination

content and traditional co-op advertising and public relations.” (Travel Industry

Association) The best way for the travel industry to meet these challenges is with the use

of information technology.

Customer Relationships

Customer relationships have become the key to success in the increasingly commoditized

travel and tourism industry. Simple tools take your departure, origin and destination

preferences. With one click of button, the lowest fare is found. Travel deals and bargains

are delivered to your mailbox or computer desktop daily. Simple rating systems-based

reviews and recommendations from millions of consumers all over the world help

travelers make travel decisions. All these features are offered by online travel agents, free

of charge. They aim to improve customers’ satisfaction and enhance customer

relationships. For example, the Expedia Fare Calendar Google Gadget allows users to

select origin and destination preferences, along with month of departure, and then

displays the lowest prices found by Expedia users. Travel Deals gadget delivers bargains

or sales directly to users’ Google home page daily. Both features offer real-time pricing.

(Holmes, 2007)
The Internet has created opportunities for online content. However online travel agents,

such as Expedia and Travelocity, have found that websites must be user friendly. Intuitive

website designs that encourage all computer skill levels from expert to novice have

driven additional revenues. New and returning consumers use websites differently due to

levels of experience and information retrieval intention. Detailed services, product

availability and more personalized information have become more important to frequent

consumers (Xinran, Dae-Young and Alastair, 2006).

E-commerce marketplace requires regular maintenance and continuous improvement of

customer relationships. Individual e-commerce customers have been known to be

demanding and unforgiving. They expect page downloads in less than eight seconds and

completion of the shopping process in less than ten minutes from opening the retailer’s

homepage. They demand convenience, speed and a seamless buying experience. Nearly a

quarter of online shoppers have stopped using a website after a failed transaction. Users

that have experienced difficulty locating product and service information on the Internet

default their search and purchasing habits to known brands. Known brands have reduced

the effort in locating a trustworthy purchase. Seventy-nine percent of consumers said they

would be less likely to buy airline tickets online a second time from a company with

which they had a poor experience and 54% said that the experience would adversely

affect their future offline relationship with that company. Most consumers appear to have

prioritized communication about delays and cancellations, which is a differentiated

service opportunity for the right travel agent. Many online travel agents have updated the

entire “Internet consumer experience” and the expectations for website design,

navigability, online booking, search engine presence, and more. Additionally, in the
future travel agents must keep pace with what competing destinations have offered and

will offer in terms of content, value, convenience, and “consumer friendly” technical ease

(Woolford, 2006).

Latest Innovation

Besides the Internet, other technology gadgets, like GPS, mobile phone, smart phone and

hand-held, have improved consumers’ travel and tourism experiences. Travelers use GPS

systems to easily obtain directions, information about local businesses and familiarization

of current locations. Standardization of communication technology enables worldwide

access of mobile phones. Mobile technology has enabled travelers to check-in at a hotel

or airport and given them peace of mind in case of emergencies. The integration of

standard processes and technologies also has enabled the provider to reduce costs, and

improve consumers’ experiences. For example, the airlines industry introduced mobile

check-in by integrating the check-in process with the latest cell phone technology. More

airlines are going to introduce mobile check-in. In June 2006, the airlines launched

mobile check-in for customers on domestic flights without baggage. In June 2007,

airlines launched an “E-Boarding passes” service, in which two-dimensional barcodes

would be sent directly to mobile devices of customers checking in at Montreal, Canada

for domestic flights. The customer would then scan their device at an airport kiosk and

proceed to security. Mobile check-in has established a foothold in countries where mobile

users have been keen to try innovative or experimental services. Finland and Japan are

two good examples (Baxter, 2007). Mobile check-in increases efficiency for both the

consumer and the airline. Consumers benefit with added convenience and the travel

industry benefits from cost savings of replacing staff with kiosks.

Challenges

There are a few challenges for E-commerce in the travel industry. The challenge for

airlines, in common with other businesses, is to offer a consistent customer experience

across channels. Customers shopping on an airline Web site expect the same level of

service that they would get through a travel agent. Customers buying airline tickets via a

third-party Web site, such as Travelocity, expect the same sort of treatment, including

recognition of frequent flier privileges.

Offline travel agent businesses have been shut down by web operations. There hasn’t

been the meltdown that was predicted at the height of the Internet business boom. Online

travel agents originally threatened to cut out high street agents, but now they are

themselves being threatened by low-cost airlines expanding their holiday services into car

rental, hotels and insurance. (New Media Age, 2007)

Globalization

International and domestic travel is booming in emerging countries. Many developing

countries that entered World Trade Organization (WTO) have expanded their

international travel policy. Many citizens in those countries are allowed to travel

internationally with required travel documents. This policy change boosts international

travel by allowing consumers in emerging countries to travel internationally to visit their

relatives in Australia, America, Europe or parts of Asia. Under the previous system, some

individuals never had the right to fly in their life. This is a big opportunity for travel

businesses.

E-commerce is also on the rise in emerging countries. With the advancement of

technology, Internet, mobile and handheld portals available, consumers access the
Internet for travel planning. Many consumers in these countries do not have a computer

which would provide access to the Internet. The technology that connects them to the

World is the mobile and handheld portals, which for them, is more convenient than

personal computer. Tourism revenue has increased with e-commerce and Internet

increase.

Increased credit card use and a surge in domestic travel, have fuelled the growth such

businesses in India at a pace of 200 percent a month, according to the Internet

Entrepreneur. Domestic tourism has expanded at a rate of 20-22% a year for the past four

years, up from earlier growth of four to five percent (Jain, 2006). “The Indian market

wasn’t ready. People weren’t buying on the Internet,” An Indian Travel website owner

states that “people were still toying with the medium and using it for research.” Now, he

says, 2,000 of the 2,500 tickets sold every day on his site are for domestic travel.

Travelguru.com and Makemytrip.com could not have existed without the recent

introduction of low-cost airlines, such as Air Deccan, SpiceJet and IndiGo, in a

previously uncompetitive and tightly regulated Indian market. William Bao Bean, a

regional Internet analyst for Deutsche Bank in Hong Kong, has high hopes for domestic

travel websites in India and believes the market is even more evolved than China’s

because of India’s relatively high credit card usage (Jain, 2006).

With only ten percent of the Chinese population classified as Internet users, the Chinese

constitute 12% of the Internet users of the entire world. Asia represents 39.5% of the

world’s Internet users, yet 56.5% of the world’s population is Asian (Internet World Stat).

As the Internet penetration rate continues to rise in China, as well as in other Asian

countries, it will not be long before well over half of the world’s Internet users are Asian.
In China alone, an increase in the Internet penetration rate of 19% (still far below the

North American penetration rate of almost 73.6%) (Internet World Stat) would have half

the world’s Internet users in Asia, all else held constant (O’Keefe, Zhao and Huang,

2007).

Tourism is one of China’s largest industries. In 2005, international tourism generated

$US29.3 billion with 1.2 billion RMB in domestic tourism as stated by the China

National Tourism Office (ctno.org). Tourism is expected to represent 11% of China’s

gross national product by the year 2020 as stated by the China National Tourist

Administration (cnta.org).

Future Trends

Information technology will support the inclusion of additional competitors including

small start-up companies. Online maps will take you on tours and offer trip planning

services if you like what you experience online. The online experiences will drive

consumers to spend money to travel to remote locations. Travel and Tourism Industry

leaders will adopt successful strategic tourism management skills by finding better ways

to utilize information technology to provide value added services to consumer. They will

then share experiences online to other potential consumers through blogs and travel

feedback web sites.

PayPal’s founder Elon Musk is developing rockets at SpaceX in order to be a pioneer in

space tourism. (WIRED, 2006) Successes have included building an engine from scratch

and bringing a privately built rocket to the launch pad twice in one year. Our future

tourism and travel may include guided space tours with the help of software programs

built without bugs and advanced technology.

Conclusion

E-commerce encourages economic growth with accessibility, collaboration, automation,

functionality, and flexibility. Opportunities around the globe for those in the travel and

tourism industry as well as consumers have vastly improved with the advent of E-

commerce technologies. The consumer has vast amounts of information at their

fingertips. The competition for consumer travel dollars is increasingly intense since

comparison online shopping is simple and free. Therefore, travel and tourism businesses

are forced to become more customer focused in attempt to attract and maintain

consumers. Travel and tourism businesses focus on the consumer by using information

technology to provide real time data and additional convenience to the consumer.

Travel and tourism marketing strategies must continually evolve to match information

technology advancement and consumer usage patterns. With new developments in

information technology the past has taught that consumers change behaviors in

relationship to travel and tourism planning, reservations, and purchasing. The success of a

travel or tourism business is largely dependent on how well they make use of the

technology that is available and developing.

E-commerce, tourism, and travel complement one another by evolving through

competition to provide a wider variety of selection and services to the consumer. With

great confidence in the future of technology our entire perspective of how we travel will

again be turned upside down as we take space tours for some needed “out of this world”

vacation time.
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