Online travel spend ($bn)

Europe 2000: 2.4 2001: 5.8 2002: 12.7 North America 2000: 6.4 2001: 11.0 2002: 18.7 UK 2000: 0.8 2001: 1.8 2002: 3.7 Source: Datamonitor

Since 11 September, airlines and travel companies have felt the pain of both an economic slowdown and a sharp fall-off in demand.

Analysts at AC Nielsen estimate that bookings for holidays next summer have fallen by about 40% since 11 September.

However, Paul Richer, a senior partner at the travel technology consultancy, Genesys, believes the online operators are in a strong position to capitalise on the slowdown.

"The online companies have better tools to survive the blip," he says.

Survival tactics

Websites, for example, have been able to promote the latest ticket prices, particularly at a time when they are being slashed on a day-to-day basis, to tempt travellers back into the air.

Hotels on Expedia could change their prices

In an illustration of this, hotels advertising on the travel agency site Expedia changed prices on a 24-hour basis through an extranet after 11 September.

Similarly, travel sites can e-mail a wide customer base with relative ease to promote special deals.

The economic realities have "forced online companies to be more efficient in running their businesses", adds Tony Hart, a managing analyst with Datamonitor.

Taking advantage

Such tactics have driven the recent success of discount airlines - which tend to sell their tickets online - in maintaining sales. But pure-play online travel companies have also benefited.

Expedia took an initial knock from 11 September, but then saw its transaction volumes recover by 80-85% during October.

Lastminute is among the most popular UK travel sites

"Like every travel company, we experienced a downturn, but we then recovered a lot more quickly than the traditional industry," says James Vaile, managing director of Expedia in the UK.

Webhancer, which measures consumer usage of the internet, also reported that overall traffic to travel sites was 104% higher than pre-11 September levels by the beginning of October.

The evidence suggests that advertising of special fares helped to bring surfers back to the travel sites, despite the concerns about world travel.

In the UK, Lastminute.com remained the most visited site, ahead of ebookers.com, Expedia and some of the discount airlines such as Easyjet and Ryanair.

Delayed bookings

Online travel sites are also well positioned to exploit the recent procrastination by consumers in booking holidays.

Customers are booking holidays later than usual

"People are booking later than usual this year and the internet is a natural place to hunt down last-minute bargains," says Mr Richer.

Nevertheless, it is less easy to convert the renewed interest in travel sites into a profit for the company concerned.

"I don't think more people want to travel, it's just a question of capturing those who will," points out Mr Richer.

Expedia's Mr Vaile also admits that sales are euphemistically "still growing" even though traffic to his site has jumped.

An online traveller...

Travels 4-6 times a year Has higher disposable income than non-online users Travels for work Favours short-haul city trips Source: Expedia

The site has revised down its forecast for annual profits in June to $40m from $50m.

Mr Vaile hopes that by establishing Expedia as a source of valuable information, surfers will return to the site when they actually want to book a holiday.

Meanwhile, ebookers, which sells scheduled flights, has been forced to cut 20% of its staff since 11 September, in spite of improving its financial performance in its last set of results.

Similarly, Priceline.com in Europe has eliminated most of its jobs in London, in a widespread restructuring.

Even Lastminute.com, which maintains it will break even in 2004, admits it is managing to beat rivals because of its wide-ranging products outside the travel sector.

Clicks and mortar

The online arena, however, remains an important outlet, prompting established tour operators such as Airtours to continue investing in their e-commerce strategies.

In the past few weeks, Airtours launched a website called Mytravel.com to both promote and sell its package holidays online.

Most travel sites find it relatively easy to sell airfares, hotel accommodation and car hire online, but packages have proved more difficult.

Technology to manage the complex pricing for packages - including the number of people and available accommodation to coincide with desired flight times - is generally not available for the web, says Mike Cogan, a partner at the travel consultancy, Equinus.

Expedia, for example, drives customers to a call centre to buy packages.

"[These customers] usually need hand-holding and access to more information," says Mr Vaile.

Airtours' Mytravel.com, however, uses home-grown software to execute sales online, says a spokeswoman.

She adds that the company has sold "quite a few" packages online already, but declines to give precise numbers.

Converting calls

Nevertheless, the interactivity of good travel sites tends to increase the chances of a sale, even if it is made through the call centre, points out Equinus's Mr Cogan.

"The call conversion rates from websites are three times better than on teletext," he says, explaining that customers are able to do their research before committing to the holiday.

All of these advantages "could put online sites in a good position as long as they manage their costs right," concludes Mr Cogan.

Expedia's Mr Vaile is equally positive.

"[The downturn] has proved to suppliers our real worth. They used to ask 'What value does an electronic distributor add to the chain?'

"And now all of a sudden they can see the value."