Xerfi Global has recently published a report on the Global Travel Industry, covering both traditional tour operators and online travel players.
The travel industry as a whole continues to enjoy expansion. In 2010, worldwide international tourist arrivals had not yet exceeded the 1 billion mark, with 939 million tourists crossing borders. This figure has expanded by an average annual rate of 5% to reach a record 1,322 million arrivals worldwide by 2017. It is however interesting to note that travel remains primarily regional with three out of four arrivals originating from the same geographical zone.
Not all industry players have been enjoying this growth to the same extent. Most traditional travel companies have been going through a rough patch over the past decade, as the industry has shifted from packaged travel, sold mostly in physical travel agencies, to independent travel products, bought on global, comprehensive Internet platforms. In this new market environment, established travel companies have been left behind as they have lost their two key competitive advantages: bargaining power over travel suppliers such as hotels and airlines and travel expertise, with the internet reducing information asymmetry.
This shift in the market from traditional players to online players is reflected in the groups’ operating margins. While online groups Booking Holdings or Tripadvisor have achieved average operating margins of over 15% in the last few years traditional operators Tui, H.I.S., or Thomas Cook have been in a very different boat with dismal margins below 5%.
With higher and steadily growing online travel penetration, the marketplace is becoming ever more crowded, with the entrance of new competitors, ranging from big players such as Google to small local online travel agencies. Rivalry has been furthered by airlines and hotel groups that are aggressively pursuing direct online distribution of their products and services, either bypassing middlemen or reducing the commissions that they can charge customers, as well as the growing success of the “sharing economy”, championed by Airbnb.
Against this background, leading players are following several strategies. They are boosting organic and inorganic investments in technology such as e-commerce platforms, machine learning, and apps, looking to bank on data analytics and content to personalize offerings and drive customer conversion, in a space where providing “experiences” rather than products has become key. At the same time, travel suppliers are looking outside the box and tapping into adjacent segments such as finance and insurance, dining, health and wellness, and retail.