Study: European online travel agencies need to diversifyNewsBy Dennis Schaal | August 24, 2010Share This article was originally published on European online travel agencies need to wean themselves away from the air business.That's one of the conclusions of an Amadeus-commissioned study conducted by Hermes Management Consulting.The study, Understanding Online Travel Agencies' Cost Drivers and Ways to Optimise Business in Europe, examined five mid-size OTAs from Scandinavia, France, Germany and the Netherlands and found that nonair products account for only 14% of their gross bookings on average.Hence, European OTAs are grappling with a problem that leisure travel agencies, wracked by airline commissions cuts, understood years ago -- there's little money in the flight business.Or, put another way, the margins are much larger in hotels, dynamic packages and advertising.The study cites PhoCusWright research showing that nonair inventory -- i.e. hotels, vacations and cruises, for instance -- represent about 76% of traditional agents' business and nearly 50% of U.S. OTAs' revenue.Regarding U.S.-based online travel companies, in the second quarter of 2010, Expedia Inc.’s hotel business accounted for 63% of its revenue, advertising and media represented 13%, air 12% and everything else 12%.And, in Q2 2010, Orbitz Worldwide took in 36.6% of its revenue from air, 26.9% from hotels, 16.1% from vacation packages, 6.4% from advertising and media, and 13.9% from “other” categories.The Amadeus-Hermes study also concluded that European OTAs need to provide more relevant content to improve conversion, and can lower costs by better-automating call centers and fulfillment.Getting a handle on marketing costs should be a priority for the European OTAs, the study concludes."Accounting for an average of 54% of all OTAs expenses and 1.22% conversion rate through online channels, marketing expenditure proves to be a large and inefficient expense," the study concludes. "This together with the lack of loyalty programs and CRM solutions, points to the fact that acquiring new & retaining existing customers is a key area for improvement."As with most of these commissioned studies, Amadeus takes the study and runs with it, with an official noting that Amadeus' content and technology can help European OTAs enhance efficiency and bolster the bottom line.As the focus of the study indicates, Madrid-based Amadeus sees European OTAs as an attractive market segment for its services.