2013 will be a year of directional adjustments for the online travel industry rather than wholesale change as it builds on the strong foundations laid over the past years. As Online Travel Agents (OTAs) readdress ongoing concerns to maintain hotel chain brands, diversify portfolio, increasing consumer offering and repositioning themselves in the marketplace, the online travel market will go from strength to strength.
In the past couple of years we have seen the big boys – Expedia.com and Booking.com – come against new competitors that will continue to offer choice to the travelers and force travel product suppliers to deliver more relevant and unique products. In 2011 AXA Private Equity and Permira, respectively acquired Go Voyages, a French travel website, and eDreams, a Barcelona-based travel website. At the beginning of 2012 these two firms joined forces to make a move on Opodo, Europe’s biggest travel website, in order to create a competitor to Orbitz and Expedia. Amadeus sold Opodo successfully in February 2012, in a deal worth €500 million.
More competitors in the market naturally offer travel consumers greater choice, but the way our industry has developed this fragmentation is causing consumer confusion without necessarily leading to better value. Therefore, we are moving in a better direction that will simplify travel purchases through consolidation. More big players and fewer medium-sized business will result in tougher negotiations at the table and the need to really develop more innovative packaging and pricing of the products.
We have seen hotels.com aggressively focus solely on the hotel market, steering clear of being a general travel portal. The website has slowly transitioned to represent the personality of its staff, showing the development content, handling bookings and running customer service, to show a business behind a portal. For many consumers, the internet subscribed to the idea that most online companies were a one-man band earning millions - a perception that still needs to be shattered.
The Expedia.com branded website has also exploited this concept by having genuine travelers including celebrities and bloggers to reflect on their experiences and shares their travel insights. The OTA has moved away from proposing its special rates towards giving tips on how to avoid more expensive bookings.
This, though, is not just a way to differentiate itself from other large travel companies who are becoming more competitive but it’s also a need to stand apart from Google as it begins to develop its own travel product. It will be interesting to see how both the Priceline and Opodo services seek to distinguish themselves.
For the industry the distinction between competition and cooperation is getting more blurred; the search engine is attracting the customers all OTAs need, and therefore working with Google through content and placement will continue to keep the traffic levels high.
OTAs biggest challenge will be both Metasearch, which in turn will begin offering their own direct bookings, much like how price comparison websites for household utilities evolved to sell products, and guest review websites, certainly like TripAdvisor with its own booking/sales solution Tingo.com. Expedia’s recent acquisition agreement of 61.6% equity ownership of trivago, one of the leading metasearch companies, demonstrates how OTAs are now clambering to own a bigger wider space of travel buying behaviour to remain relevant.
Consolidation is going to improve OTAs bargaining power, allowing them to fight to keep airlines onboard, while adapting their business model. OTAs are playing with agency, merchant and opaque sales models. Expedia surprisingly found that travelers prefer to pay at check-out rather than on booking, forcing them to adopt this change and continue offering alternatives, making the selling process more complex for OTAs. While simultaneously focusing on earning more money from advertising from their suppliers, which already represents nearly 50% of all revenues, so there is less reliance on commission.
We see a different behavior between North America and Europe, and developments in the Eastern European space will mean a new competitive landscape will emerge. Still far behind its Western European neighbors, the Eastern block is slowly adopting third party sales channels as their growth continues in double figures. The adoption of channel management technologies is low in the region, as hotels update just 2 – 3 different websites. However, as they evolve their technology and inventory offering this year PhoCusWright expects that the region will benefit from 10% sales via OTAs (represented largely by Booking.com and hotels.com), up from 7% in 2011. The OTA market is growing more than 25% annually, and allowing hotels across Eastern Europe to be more visible to attracting increasing numbers of tourists to the regions.
Consolidation will take the opportunities for online travel sales to the next level. First we know that these mergers will be great for technology – it will offer better standardization across the industry so that both technology suppliers and hotel operators can take advantage of the third parties to sell more rooms. Secondly, we will see faster developments in the online booking process as OTA conglomerates seek to homogenize business practice across their multiple brands and subsidiaries. For a hotel supplier this also means processing product updates to the market will be more instantaneous, as OTAs start relying increasingly on feeds from the sources of hotel inventory. Third, hotels will receive better market options to reach the diverse travel consumer market as these big boys will continue to develop and maintain the numerous regional brands of the websites they purchase. Finally, consumers should receive greater protection as more OTAs are forced to comply with ATOL-protection and understand they need to deliver a more rounded customer service. Therefore is this a successful by-product of consolidation?
But we must here ask some important questions and ensure that OTAs take note for the benefit of the wider industry.
Will the bigger gap between brands and start-ups force small business out of the marketplace and create less consumer choice?
How will hotels be able to keep up with these constant changes across these large conglomerates? The bigger they are, potentially the faster they could bring in new ways of working to the detriment of the whole.
The industry needs to focus on higher quality XML integration providing two-way data transfer to deliver automated channel solutions. The entire market place needs to work towards the harmonization of the sales process including inventory distribution and removing the manual error-prone task of reservation and guest data entry by supplying OTA booking data direct to the PMS.
Data demands will just continue to get bigger and more intelligent. Hotels want to see live rate data and with this will update room rates more regularly. We absolutely must have standards that are universally adopted.
We still have a long way to go, there has been some progress and we are beginning to see more parties take part in developing this technology rather than fighting one another. Potentially as the OTA industry begins to consolidate and new business fights for its foothold we will see better technology collaboration.
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