​​​​​​​6 Ways the Travel Industry Has Changed

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​​​​​​​6 Ways the Travel Industry Has Changed

By Michael De Jongh, Avvio CCO - 07/18/2019

After 12 months in any job I think it’s a good idea to look back and reflect on achievements and experience and then consider the future. After 12 months at Avvio, I've had some time to reflect back on my work and the travel industry and I found that my observations fell into a few main categories including: the death of the travel agent, the changing of travel technology, the effect of commodities and commissions, the changing tide of loyalty, and how the market has evolved.  

The death of the high street travel agent

To explain: over the past 30 or so years, the global travel industry has completely changed. Where the high street travel agent was the main booking method for consumers, like the rest of the retail market these traditional high street operators were displaced with online travel agents (OTAs).

This led to high commission costs being driven down and hoteliers no longer relying on a disparate system of “friendly” tour operators to recommend and sell hotel rooms, generally as part of a package.

Although this still happens in parts of the world, hotels have by and large moved online and consumers have become more informed with what the OTAs offer. Flights can be booked at the time as hotel accommodation or separately depending on personal choice and need.

Like a chicken and egg conundrum I have often wondered, what came first, the flight or the hotel in this scenario? Independent decision making power has been handed back to consumers with OTAs recommending aggregated and easy to consume data for all elements of a holiday or business trip.

From car hire to flights to hotels to “experiences” you name it, it’s all bookable online. As the millennials got on board with doing things themselves, no longer being offered a limited number of ideas in a bleak, dreary retail outlet, the market revolutionised.

This has led to a loyalty shift to the OTAs rather than airline and hotel brands with the likes of Expedia giving free nights as a reward – but more about loyalty later.

The new breed of travel specialists

To survive, travel agents then changed focus to look at different segments and we saw increased specialisation leaving the generic travel booking options to the OTAs. Think the luxury market, the grey or pink pound – agents found a new marketplace for themselves through focus – often based on demographic or specific interest audiences who would appreciate their bespoke and personal consultancy led recommendations based on expertise and in-depth knowledge.

Changing technology

The proliferation of mobile devices combined with the availability of quality and reliable internet across the world has put consumers in control of their own travel destiny.

We’ve gone from 300 million users since Google was established to over three billion to date, that’s over half the world’s population. With this connectivity comes a plethora of information more valuable than ever.

As consumers we are no longer tied to a desktop device serving blue links at work or at home, we now have the freedom to do the background research ourselves and not be dependent on Thomas Cook to sell us a week of sun, sea (and sometimes, misery). We can even check reviews from like-minded folks who have first-hand knowledge, who have done the hard work for us and who have offered us some validated assurance that our hard earned savings is going to get us something nearer to our dream week or two away. We are in control, finally!

Commodities and commissions

But partner hotels have been miffed with the pricing structure and commissions the OTAs are charging, even though they have actually reduced in recent times from the dizzy heights of 30 – 40% with the distribution routes already described to 15 – 25%.

Look at the digital payments space and the interchange bank rates as an example. Let me tell you, they have never gone up and actually created the “race to zero” with new acquirers and gateways servicing the internet and its consumers falling over themselves to offer a “cheaper rate” as they all essentially do exactly the same thing.  This description is what is actually happening in the hospitality space. It’s ludicrous.

Think electricity, gas or water supply to your house. No one really cares one iota that its British Gas or Eon, we just want our oven to heat up when we are hungry or to turn the tap on when we need a drink.

This same commoditised model is fast approaching the hotel sector with a rapid pace. Commission rates will, in my opinion, go down but value to hotels will be served through added service offerings. Whether by offering the benefit of convenience, time, money or choice hotel businesses must seek to monetise through features and benefits.

Payment gateway companies have tackled this same scenario by offering multi acquirers or different payment options. Hotels are starting to adopt to changing subscription models offering line of sight over a percentage of their hard-earned profits.

Loyalty

I’ve seen hotel brands fall over themselves to “keep” loyal customers and the big players – you know who they are - do this relatively well.

Consumers become “points hoarders” and build perceived loyalties with organisations that don’t really give you much back.

Advocacy is the new loyalty and great companies evolve to adopt new models. Research shows us that millennials want new experiences and therefore are not likely to stay with you again and again. I've seen incredible incentives through social advocacy which to me is the new source of loyalty.

Picture the scene: as a happy customer, checking out of a hotel, tweeting or posting to say how efficient the front of house people were and then being in a taxi flicking through phone photos from the night before, seeing a great shot of the most incredible Old Fashioned (cocktail, if you’re not a connoisseur) in the cool bar, which in the dark moody light looks great on Instagram and which a handful of followers have liked feels pretty good.

Then tagging the hotel and seeing them respond is likely to get me to tell even more of my friends that “you’ve just gotta stay at this hotel the next time you’re visiting London”.  This is the power of people and one which hotels need to harness.

In an incredibly crowded market, inventory in London in the 4 and 5-star space makes it especially tough for the independents to stand out from the crowd and even more difficult to stand out in front of the OTAs so this type of social media advocacy over loyalty will help enormously.

Market evolution

We’ve learned from different sectors of the market on commercial models but we’ve also learned from other verticals on how to conduct business online but the hotel industry still has a long way to go.

Technology remains disparate and the nature of technology ecosystems is still evolving. Property management systems (PMS) still generally lead the race for the dominant piece of tech in a hotel set up. This means if you have restrictions in your own business model, for example, if you operate hotels as well as serviced apartments, finding compatible tech stacks that work together is tough, if not almost impossible. 

Great mew(s) (oops, see what I’ve done there!) companies are surfacing and starting to play an important role but the legacy old guard is still a dominant force with a ton of people trained to operate those systems at the coal face.

Innovation is often via partners who essentially become outsourced development houses for hotels. That’s a sticky plaster for a mid-term middleware saviour or a call for a longer-term view on thriving digital ecosystems.

What do Amazon, Spotify, Netflix, the list goes on all have in common? Well, apart from being incredible companies that have surfaced over very recent years, they do one particular thing that makes our lives as consumers easy. They fix User Experience (UX).

Due to the power of UX and machine learning, I seldomly ever search through endless tracks to listen to on my favourite music app. It’s done for me and actually the content they serve to me, often with bands I have never heard of, is pretty bang on to what I would like to listen to.

That’s the magic of AI and machine learning coming together to curate personalised track lists that they are sure I will like. Same with the other fantastic organisations I mentioned. OTAs go part way to do exactly this for hotels but with a huge problem to the hotels themselves.

They offer inventory from hotels they think will match with user expectations but with no view on the hotel’s brand. This has resulted in hotels essentially selling their souls to a page of listings and although this does put heads on pillows, it’s an expensive way. However, it will create a new problem as AI gets smarter.

Google can now predict when to book for the best rate and better (or worse, for hotels) can automatically cancel your reservation and make a new one at a competitive product all without you doing anything at all.

It gets even more creepy. If you have a direct reservation with a hotel and received a confirmation via gmail, theoretically Google could sweep your gmail account with a bot and book you an alternative without even asking based on your likes and dislikes.

We haven’t got to this point yet but when I started at Avvio I often heard that the two major OTAs were also Google’s biggest advertisers and so would never encroach on their space. Step forward a matter of months and booking on Google is now the single biggest threat to OTAs.

Such is the fast-paced industry, where you can be small but global. As I now enter year two at Avvio, a new world of opportunity awaits.