Travel 2019: Disrupt or be Disrupted
By Nadejda Popova, Senior Analyst at Euromonitor
Over the years, the ever-evolving and very dynamic travel industry has witnessed several disruptors which have shaken the status quo. The sharing economy and digitalisation are bringing new business models. Consumers worldwide are becoming more sophisticated and demanding. Rising incomes and middle classes globally lead to growing confidence among consumers. Young, urban consumers are seeking out new travel experiences, driving travel and tourism trends along the way with more services and products than ever, created specifically to serve consumer preferences.
Robust performance for airline players
- Low-cost carriers are expected to show strong growth of 6% for the period 2018-2023 in terms of number of people thus outperforming the scheduled operators. Regions such as Eastern Europe, Latin America and Middle East and Africa are projected to record double-digit growth for the same period, driven by the improving economic climate and new and higher frequency of flights, among other factors. As the popularity of low-cost carriers continues to increase among consumers in these regions and with more schedule airlines expected to offer short and medium-haul flights, the latter operators are increasingly looking for strategic partnerships with budget rivals.
- An increasing number of airlines are radically changing their business models to have full ownership of their distribution channels, making them more flexible and dynamic. Players such as Lufthansa, among others, are revamping their systems to become entirely digital, with a major focus on direct distribution, where the key sales portal is their own website, rather than offering their products via independent booking channels.
- In terms of value sales, the second biggest travel mode category globally by 2023 is expected to be the rail segment, reaching USD239 billion followed by buses with USD203 billion. Rail has traditionally been one of the most popular modes of transportation in such markets as China and continues to have a strong position in the country. Significant investment aimed at boosting the local infrastructure will further increase the appeal of rail, in addition to its carbon efficiency, considering the government's goal to decrease pollution.
Highly competitive travel intermediaries space
- By 2023, travel intermediaries are forecast to exceed USD2,000 billion, with a strong CAGR of 5.6% over 2018-2023, spurred on by digital advances and the shift to mobile sales. Online travel agents like Expedia, Booking and Ctrip are leading the mobile charge, with 70% of the latter's sales coming from the mobile channel.
- Intermediaries' sales have also received a boost thanks to traditional players transforming their business models, integrating online into the distribution mix, where Thomas Cook, TUI and JTB have embraced an omnichannel approach to adapt to changing consumer demands.
- Asia Pacific is the major success story for intermediaries, doubling from under USD200 billion to over USD400 billion by 2023, overtaking North America and Western Europe. Asia's growth is driven by the performance of intra-regional tourism, stimulated by the rising middle class.
- There is a blurring of boundaries where intermediaries players are aiming to make the customer journey more consumer-centric. Providing a seamless travel experience is critical for competitive advantage, from the inspiration stage, through search and booking to in-destination services. AI, big data and cloud computing all help power the drive for personalised and frictionless travel experiences.
- Online travel agents have been busy buying up meta-search players, important for driving traffic to their websites, leading to greater competition and price transparency. The risk of disintermediation is high as tech players like Google continue to make in-roads into travel with booking capability, and the threat of Amazon re-entering the market looms large.
Booming lodging market benefits all
- The global lodging category grew by 6.1% in current value terms in 2018, generating close to USD757 billion. Strongest growth came from emerging regions including Latin America and the Middle East and Africa, but the largest absolute growth was registered in Asia Pacific and Western Europe.
- Short-term rentals outperformed all other lodging categories, registering 13% growth in 2018, and predicted to see a CAGR of 8% between 2018 and 2023. Being the posterchild of the sharing economy, Airbnb outgrew all its competitors with 24% growth in gross value bookings, making the company the third largest lodging player, only behind Marriott and Hilton.
- In February 2018, Airbnb launched a host of new categories to supplement the three categories it had up to that point (entire home, private room and shared room). The new categories include boutique hotels and B&Bs, amongst others, with Airbnb allowing small hotels and professionally run B&Bs to add rooms to its platform. At the same time, Airbnb also introduced Airbnb Plus, highlighting its best and more premium listings.
- While short-term rentals capture most of the media's attention, hotels are also registering strong performance amid a booming travel market. Luxury and Upscale Hotels grew strongest at 6.1% in 2018, benefitting from a trend which sees travellers trade up on their lodging, while trading down on flights.
- Almost 62% of all online hotel bookings are made through an intermediary, with this share having grown steadily in recent years. After two years of many mergers and acquisitions, hotel companies are becoming larger and more powerful in negotiations with OTAs. The reliance of hotels on OTAs continues, however, undoubtedly resulting in some future bust-ups.
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