The New Age Of Travel

By Robin Knight With bureau reports

These days, thinking big is the travel and tourism industry's mantra. Airlines are coalescing into huge agglomerates that coordinate flights, share revenues and set fares jointly. Hotel groups are on a cross-border takeover binge; ditto tour operators. Travel agents, pressured on every side, are restructuring their businesses and forming large entities with muscle power of their own. Cruise lines, car-rental firms and rail and ferry companies are racing to consolidate into giant groupings with global ownership, reach and resources. "In a competitive environment, you've got to link up with partners if you don't want to be marginalized," says Dominique Patry, head of international affairs and alliances for Air France. "All companies are looking for ways to hang on to their customers."

So consolidation is the name of the tourism game. Four giant alliances, led by Star (United, Lufthansa, SAS, Air Canada, Thai, Varig, Ansett Australia and Air New Zealand), account for more than 60% of world airline traffic today. "Alliances give airlines the advantage of retaining their own identity while getting a global marketing reach," says Tim Goodyear of the International Air Transport Association, based in Geneva. Star is run by a management board and boasts integrated check-ins and sales forces. Other alliances allow partners to sell seats on one another's flights.

Tour operators have taken a different tack. An increasingly contentious wave of mergers and takeovers since 1997 has left 80% of the British package-holiday business in the hands of just four companies. Hotels started an era of frenetic consolidation slightly earlier. In 1997-98 more than $25 billion worth of property changed hands, including the purchase of Inter-Continental by Bass Hotels & Resorts and Marriott's buyout of Renaissance.

Travel agents, by contrast, are fighting for their future in an increasingly hostile environment. Both tour operators and airlines have cut agents' commissions from 10% to 7%. Agencies' core business is also under pressure from the Internet and its ability to reflect modern lifestyles. Until recently, most people splurged on one major vacation. Now many Americans and Europeans are taking several short and often impromptu breaks throughout the year. Travelocity, the world's largest online travel-booking site, advertises last-minute deals, while Microsoft's Expedia travel website offers comprehensive guides for spur-of-the-moment business travelers. One agency response is to concentrate on highly focused service-oriented travel. Another is to emphasize specialized tourism, such as golf tours and culinary holidays.

Throughout the industry, competition is the key to efficiency, innovation and customer satisfaction. A study at the University of Illinois found that the Star airline alliance was holding down prices as much as 36% below those offered by nonmembers on routes where passengers made connections. In the view of optimists, consolidation will always be offset by the limitless demands of individual taste and the enduring lure of the unknown.

--With bureau reports