Henry Harteveldt, Forrester Research‘s Vice President and Principal Analyst for Travel opened his keynote for the OpenTravel Alliance 2011 North American Advisory Forum with Bette Davis’ famous quote as Margo Channing in All About Eve, “Fasten your seat belts, it’s going to be a bumpy ride.”
Travel distribution executives are warned to fasten their seat belts. They may be encountering more than a bump.
Photo Credit: Jerad Heffner | Flickr
Speaking to over 100 travel industry distribution executives at the Aria Resort and Casino in Las Vegas, Henry’s premise was that when the greater degree of customization demanded by consumers collides with the direct connections proposed by suppliers and is further complicated by market forces pushing for new Global Distribution System business models, the flight will encounter considerable turbulence.
The following is a synopsis of some key factoids and snippets of Henry’s always insightful perspective.
Travel Industry
- Overall Retail Sector (all products) is up 13% year to date through March, 2011
- Airlines Reporting Corporation reports that Airline Revenue is +10.7%, but the number of passengers flying is down 1.6%
- Fuel price increases are removing discretionary income from travelers prior to the peak summer travel season
- 30% of travel suppliers report that the booking window in 2011 is shorter than in 2010
Travelers
- 40% of business travelers are not loyal to any travel company
- Loyalty levels have declined every year since 2002
- The age of mass customization is here – travelers accustomed to other products being personalized
- 40% of travelers are seeking the lowest price
- “We (Forrester) have never seen a profitable Groupon deal for a travel supplier”
- 12% of leisure travelers took an unplanned, unbudgeted trip in 2010
- 20% of travelers don’t have a destination in mind when taking a leisure trip (up from 17% in 2010)
- Henry Harteveldt loves TravelMuse
- Travelers want relevant recommendations
- 44% of travelers will consider upgrading to better products
- 25% of travelers are willing to pay a premium to save time or improve convenience
- 24% of 18-24 year olds said they had no need to travel because they can see world through Internet
- We have entered the “Era of Neo-frugal Chic” Savings is a point of pride across every product category
- All travelers want value, but value is subjective, so it is defined differently for each traveler
- Travel is considered a reward, not an entitlement
Websites
- Speak to consumers in the words and manner that travelers understand
- Only the smartest travel firms will win
- “Travel is the largest global online eCommerce category except for porn”
- Process is Learn – Plan – Book – Support
Mobile
- Mobile devices have more computing power than Apollo 11
- 35% of leisure travelers and 55% of business travelers use smartphones
- 10% of travelers have downloaded a mobile travel app
- 2/3 of Android & iPhone access the internet daily on their mobile device
- 85% of tablets sold will be iPads
- “Location Based services provide opportunity to interact with travelers on a permission basis”
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Social
- 80% of travelers now engage in social media – maximum penetration is estimated at 85-90%
- Google wants to have an interest in controlling your destiny
- 60% of travelers use a general search engine when planning travel
- Travel sellers must craft “story-arcs” a combination of micro journeys within a single trip
- The process is Planning – Purchase – Departure – Trip – Return – Next Trip
- “Welcome to the Era of Agile Commerce”
Direct Connect
- 10 years ago, Forrester authored a report “Direct Connect Isn’t Enough”
- Key factors are Cost – Control – Distribution – Technology
- Survey of electronic distribution executives predicts share of GDS bookings will decline:
- From 21.7 % in 2010 to 15.5% in 2016 (All suppliers)
- From 51.2% 2010 to 37.8% in 2016 (Airlines)
- Beneficiaries of the GDS business model are the travel agencies
- 16 of 25 electronic distribution professionals stated that GDS distribution is efficient, but the economic model needs an overhaul
- Ancillary products/services will be focus of supplier control through direct connections
- “Direct connect through a different set of servers is not direct connect, there is still an intermediary”
- “No company donates its schema to be the Mother Theresa of Travel; no travel company is registered as 501(c) charity”
- OpenTravel provides a valuable contribution to the travel industry
- Search/shop sessions and product customizations will increase
- Travel sellers will evolve toward profit margin based distribution
- 3rd party intermediaries – as subscribers – must be able to financially bear cost of distribution
- GDS needs new wholesale-like model that allows costs to be shifted to intermediaries
- Supplier controls pricing
- Wholesale-like floor price
- No intermediary ownership of inventory
- Applies to base product and services
- Intermediary uses wholesale markup to cover distribution cost
- With all these changes, there is an increasing demand for standards