The most powerful web technology company in the world has decided to move into the travel distribution business. Ian Tunnacliffe from Travel Technology Research examines what this seismic event could mean, writes Ian Tunnacliffe from specialist consultancy firm Travel Technology Research
On 21 April it was widely reported that Google is in talks to buy ITA Software for around $1 billion. This raises the prospect of reversing the strongest trend in airline marketing for the last decade - the unbundling of the airline fare and rise of ancillary products.
Google is the world leader in mapping and location-based services, as well as Internet search. ITA is the company that currently powers the vast majority of low-fare searches on the web sites of North American airlines and online travel agents.
Google would not spend $1 billion on an asset unless it believed it could make consistent returns over an extended period. To do that it will have to deliver a travel search facility that will dominate its space as completely as Google already dominates general search, online mapping, webmail and other services from its home page.
In 2009 over 900 million revenue passengers were boarded by the world's airlines after buying tickets through airline web sites. A further 250 million flight segments were bought from online travel agencies, such as Expedia and Travelocity. In total, this accounts for around 44% of all passengers which were flown last year.
Internet customers looking for a flight today can choose between going directly to an airline, shopping with an online travel agent or using the services of a meta-search site such as Kayak or Skyscanner.
Meta-search companies work by bringing together information from across the market to present the customer with the lowest fares available for the dates and the journey that he wants. Having found the fare, the customer clicks through to the airline or travel agent site to make the booking. The meta-searcher receives a payment for the click-through and the booking is made elsewhere.
The meta-search model fits Google's existing business perfectly, but with some important additional twists. Google already sells paid search results. Unlike the GDSs used by airlines to sell via travel agents, Google would not be constrained from placing flights more prominently in return for a higher payment.
But it is Google's ability to index and analyse the entire web that may drive a seismic shift in air fare search. No longer will we be limited to looking at headline fares, as Google incorporates add-on fees, such as credit card charges, checked bag fees and seat selection charges. This ability will be enhanced by ITA's new Needle technology, which gathers unstructured data from web sites and organises it into a coherent database.
By using a customer's online profile to determine his preferences, Google could be able to produce a ranking of air fares tailored to the customer's actual requirement.
In recent years, airlines have been stripping so called "ancillary" services out of their headline price in order to be able to publish the lowest possible fare. If Google is going to re-integrate these unbundled prices then the airlines must question the continued complexity and costs associated with unbundling, if it does not give them an advantage in market positioning.
Existing meta-search providers face a bleak future. Historically Google dominates sectors that it enters. Mapping, webmail, video and blogging are all functions in which Google is now the market leader - in some cases overwhelmingly - and there is no reason to suppose that travel search would be any different.
Online travel agents will find themselves competing with the airlines themselves for Google rankings. They will have to spend more on marketing, and hence reduce their margins - which are already extremely thin on air bookings. If it were not for the essential role that air search plays in attracting customers to their sites, driving hotel and package sales - which do achieve useful margins - there might be a case for the OTAs giving up on airline sales altogether.
Thus the real impact of Google's move into travel search will be twofold. It will further increase the marketing costs of airlines and online agencies that will be forced to compete for paid screen position in Google's search results. More significantly, it will allow customers to search for fares based on their real requirements, effectively re-bundling add-ons airlines have been so anxious to unbundle over the last few years.
Ian Tunnacliffe is a director of specialist consultancy firm Travel Technology Research. He has worked for BA, Kuwait Airways, as well as Galileo, Amadeus and Speedwing