Interview with Aaron Kessler, senior Internet analyst, Piper Jaffray & Co.

What do you have been the major developments on the distribution side in the US?

More direct to consumer (initiatives) and suppliers becoming more aggressive in forming direct relationships.

How do you assess the strategy of various US companies recently going for acquisition in Europe? (for example the likes of Sabre and Priceline have strengthened their operations in Europe)? 

With the U.S. online agency market becoming more mature and margins getting squeezed and with the international market two-three years behind the U.S., which provides a great opportunity, international (market) is clearly where the opportunity will be.

What news trends have you witnessed in the online distribution in the US? What do you is driving these changes?

(Among new trends), there is more aggressive marketing by suppliers and new formats such as travel search sites. Suppliers are looking to take back their highest margin channel. 

How do you assess the current status of the US online distribution vis-à-vis the rest of the world?

U.S. is much more mature - with Europe at least two-three years behind the U.S. and Asia still in its infancy.

How do you assess the performance of meta-search engines? How have they improved their offerings? 

(Meta-search engines) are still in their infancy. Debate is still out on whether these add much value.  Consumers may increasingly want new features like consumer reviews that the meta search sites don't offer. 

Recently analysts reports have suggested that the gap between Expedia and rival will reduce. How do you think Expedia is in an advantageous position considering its core competencies and group websites? 

The biggest advantage of its group is its scale. May be able to take on bigger investments and take market share internationally as it can afford to be more aggressive than smaller sites.  Don't believe Expedia will lose market share.

How do you asses progress of the online channel progressing from merely an outlet for consumers to book single components of a trip to dynamic packaging? 

The industry continues to move this way and is a way for agencies of offer deals at a time where it is harder to offer discounts for single components. 

International gross bookings were 22% of second quarter total gross bookings, up from 16% in the prior year quarter, and international revenues were 21% of total revenues, up from 15%. How is Europe expected to contribute in the time to come? How do you expect this to shape up? 

Longer term, international, mostly Europe, should be 50% of revenues, similar to other ecommerce companies. Europe could approach 30% by end of 2006. 

What do you think are the challenges going forward for suppliers and online travel companies? Suppliers depends on vertical - airlines obviously weak from high oil prices, whereas hotels doing better given higher occupancy rates.

Suppliers must continue to search for low cost distribution channels. Biggest challenge to agencies are pricing parity and suppliers cutting fees to agencies.  Also, with meta-search sites, agencies must differentiate themselves more.