The travel industry is rife for disruption but who will be the disruptor?
In recent decades, we have a seen a sharp departure from holidaymakers roaming through catalogues to pick their package holiday in Kos, or sitting in their local high street travel agent for hours while they book their dream holiday to Rome. The travel and hospitality industry has moved online and we can book holidays for ourselves. We compare prices across websites, browse through selections of accommodation of all types and sizes, research the best combinations of flights across airlines, and read through tour company reviews to find the one for us. But as we sit on our laptop with 20 tabs open to organise one week of holiday, trying to book the right hotel, flight, airport transport, tours and restaurants, across multiple booking platforms, using three different currencies, it’s not hard to wonder.. is this better at all?
Imagine a world in which my favourite search engine will book my entire holiday for me, based on what it knows about my travel preferences. I set the budget and it arranges it for me. On a single app, my entire holiday is booked just to the way I like it – a king size hotel room with a sea view, a direct flight overnight at the lowest price, a child friendly restaurant in the city centre.
In some ways, this takes us on a full circle back to the package holidays of old. Everything is arranged for us by one provider but the key difference is that package holidays were previously designed to be one for many, however, to compete in the new travel market, the mass package holiday trade will have to design packages as personalised for the one and that involves understanding the customer to a level that has never been achieved in mass market travel before. We have seen it used very effectively in luxury travel operators who command the margins and overall spend to allow for this manually. The question will be whether the large traditional travel operators can achieve this and compete with the platforms.
Post disruption world
Booking travel has high friction for the end consumer, and a relatively high margin for providers, meaning it is rife for disruption. In the aftermath of an unprecedented year for the travel industry due to Covid-19, winners and losers are emerging. Whilst there has been a shift in behaviour to more domestic vacationing, there has been a considerable decline in demand overall meaning those without a USP on price or nature of product/service are falling away from the leading pack. Those who will continue to triumph when demand returns to pre-Covid levels are those already recognising that the future of booking travel will be the tighter integration between travel parties, which consumers demand. It will be the return of the travel package through a single provider, and much more tailored to consumers’ preferences. On one website, consumers will be able to book all elements of their holiday including accommodation, flights, attractions, restaurants and car hire, then take out a loan for it, and insure it. It will be low friction for the consumer, and a huge growth opportunity for this new type of connected trip provider. With the inevitability of this disruption, the key question is who will lead the charge in this and create our new way of booking travel.
There are many parties who have a chance.
- Market leading online travel accommodation platforms, such as Booking.com, Expedia, Airbnb, are the natural choice to add all aspects of consumers’ holidays to their offering, in addition to the accommodation which they currently offer, and they are taking the lead in this. They have the global market, online infrastructure and quality brand to be able to do this at scale, and quicker than potential competitors. Traditional travel agents such as Tui have the brand power and trust of the consumer. They control key assets in the market such as hotel “castles” in resort and are investing heavily in destination specific activities as well as personalisation of the customer journey.
- Other leading online marketplaces, such as Google, Apple, Amazon, Microsoft, Facebook, are also well positioned to use their existed online global market and infrastructure, but would have to build a trusted travel brand.
- Airlines have an existing strong brand, loyal consumer bases, and global presence, but it would be a considerable diversification from their current offering and many will continue to struggle financially in the aftermath Covid-19. The no frills flight issues over C-19 may make some consumers more confident to book a package with an airline travel business as then the two are linked, however, they show the least investment in personalisation to date.
- Major hotel groups may see themselves as the future one stop for travellers, hoping that as consumers book their hotel room, they would add on flights, attractions, and transport through the hotel’s platform, but likewise Covid-19 has hit hotel groups hard. Hotel groups have also traditionally focused on city destinations for business and consumers, they don’t have presence in the mass market travel destinations to date.
- Ride hailing apps have a chance, but their markets are currently localised in the area in which they are operating, and so they are without the global market which future travel demands.
Integration and regulation
- General data protection regulation (GDPR) & global privacy law - Increased sharing of consumers’ personal data between companies involved, including international transfers. would lead to additional or more complex GDPR compliance and personal data protection responsibilities
- Package travel and linked travel arrangements directive - If consumers buy a combination of two or more different types of travel services from a single point of sale online, the seller becomes subject to complying with the directive which includes, inter alia, the right to compensation and right to terminate without charge for consumers in a range of circumstances. This has been a specific challenge in C-19 due to the no frills airline positions versus the package regulation commitments.
- Competition law - Increased integration between travel providers may attract the attention of Competition authorities, with concerns that dominant players could raise prices on consumers. The UK Competition and Marketing Authority already investigated some hotel booking sites who had to make formal commitments on how they would, inter alia, transparently display search results, and avoid hidden charges or false impressions on availability or discounts.
- Environment, social and corporate governance (ESG) regulations - The regulations in this area are only expected to increase, including to ensure ethical business practices of partners (Modern Slavery Act), national environmental policies on climate change, and sustainability of working practices.
- Payments regulations - All entities storing, processing or transmitting cardholder data and must comply with the Payment Card Industry Data Security Standard (PCI DSS). Payments organisations must comply with global regulations around Anti-Money Laundering and Counter Terrorist Financing. If Travel parties also become payment institutions, they must comply with Payment Services Directive [PSD2] [EU} and other payments services regulations which include compulsory operational, technology and security requirements.
- Platform to Business regulation - This regulations provides increased protections for third parties using an intermediary’s online platform to sell their goods or services to EU consumers. This puts further obligations on the platform to provide mediation services and an internal complaints handling service for the third parties, as well as increased transparency on the ranking of goods and services, termination and suspension of the third parties and treatment of data.
One thing is certain, that regardless of who becomes the providers of this single booking journey, it will ultimately require tighter integration between travel parties in the industry as no one company can do it all. Parties spanning from hotel groups to airline aggregators and tour companies to payment providers, will have to work together. But with this greater integration, comes an increased risk profile and more regulatory demands for those organisations.
This is in addition to the wide range of local country and specific regional laws with any new market presence. And new regulatory requirements that come from diversification in to a new product such as flights, insurance or payments.
There is also increasing consumer pressure on travel parties to offer more sustainable travel choices, as people are becoming more conscious of the environmental and social impact which they have on communities around the world.
These choices could include eco-friendly filter options on online booking sites, options to offset our carbon footprint, identification of eco-accommodation, or promotion of second city travel which reduces over-tourism of countries’ main cities. Parties are also expected to embed sustainability in to their operations and development, including in their workforce, partners they vendor with, and end-users.
Travel parties can use this to their competitive advantage by being a leader in responsible travel, and so the go-to provider for consumers to make sustainable choices.
What does this all mean for the main players in the travel booking market?
The tighter integration of travel providers should benefit consumers through lower friction in booking travel; more tailored holidays to suit their preferences; and potential increased consumer protection from package travel regulations. However, it also risks the greater consummation and sharing of your personal data between providers leading to loss of control of this data, and potential increased prices from lower competition between providers in the market.
Online travel platforms
Online travel platforms can expand into these services in a high commission industry with relative ease due to their existing brand and platform. But, this reward must be weighed with the increased risks and regulatory scrutiny this will bring. They must be prepared to work with regulators; carry out major programs to comply with existing regulation, including on privacy, consumer protection, sanctions, competition law and payments; and to implement the controls to manage the risks on an ongoing basis which may be costly and complex. A high reward, but in a high stakes game.
Providers of travel services
For smaller third parties who choose to provide their products or services through online platforms, there are increasing protections from regulation, but there may be some time to go before it is a level playing field with the big players.
For larger providers, such as tour operators, airlines or major hotel groups, if they attempt to be the one stop shop for travellers, they face the risks of competition from the online travel platforms who can move quicker to expand in this market; the compliance risks as faced by the online travel platforms; and the financial risk of failing due to inexperience in this market.