Can These Two Companies Fly Higher?

It's just common sense. When an economic downturn hits, even the most gainfully employed become edgy. They stop browsing new-car lots, they recycle last year's swimsuit, and they swap dream vacations for weekend road trips to the shore.

And then there are the not-so-gainful employers. According to a recent travel report, 60% of U.S. companies are responding to the slowdown by cutting corporate-travel costs.

Still, even as travelers' purse strings tighten this spring and summer, the two biggest online travel agencies claim not to be worried: They have cash in the bank, millions of customers, and plans to be profitable within a year or less. But how comfortable should Travelocity.com and Expedia really be right now, especially with the airline-endorsed Orbitz launching soon? How solid should they feel in this fluctuating market? And what are they doing to differentiate their services and to entice Americans to ditch their travel agents once and for all?

We posed those questions and more to Rich Barton, CEO of Expedia, and Terry Jones, CEO of Travelocity, in separate interviews. Compare and contrast their responses below, and decide for yourself whether these dotcoms have what it takes to survive.

More than 90% of all travelers still book trips offline. What can offline agents do that you'll never be able to do?

Barton: A travel agent can know me extremely well, can know a destination extremely well, and can handle a tremendous amount of ad hoc complexity that a PC cannot. We can offer great service over the telephone, but that service ultimately supports a rich Internet-based travel experience.

Jones: Most travelers prefer to book travel the same way they shop -- online sometimes and offline others. Still, some people will always want to trade stocks with a broker who can offer trusted advice. At the same time, my kids will never purchase airline tickets offline. That's who they are.

What do you wish you could do online now? What compelling Internet innovation is still three to five years away?

Barton: There's already a lot of things we can do that offline agents can't. PCs can synthesize price changes in millions of markets every day and can track those prices the way an individual customer wants them tracked. Human agents can't take the time to do that. We're investing in software that will monitor particular markets and customers' past purchasing behaviors, and then will make smart suggestions at the appropriate time. Even the best offline agents are limited by their bandwidth, which is always finite.

Jones: Right now, the 3-D model at Landsend.com is neat, but it's not as satisfying as trying on clothes yourself. As more people get broadband Internet access, however, online travel shopping will offer more services than an offline agent ever could. Travel agents can give you brochures; we'll be able to engage you in interactive videos.

Within a year or two of your site launches, the airlines cut your commissions. Today, your commissions are often a fraction of what offline agencies get for booking the same ticket. Make the case that you deserve a bigger commission than offline agencies do, not a smaller one.

Barton: Many people browse our site and then visit an airline site or an offline agent to buy a ticket. Don't you suppose the customers' purchasing decisions are influenced by what they see on Expedia? We sold $1.8 billion in travel in 2000, but we influenced at least 10 times that. There is no question that more people looked at Expedia and then booked through American Airlines's 800-number than browsed with an offline travel agent and then called the airline. Our influence is not being monetized today.

Still, it doesn't serve our interest to receive a greater commission than offline agencies. Expedia is an incredibly efficient distribution channel, and we want vendors to push more business through our site.

Jones: What do offline agents do? They write tickets. Okay, we do that. They get a higher commission because they explain the product well, sell a lot of it, and move share to one airline's product. Okay, we do that too.

There's an emerging consensus in the industry that high-revenue business travelers stick with the online booking engines run by particular airlines and hotel vendors. If that's the case, then who is your customer?