Keynote Speaker - Brian Thomson – CEO, TRIP.com Some audiovisual difficulties! There we are. Okay good morning. I hope that music got everybody excited, I know it gets me excited when I hear that. I think of going to Hawaii which I think all of us in the travel industry like to fantasize about but reality is most likely we are going to cities like Denver and Sioux City, so anyway, well good morning. My name is Brian Thomson. I am President CEO of TRIP.com. I am one of the founders of TRIP.com. I would like to talk to you this morning about what I have dubbed the travel scenami and that is that I think that what is happening in this industry is nothing short of seismic. It is that major forces have changed or are impacting what travel services are and how they are provisioned. And so what I what I would like to talk to a little bit today is what I see as some of those forces and what the implications are on the travel industry. First just let me give just a little bit of background of TRIP.com. We were founded in June of l995, spun off of USWest Media Group. We are focused on the mobile professional market or the road warrior market, a very demanding market segment. We are privately held. We just announced a merger with Galileo International two weeks ago. That deal is expected to close in the next few weeks and so ourselves and then Travelocity are the two majors linked up with GDS. Travelocity, of course was Sabre and now TRIP.com with Galileo. We are the third largest full service travel site on the Web as measured by Media Metrix in terms of visits to the site each month and some of the product innovations that we have released include flight tracker, real-time access to any aircraft in US or Canadian airspace tracking - we get that feed from the FAA and so it is real time data that we are displaying in terms of both text in a text format, graphical as well as e-mail notifications. Intellar TRIP – Intellar TRIP is the first application to support the direct to supplier model of travel distribution and I will talk a little bit more in detail about that but it is a major innovation for the industry, we believe, and think that is really where the industry needs to go. And finally Company TRIP, which we released in September. This is an effort to extend the rich services that we currently offer to the mobile professional market but at the enterprise level – so to the small and medium size enterprise in providing travel management tools for that enterprise to better control their travel expenses. Alright, predictions. I am putting it on the screen. It is going to be on the Web so next year when we come back here you can see if I’ve hit any of these, but I think, hopefully my batting average is going to be greater than 500. The first is the collapse of the traditional distribution channel. I think it is evident that there is a huge incentive for travel suppliers to go to direct to the customer, both in terms of economics as well as marketing and with the advent of the Internet in which there is ubiquity in terms of the actual network, this model becomes possible and so what TRIP.com has done was to create Intellar TRIP to facilitate that. But that is really just a baby step to where we think this will go. Rapid Expansion of Travel Services - I think that what you have heard over the past day and a half is a lot of folks talking about the different and new travel services and I think that this provides the greatest opportunity to effect the ratio of not only lookers to bookers, but more importantly to effect the percentage of penetration in terms of travel bookings to the overall population. We are currently at 2% - there is 98% of the market out there, but, what it takes to do that is a change in the model that provides true value added services around the core air, car or hotel transaction, and I will talk a little bit more about what I see coming for that area. The third is the emergence of service driven customer ownership. I think what is really fascinating for me as I have been going to these conferences for three years, is early on the focus was very much on product and there wasn’t a lot of discussion about service. I think the industry is evolving to focus more on total customer service and customer service driven ownership of the customer so that once…we all spend significant dollars acquiring our customers and then particularly in an interactive environment it is so easy to lose that customer and you competition is just a click away. And so, in order to really ensure the value of your marketing dollars you need to focus on total customer ownership. And the fourth is the emergence of new pricing models. Certainly Price Line is a major innovator in the travel industry with the advent of the auction model for travel but there are many other pricing models that I think are ripe to hit this industry in the next 12 to 18 months. Let me talk a little bit about Forces of Change. What are the forces that are contributing to these visions of where the industry is going and really when I think about them there are really two key areas – one is technology and one is marketing. In the technology area, I talked about earlier network ubiquity. Back ten years ago when Internet didn’t have the penetration that it does today, the GDS Networks were the major distribution networks for travel. That is all changing with the ubiquitous network, not only do you have access to a wide range of customers but travel suppliers have access to those customers and that has implications on how the industry distributes its products and services. Processing Power – You know, Moore’s Law, the processing power just continues to increase. What that means for the travel industry is that we can become more sophisticated in terms of the service we are providing via the technology that is available to us. The third is Technology Integration – the ability to integrate multiple technologies into one seamless service offering to the customer and the implications here is that no longer are we limited just by providing air, car and hotel reservations. Now we can package various content around that core transaction, other services that would be relevant to the customer. For example, weather notification - if I was coming into San Francisco this morning, I would be really happy to understand that it is raining here and I should bring my raincoat. So that kind of service offering is now possible via the increasing ease with regard to integrating these disparate technologies. And the fourth is Storage Capacity. We have the ability now to capture massive amounts of data as a separate issue of what we do with that data and how we manage it, but the fact that we can be recording not only transaction information but also customer profile information and Web behavior information and I know that, yes, I thought the panel yesterday addressed this very well because there is a big privacy issue out there and I would agree that I think it is something that Congress here in the US wants to demonstrate some movement on. I don’t think the legislation is going to be too cumbersome on the industry, and I think it is really an issue that is blown out of proportion, because the way, at least TRIP.com, and I think most of our major competitors treat it is, that is our most valuable asset, is what our customers are doing and what we use that for is not to spam them but to be able to offer new services and learn from their behaviors what kind of services they may want but might not be telling us in any kind of survey. Over on the marketing side, one is Brand Leveling and I don’t mean this to indicate that brand is no longer relevant in this environment, it is certainly relevant. It is that new opportunities to build brand have emerged and when you think about all the brands extending beyond the interactive travel space, just into the interactive space itself, brands like Yahoo, Amazon and Ebay are very powerful brands now, but they were not existent just a few years ago. So there is still, if you combine what I predict as a massive change in terms of the travel service industry as a result of the interactive industry coalescing with the travel industry, is that there is still much opportunity to build brand out there. Brand is very important and I think it goes in line with what I said earlier of that you competitor is only a click away and brand is a critical component in terms of retaining customers and having customers confident in booking with you, but there is still lots of brand opportunity that exists. Operational Efficiency – would be the second major marketing force that’s driving. Now you have the capability of automating a lot of tasks to one and sure better quality control, but more importantly to free up your human personnel to interact at a higher level with your customer base. So that creates lots of opportunity value added services that you couldn’t before in a non-interactive environment. The third is Data Base Marketing – and again there has been a lot of discussion there. That offers huge potentials to the industry of understanding your customer in a very intuitive way and reacting to a need before they even are aware of it. I found Martin’s example was perfect of a flight delay and the cascading effect that that has. Those with the systems integration capabilities that exist now and the notification capabilities via wireless, there is no reason why you can’t before your customer even is aware of what has transpired is to give them an alert and say “hey we’ve got you covered, we have already booked your flight and we have covered your hotel.” The final is the Service Content Integration I spoke to this earlier is the melding of various content and services outside of the core transaction to make it a richer environment and to compete greater and with the traditional provisioning of services via the brick and mortar channel. Let me talk a little bit about the collapse of the traditional distribution channel. Yesterday, the TRIP.com logo, by the way, represents the customer, hence that is why we have got the guy striding, he’s a customer – but in this example the distribution channel represents the customer. Yesterday the customer would interact with the travel agent typically by phone, call them up and ask for what the flight availability is for a given itinerary. The agent would interface with he GDS and the GDS would interface with the travel supplier working against their yield management systems. Today what you have seen is the collapse of that agency and GDS so that now consumers have direct access through a relatively intuitive interface to the GDS – I know there is lots of room for this industry to improve that interface and to make it more sophisticated, it doesn’t seem like a month doesn’t go by without, you know, someone pointing it out in the press of how they found a much better deal and five minutes talking to their travel agent than they did spending two hours on line. I think that is an example of how we still have a long way to go………………………………………………..…end of tape ………….….. and how fares on behalf of the consumer because before that, as I think most of us are aware that the travel suppliers have been using discounted inventory to drive customer acquisition and offering net only fares, fares that are only available via their Website. Well that is a compelling proposition to an end customer but it is quite laborious to go and actually compare and find those fares because when you think about having to go log on to four or five different Websites, pull up the fares and then compare them, it is a very time consuming activity and so what we did at TRIP.com was develop a search technology that would do all of that work automatically and very intelligently on behalf of the end customer. But as I mentioned this is just a first step to tomorrow. Tomorrow we see a very dynamic link between the end customer and the travel suppliers in which intelligent agents are working on behalf of the customer in interfacing with the travel supplier in order to locate what is the best itinerary and fare for that given search, but more importantly is that dynamic market intelligence can be fed back into the travel suppliers, back to their yield management systems so that for the first time what we are offering is to make the channel truly interactive and very dynamic and this has great implications, not only in terms of the yield management systems on the travel suppliers side, but also in terms of the pricing of the inventory because this is an environment in which you could offer unique pricing based upon the individuals preferences, background and experience on the Web. So, we think that this is where the industry needs to go, that there are compelling arguments for it, there is certainly huge challenges to moving to this model but it is a vision for the future and I think that when you think about all the forces that are driving change it is conceivable that we will be moving in this direction in the next few years, if not sooner. In terms of expansion of travel services, as I mentioned the core air, car and hotel reservations is what anyone who is a veteran of the travel service industry tends to think of when you first talk about travel service. What you have seen happen is a slow expansion of what these services are so that you are moving constantly outward in terms of the type of services and content that you are providing to the end customer. So, information with regard to the destination that they are traveling to, in transit services, notifications of delay, seat upgrades, weather complications, even notification where if a particular trigger event occurs you can notify the customer. Basically it is again, data base marketing activity. Merchandising, now this has been slow to come into it. I think all of us have experimented with merchandising. Very anxious to demonstrate yet another revenue stream to our overall nets, that there are great challenges to introducing merchandising effectively, at least at a full service travel perspective, and the greatest challenge there is what I would argue is point of purchase promotion. It is that we have the opportunity to understand what the customer is doing, where they are going, what their background is and then to be able to promote selected merchandise at that point. Just popping up a mall on your site and hoping that customers are going to purchase a laptop, I think, is not a viable model, but being able to understand that this is the first time you have seen this customer go international and to be able to offer various international services and merchandise is an attractive model. And then finally, post travel services. Not much talk goes on about what you can do for the traveler close travel, but there are lots of services that could be provisioned in that area in terms of not only feedback from the customer but also recording of the events of the journey so that that can be used in subsequent, did they like the hotel or not so that you know not to refer that particular hotel or if they did like it to ensure that they got it, the same room, the same floor, that kind of thing. In terms of customer ownership – As I mentioned is, is that I already see this taking the forefront in terms of removing from just a sheer customer acquisition to more share customer of perspective and that certainly some core services are driven around this customer care excellence orientation. General fulfillment services, targeted content, advisory services, these I would argue are all core services to any general travel fulfillment offering. But then you also have integrated services where there is some specialty fulfillment, for example is adventure travel. At TRIP.com we have our customer base, they tend to be skewed towards that kind of vacation orientation and our expertise is not in that area and so we looked to partner with companies that are focused on that but the key is, is going to be the seamless integration of that and are we there today? Certainly not. But it is something that we need to strive to so that we have total ownership of the customer experience and ultimate accountability for that experience. Passing the buck, saying “well we are passing off to specialty provider” and then not taking responsibility for that customer experience, I think is shortsighted. In terms of the pricing models, I predict that an added value model will hit the industry. We have been reticent as an industry to introduce fees for service and subscription, but I think it has got to happen and as we move more into the provisioning of value added services that I alluded to earlier, I think there is the opportunity to offer and introduce both a fee for service and subscription model. And certainly in an environment with declining commissions, and I know that within our model we have predicted that commissions go to zero, we just think that is prudent financial planning on our part and will drive the kind of behavior to ensure that our revenue streams remain strong and growing into the future. Aggregated – there has been, this has been the year that group buying has hit the interactive industry in general with sites like Ecompany and Vercadia. It has not in a big way come to travel and I think it has just got to. There is too much opportunity there, whether you are talking about it at the enterprise level or consolidating a group of individuals to offer them unique fares based upon an aggregated model. It is certainly an attractive model in terms of customer acquisition. Finally, Dynamic - Now as I mentioned earlier, Price Line has been the innovator there and various other sites are starting to come into this are. Then there is also the opportunity for more sophisticated bartering of services and travel and so I think that what we may be seeing that being introduced. So the impact on travel – As I talked about, I really see that there are two major forces driving change here, technology and the marketing innovation and that is driving what I am predicting are four main areas of change for the industry, distribution channel shift where there is a more direct linkage between the end customer and the travel supplier and a great expansion in terms of what we define as travel service; customer ownership and a real focus on that by the part of web service companies and then the introduction of new pricing models beyond auction. And what that does is that creates huge growth and potential for this industry and so I think this is a very, very exciting time for us and we are just at the beginning of the wave, if you will, or just starting to get our speed and get surfing into the vortex there. So hang on for a wild ride. Thank you very much QUESTIONS Gerry McGovern: Thanks very much Brian. I think we have time for a couple of questions and microphone please. If you can give your name please and company please. Q. My name is Jim Steinhard. I’m President of Planetware. I think you are right. The impact of the Internet can very well cause the traditional channels of selling travel products to collapse. My question though is: For the half of the North American market who don’t own computers and three quarters of the American market that is either not in a position to surf the Web or, unwilling to surf the Web for various and sundry reasons, how is that three-quarters of the market going to purchase travel services if the Net does have this impact. Brian: It is an excellent question and I think that what you are going to see is it is the melding, it is not going to be a night and day kind of transition, it is going to be a melding of it and where the direct to supplier model is melded into the general GDS model and then that is provided out via the existing distribution channels so that the agency, and we have already gone and paid an Intellar TRIP pro offering in which that is being distributed via Galileo to all of the Galileo agencies once it comes out on Beta which is a great draw for agencies to be able to understand what kind of pricing is going on the Web and then to be able to book direct with the supplier they so choose. I think that it will be an evolution because there is so much to offer both sides of the equation in this more dynamic environment taking advantage of the ubiquity of the Network, but it is going to take time and it is going to be a transitionary period not a just flip the switch and suddenly we are in direct supplier mode. So I think your observation is exactly on. Q. My name is Bal Anjan from New Delhi. Do we take the fact that Galileo buys out your company and they also become a service provider and a retailer? Do we take the GDS as a competitor or a service provider? Brian: Good question. I think that they’re primarily a service provider, that a lot of the technology TRIP.com is developing is being provisioned also through the agency channel. However, I think you need to recognize, I think all of us do is, is that there are significant cost implications of competing effectively in this new interactive channel and that there are players who are well positioned to succeed in that model and that is in the consolidated form and so I think that what you seeing is that the GDS’s trying to establish a presence in this environment because they are well positioned to compete in this. You know, they have got the technology, they are innovating and keys areas that would be very valuable, for example, you know, Galileo has developed a wireless product where you can actually book, change and re-book airfares on, you know, a wire phone, which is very compelling to our customer base and offering that now. So, I think that you are seeing that they want to guard their existing channel but they also want to participate in this new dynamic channel. Q: Too far from microphone ………………… Brian: To what other people? Q: To all the users of the Galileo GDS system. What stops Galileo giving it to the other people and making ten TRIP.coms? Brian: Well it is a good question, I guess what I would say is that, yes, it is kind of scary, you know, but it is also, it is more than technology, you know, it is the total package that you offer, it is how your market yourself that makes you successful in this environment. Q: I mean Galileo purpose is to provide technology but not to be a fulfillment agent and be a competitor to the other agents, I’m sorry. Gerry: Okay, before we start any fights, Okay. Unless there is one last quick question, I think we will wrap up with some housekeeping. Okay. Questioner: You and Mr. Charlwood both had some excellent questions notifying customers of the devices that are – how do you deal with all of the different wireless types of devices, all if the different potential locations, that fact that people may or may not have these devices and they may be in other countries where there are different standards, for example we have one here, there are very different standards in Europe and most of the rest of the world, so how do you deal with all these complexities and get us notice that we are going to be sitting on the tarmac for three hours and we are better off to re-book another flight. Brian: Yes, the challenge is that the ubiquity in the standard. TRIP.com was one of the first to develop based upon the pocket net phone which was one of ATT’s first adventure into offering Internet services via a cellphone and while we found that to be a successful experiment, we never really considered full deployment because of the limitations of its penetration and if we had to develop based upon every different hardware piece it wasn’t just cost effect to do that. Now what is exciting is the introduction of WAP – Wireless Application Protocol – which is a first general protocol for wireless technology. I don’t know if any of you have experimented with it, it is fascinating in its access, it is slow in its delivery, and I know there is a third generation wireless protocol that will be coming up that should compete in terms of speed. So I think now the door is opening to the provisioning of wireless services. There, you have to be, and it is an excellent point this, we got experience with this with our flight notification is that you can come on to our Website and give us an e-mail or pager number and we will notify you when a flight is delayed. Well, there issues with that because we go ahead and send out the notification but for some reason in the Network, there is a delay in the delivery of that and people go “Hey, you know, you are 45 minutes late, this is no longer relevant. You know, what is going on here?” and it really wasn’t us, it was the pager system that had the delay in the routing and so but, we have to take ownership for that on a customer basis so it is risky, it is definitely risky and I guess I would say the way to approach that is to make sure as clear as possible to the customer what the limitations of this technology are so that they understand it and you can control as much as you can the introduction of it, but we believe that wireless is a huge step for the industry and we want to participate aggressively in it. Gerry: Maybe you can notify them by phone that the e-mail delay notification is delayed. So a couple of housekeeping issues. Some changes to the program – Timothy O’Neil Dunne will be on the Business to Business Connecting Panel. Mary Norbert cancelled for 3.30, just got that notification there a little while ago and I suppose most importantly the cocktail reception will be at 4.30. The next session will start at a quarter past ten and if I could ask everybody please to leave this room because there is some serious enough construction work needs to go on to split it up so we don’t want anybody with cracked heads. So here, I think is it Go Further.com will be the only Web architecture workshop tomorrow afternoon. The exhibition will end today and hope you enjoyed this morning. Thank you very much.