The tourism sector impact of digitalization

Daniel Díez

24 August 2017

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The tourism sector has undergone a remarkable change due to advances in digitization processes and transformation as a result of these advances. If we focus on the consumer, it is clear that the way in which they approach the process of planning a trip has gone through a major evolution from start to finish, and these players benefit economically from this evolution, in terms of opportunities and access to supply and information.

For years, growth in this sector has been constant and studies predict that it will continue to be. The International Air Transport Association (IATA) estimates that the number of passengers in 2035 will be 7.2 billion, almost double the 3.8 billion registered in 2016, and over the next 20 years the IATA predicts that the annual growth rate of passengers will reach 3.7%. Meanwhile, worldwide online travel sales are expected to top $817 billion in three years time, compared to $564 billion in 2016, according to Statista.

Companies are therefore faced with a future full of opportunities to grow if they are able to adapt and evolve to answer the needs and demands of a consumer who has access to more and more information and is more connected than ever.

A complex ecosystem

The tourist and travel industry panorama has become complicated over time. Traditionally, this industry,, at a basic level,, could be divided into airlines, hotels, tour operators, and transportation (with all additional or shared services). Nowadays it encompasses a larger number of newly arisen players, largely thanks to the evolution in digitalization. As in so many other sectors, relevance no longer necessitates a physical presence.

OTAs, for example, have become extremely important touchpoints for consumers when making reservations and this is reflected in their economic performance. Several of them are ranked in the Market Capitalization Top 20; a list of leading airlines, hotels and OTAs, including Priceline and AirBnB, according to a World Economic Forum/Accenture Analysis study. In addition, the boundary between OTAs and meta searchers is becoming more difficult to define, with the consolidation of these two business models.

New players understand the needs of the consumer – and sometimes they recognise these needs before the consumer is themselves aware of them These new players have built platforms that provide access to information, ease of comparison and usability, occasionally benefitting from the advantages offered by the collaborative economy. This has resulted in a superior consumer experience to that offered by many more traditional organisations within the sector.

This makes it all the more easier for a consumer to come to a decision, through stages of inspiration, research and reservation. A study by Nielsen reveals, for example, that travelers spend an average of 53 days visiting almost 30 websites during the decision making process, and that more than half of those travelers seek advice and recommendations via social networks. This growing confidence in the experiences shared by others is reflected in the importance consumers place on the opinions and evaluations of others when booking a trip.

At the same time, hotels are currently facing challenges in two major areas. Firstly, to increase sales through direct channels, something which is becoming increasingly complicated given the volume at which OTAs are able to capture traffic through marketing and also through the facilities they offer to consumers on their platforms. For hotel chains with strong brand positioning or a loyal audience, sales through own channels is easier, but for the majority, everything depends on the strength of their relationship with the OTAs, their ability to negotiate commissions and their capacity to generate reservations.

Secondly, they must address – or better still, adapt – to the collaborative economy. P2P platforms like AirBnB, who lead the way in this sector, offer consumers a new way of booking accommodation with even more options to choose from, but force other companies to reformulate their value proposition in order to stay relevant. Recently we’ve witnessed larger hotel chains collaborating with these start-ups, who can provide a new perspective and who have an agility that facilitates the implementation of any new initiative.

Data and technology to improve the experience

Within the tourism sector, experience is key, and despite redesign no change of note has been observed; the evolution of organizations within the travel industry and the strength of their relevance is dependent on whether or not they are able to move on from a simple consumer centric perspective and offer their consumers more advanced personalization. This will result in the dissipation of the barriers between channels, and will allow these organizations to achieve total flexibility and offer their consumer base an integrated experience. In order to achieve, Big Data is key.

Big Data allows the user to combine collections of consumer information and subject this information to intelligent, automated analysis which provides the brand with a better understanding of the needs and expectations of their audience, as well as an understanding of how to achieve greater customer satisfaction which will, in the long run, generate more brand value and increase consumer loyalty.

In the tourism sector consumers can provide brands with one very valuable asset; personal data. For the right incentive, consumers have and will continue to yield this information to companies that are able to offer a personalized return, if possible, in real time. This personalization can become difficult for a company to manage, however, if we consider this reality; a person is not always the same type of traveler. In one instance, a traveler may be traveling for business, alone, with a partner, with family or friends…etc. and so there is the twist in the collection and processing of this information in terms of complexity.

From the perspective of an organization, this intelligent use of data results in lower costs, increased operational efficiency, profitability of marketing actions, the design of new products or services and, in general, an advantage in respect to competitors, thanks also to predictive analysis.

The importance of Big Data is evident when asking the opinion of professionals in the sector, as revealed in the Amadeus and LSE ‘Travel distribution’ report, airline specialists give Big Data a score of 9.5 out of 10 for importance towards the goal of disruption. Travel retail professionals, meanwhile, give Big Data an 8 out of 10. Artificial Intelligence is also a disruptive technology relevant to the sector, although it has not yet played a key role, beyond some better known examples,such as the virtual assistants or chatbots developed by companies like KLM which, at the moment, are mainly used, for customer service.

For this reason, mobile is the most suitable platform on which to host Artificial Intelligence, due also in part to the accessiblity of information via mobileand the possibility of pinpointing value services throughout the different stages of the Customer Journey, i.e. search for information, make a reservation (according to eMarketer data, in 2021 US $108 trillion will be generated in travel contracts via mobile, practically as many as are generated via desktop and tablet combined, booking a way of travel, advice for travel, information during your stay, leisure at destination…etc. Mobile has changed the way in which customer and brand interact.

The tourism sector must take the following into account:

  1. The increase in the number of travelers offers opportunities for growth
  2. The appearance of new players will increase competition and present the customer with more options;
  3. Evolution of digitalization allows brands to generate better experiences through technology, which results in greater satisfaction and in more opportunities to obtain valuable insights from data.

In addition, there are challenges in terms of safety and respect for the environment. All these elements form a tremendously interesting panorama.