Upward_Arrow v3I know it, you know it – life is getting more expensive. Not only is inflation eating away at our money for staples like food, all of us are now paying bills we never had a few years ago. That ‘real’ coffee on the way to work, mobile phones, web access, cable, downloads, games, the latest ‘must have’ electronic toy… Luxuries, some might say, but necessities for many.

Well, the latest news is that rising costs are now hurting the profitability of major web travel business, especially Online Travel Agencies, which until recently here in Australia were virtual cash machines with profits growing at Jack in the Beanstalk rates. But not anymore – costs are now rising at least as fast. Witness the recent results for Wotif and Webjet.

Same thing is happening in the United States, home of the Internet, where sector pioneer, Expedia, the world’s biggest online travel company, has reported a fall in profit for the first quarter of 2011. A rapid increase in spend again the reason.

This is a trend that is not going away. Intensifying competition, slowing key markets, and the insatiable appetite for growth among professional investors ensure that, as does the near monopoly Google has on search marketing where the cost per click rates for some key words are getting insanely high.

But what do you do, where else can you go? Social media? I don’t think so – not yet anyway. It just doesn’t produce to anywhere near the same degree and is difficult to track. Search remains the main battleground. You’ve got to be on Google to, at the very least, be seen.

So… online travel businesses – and suppliers like airlines and hotels for that matter – are spending more just to tread water unless they have a unique (read new) proposition and viral momentum, both of which tend to fade as success takes them to maturity far too quickly. Of course, profit growth is still out there, and the companies listed above will rise above the rebound, they just have to adjust to the new reality and refine their business model to adapt.


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