Online Travel Agents have enjoyed a boom in business in recent years but in the `race to the bottom’ for price advantage they now need to adapt their product offering to maintain a competitive edge. They are facing strong competition on several fronts: meta-search sites, such as Kayak, can offer consumers better search experiences and price comparisons because they aggregate a larger volume of data in one place, while AirBnB and Google are expanding out of their respective core businesses to increase their share of the OTA market. Global hotel brands are also starting to aggressively push direct booking.
We believe OTAs can adapt their products and business models in several ways to grow their customer base and increase spend.
Demand for easy searching and price comparison for rented holiday accommodation has increased significantly, as consumers have realised they can shop around for rentals in the same way they do for hotels, and OTAs are proceeding to capitalise on this realisation. Booking.com has been moving aggressively into this space, while Google is now testing holiday rentals and the growth of rental meta-search sites, such as Tripping.com. Both examples indicate the strength of this opportunity in the market.
While OTAs have focused on perfecting the search and booking process, their offer and experience beyond the initial transaction can be limited. Several OTAs are looking to extend their influence and coverage of more elements of the traveller’s journey, by offering bookings for trips and activities. For example, TripAdvisor’s non-hotel revenue grew by 27% in 2016, while hotel revenue declined by 6%. This shift is likely to be accelerated across the OTA sector by AirBnB’s launch of Trips late last year, the first major competitive expansion from its core business.
The challenge for operators is to provide relevant options at the right time for travellers who are used to quickly finding what they want when booking hotels and flights. This will require working with tour and activity operators to professionalise this area of the market.
Some companies are achieving growth through serving travellers’ unmet needs in niche areas of the market. For example, Routehappy allows consumers to not just compare routes and pricing when booking a flight, but also comfort levels, by aggregating data to score factors such as legroom, wi-fi and in-flight entertainment. Hopper is a mobile app that predicts flight prices, allowing consumers to track the cost of potential trips and be alerted when it is the best time to book flights.
The market has seen significant consolidation, as large players acquire start-ups and smaller companies, and while this is likely to continue, we believe the market’s next phase of evolution will be characterised by the emergence of new business models and product offerings.