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In With the Old, In With the New: PhoCusWright’s Trends for 2008

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March 01, 2008
Special Report | Distribution
Various Authors

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© 2008 Hospitality Upgrade. No reproduction without written permission.

In 2007, Long Tail economics brought a plethora of niche strategies to what has truly become a global travel industry. Opportunity and innovation abound in unexpected places, with “emerging” markets adopting Web 2.0 technologies and next-generation distribution strategies. India’s online travel marketplace will grow to over $6 billion U.S. by 2010 and China remains the holy grail of global expansion. In Europe, the online market continues to mature, with online growth rates slowing in 2008 amidst continuing consolidation and blurring business models. For the U.S., 2007 was a landmark year as online bookings crossed the 50-percent mark.

Suppliers and online travel agencies are still battling for online traveler loyalty, while PhoCusWright consumer research indicates that their customers are becoming increasingly savvy, switching between booking channels (including offline) at will to suit their needs. With supplier Web sites continuing to gain ground, the online travel agencies, led by Expedia, may finally start cashing in on all that search traffic. They’re joined by a diverse breed of new intermediaries that are benefiting from the ad and referral revenue gleaned from next-generation metasearch, social networking and traveler review offerings.

Lest there be any lingering doubts about its staying power, social media is indeed transforming business as usual. The quality of the online user experience continues to evolve. Rich media keeps getting richer: Maps are being not only mashed up, but also built out in 3D, and segmented marketing and personalization will (finally!) enable improved relevance for travelers.

Global opportunities are wide open and private equity continues to transform the industry amidst ongoing consolidation. Consumers are doing more travel-related activities online than ever before, resulting in more ways to connect with them and a mighty battle for their attention. PhoCusWright analysts offer a list of trends for 2008. Some are new, some are fresh takes on long-term industry changes and two represent trends noted in 2007 that have finally come to fruition.

1 Mobile Gets Connected – Finally!
Industry pundits have been touting the promise of mobile travel for years, and 2008 will be the year that promise is realized. Apple’s iPhone makes it clear that smart design can make rich content accessible on smaller mobile devices, and a confluence of factors will make application development highly appealing. The growth of 3G (third-generation mobile technology) and GPS-enabled devices will make more robust applications possible, as other barriers to development are gradually eliminated. The traditional walled garden that has long plagued the telecommunications industry is finally being penetrated, as offerings such as Google’s Android mobile platform enable third-party software development independent of the telecom companies.

The PhoCusWright Travel 2.0 Consumer Technology Survey indicates that 30 percent of travelers would like to receive special offers during their trips via their mobile devices about local restaurants and activities.

2  Consolidation Continues
Mergers and acquisitions will definitely continue, likely consolidation targets include areas where multiple service providers offer undifferentiated services and where growth is stagnating, emerging markets where successful travel startups are likely to be gobbled up by larger fish, and niche sectors that require mergers in order to reach critical mass.

This may also be the year that long-anticipated mergers of U.S. airlines become a reality. Both UBS and Bear Stearns released reports asserting the likelihood of a major near-term merger, with both putting their money on Delta to make the first move.

3 Social and E-Commerce Approaches Converge
Online social media and e-commerce will converge – but not without a few growing pains. The global online social networking phenomenon will expand on a worldwide basis. According to Hitwise, Facebook is the ninth most visited site in the U.S. Alexa reports that Facebook is the top Web site in Canada; in Germany StudiVZ is ranked number six. The marketing potential of these networks makes it inevitable that they will be commercialized.

4 Green is the New Black
“Green travel” will be a buzzword in 2008, but it remains to be seen how aggressive travel companies will be in making changes and how actively travelers will embrace them. While there should be a groundswell around this trend, the market is likely to see only small attempts to participate in green travel.

5 Slicing and Dicing the Market
The Long Tail is causing the law of averages to give way to market niches in travel. This means there will be not only more targeted promotion and delivery of travel options, but also far greater use of market segmentation through data mining of both tangible factors (e.g., demographics, psychographics, travel metrics, purchasing behavior) and intangible factors, such as spheres of influence and brand affinities. This micro-marketing approach is critical in the current online environment, where the rate of new online travelers is declining and consumers are confronted with a plethora of choices.

6 See and be Seen: APAC
The APAC travel market is expected to surpass $200 billion in 2008. Expedia already has a Web presence in several APAC markets and is poised to launch in India. Travelocity, which owns online travel agency Zuji, launched in India last year. Priceline acquired Bangkok and Singapore-based discount hotel site Agoda Company. Competition in the region is fierce, particularly in India, where players such as Yatra and MakeMyTrip are already well established.  The pace, composition and dynamic growth in this region will breathe new life into a mature travel market and the aging online space. 

7 Anything But Plastic: Airlines Unite
The airlines are continuously searching for ways to reduce distribution costs and have already hacked away at both agency and GDS fees. The end of commissions came in the past decade and last year airlines enjoyed the fruits of their full-content-deal labors. The next frontier: credit card fees. Airlines have already experimented with a range of alternative payment options that enable them to avoid or reduce associated charges. In 2008, airlines will band together to devise another payment vehicle that circumvents the credit card companies and takes a significant amount of cost out of the market.

8 Metasearch Comes of Age
Innovative new entrants such as Farecast and the planned merger of Kayak and Sidestep are likely to provide the increased press and consolidated consumer power that metasearch needs. Some travel suppliers embrace metasearch, while others argue that it’s bad not only for the industry, but also for consumers. Yet as more consumers become aware of and start using travel search engines, we’ll see the overall efficiency of the travel market increase. The end result for travel suppliers will be continued pricing pressure on airfares and hotel rates as metasearch engines get more press.

9 Media-Based Pricing Shakes Things Up
Online travel agencies ruled the roost in the early days of online travel, but while they remain strong, suppliers have succeeded in convincing travelers to seek out lower fares by booking direct. In late 2007, Expedia took a bold first step, announcing a new pricing model that blends transaction pricing with media pricing. InterContinental Hotels Group, Expedia’s launch partner, pays not only for transactions, but also when consumers click on specific properties within search results. Other online travel agencies will be watching Expedia’s business model experimentation closely.

10 Anything But Air
Suppliers will increase their ancillary revenue by expanding existing strategies and experimenting with new ones. U.S. airlines, followed cautiously by hotels, are becoming full-service suppliers – providing travelers with a one-stop shop for purchasing air/car/hotel, as well as activities, tours and cruises. Other strategies include in-flight sales, excess baggage fees, call center fees, travel insurance and foreign currency exchange.

11 Global TMCs Think Small
Global travel management companies (TMCs) will embrace the Long Tail in ’08 in a collection of trends that recognize the value of local content, small and medium-sized enterprises (SMEs) and unmanaged travel expenses. Business intelligence platforms will be democratized, with powerful graphical user interface-based tools made available to clients of all strata and spends.

In North America, American Express and Rearden Commerce will continue to provide proof of the concept that unmanaged travel expenses matter to corporate clients – and should be top-of-mind for TMCs as well. For business travelers, a one-stop shop for all travel-related products and services saves time; for corporate clients, it saves money. Need we say more?

This article has been shortened for space limitations. To read the complete unedited PhoCusWright article please visit www.hospitalityupgrade.com/phocuswright2008trends.

For more information on PhoCusWright please visit www.phocuswright.com.

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