Are we heading for another defining year in online travel?

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Are we heading for another defining year in online travel?

2014 was a very dynamic year for the online travel sector, which saw new forces rising within it, reshaping the way travel products will be marketed in the next few years.

NB: This is an analysis by Angelo Rossini, online travel analyst at Euromonitor International.

In particular, two of these forces emerged as the most significant: the mobile channel and personalization.

The mobile channel has successfully overcome all doubts about its ability to become significant for the travel industry, reaching an estimated 15% of global online travel sales in 2014, while strengthening its key role as a customer service tool in the industry.

The other very significant development of 2014 was the rise of personalization.

All big players in travel are currently working on it in order to increase conversions and offer a better consumer experience, which will become a key competitive factor in the next few years.

2015 is expected to be as dynamic as 2014 in terms of disruptive market developments, which will, once again, take the travel industry by storm, forcing companies to revise their business models.

These new disruptive developments are heading towards the blurring of boundaries between players in online travel, the rise of new players coming from other industries or geographies, and companies following travellers throughout their journeys to become mobile travel assistants.

Blurring competitive landscape

An innovation with disruptive potential in the travel industry is the one introduced by TripAdvisor through its Instant Booking tool.

This is based on a model that is between the metasearch and the OTA, as the transaction is still owned by the merchant (hotel or OTA), but it is completed on TripAdvisor’s website, with strategic implications such as the fact that both TripAdvisor and the merchant own customers’ details and can use them to target travellers during their trip as well as to personalise their future consumer experiences.

The Instant Booking innovation has the potential to be especially disruptive as it could set a path to follow for Google, which could implement it on Hotel Finder and Flights, for metasearch engines and for other technology players, such as Facebook, for example.

The Instant Booking model could also be a driver of online sales for travel direct suppliers, such as hotels, at the expense of the OTAs, which are not keen to embrace this tool.

The rise of new players

In terms of travel industry players, the developments of 2015 will not stop with the blurring of boundaries among existing players as we are also seeing some big players from other industries eyeing the profitable online travel sector.

Travel is the largest category for e-commerce globally, and it is not surprising that the two largest global online retailers, Amazon and Alibaba, have decided to enter it.

Alibaba launched Alitrip at the end of 2014 to challenge Ctrip and Qunar in the Chinese market, while Amazon is about to launch Amazon Travel with the aim of leveraging in the travel industry its online marketing skills in converting visitors into customers, particularly its excellence in the use of personalization, challenging the likes of Booking.com and Expedia in this area.

The move by general retailers towards the travel industry is also driven by the rise of the mobile channel, which will lead to a more closed e-commerce competitive environment, with consumers tending to use their favorite apps, which are likely to include those of the leading online retailers.

Value sales exclude taxes except for online travel agencies’ (Expedia, Priceline and Orbitz) sales, which include them

But new leading online travel players are also expected to come from China, with companies such as the aforementioned Qunar and Ctrip, and possibly emerging players such as Alibaba, expected to record the fastest growth among online travel companies over the next few years to reach the top positions in the global online travel intermediaries ranking.

The growth of Chinese online travel players is being driven by the mobile channel, which accounted for over 50% of Ctrip sales and for more than 40% of Qunar revenues in 2014.

Ctrip CEO James Jianzhang Liang recently stated that Ctrip is ahead of any other OTA in the world in terms of design and functionalities in mobile travel.

This strength could soon become a competitive advantage for Chinese players in reaching foreign markets, given the fast rise of the mobile channel globally.

Mobile travel agencies and mobile travel assistants

The rise of the mobile channel is not only changing travel distribution, but also the way travel companies interact with their customers, which is something we will see increasingly happening in 2015.

In the next few years, travel companies won’t be able to afford to focus only on the time of the booking, but will have to follow their customers throughout their journeys through their mobile devices, offering those services (eg flight boarding and hotel check-in), customer support, and the possibility of making additional bookings.

Companies that are not able to swiftly move towards this new model will significantly lose out in terms of competitiveness in the near future.

As a result, online travel agencies are expected to gradually develop a new “mobile travel agency” business model, while all other travel companies will need to develop mobile travel assistants for their customers.

The need to develop mobile travel assistants is not only a challenge, but also an opportunity for travel companies, as it allows them to secure additional bookings, in particular of in-destination tourist services, which, in the next few years, will result in further growth of online travel, a sector which promises to be very healthy – but increasingly competitive – in 2015 and beyond.

NB: This is an analysis by Angelo Rossini, online travel analyst at Euromonitor International.

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