News for the Hospitality Executive
Since the beginning of the year, the travel industry has been embroiled in a tough business environment.
2009 is expected to bring consolidation and restructuring for the travel industry. This will be driven by reduced enterprise valuations, limited access to capital, and lower expected future demand for the products and services being offered.
In order to assess the current sentiments, EyeforTravel’s Helen Raff spoke to Forrester Research’s travel industry analyst Diane Clarkson and Citigroup Investment Research’s director, Internet Research, Mark Mahaney.
Clarkson and Mahaney, who will be speaking at EyeforTravel’s Travel Distribution Summit on September 16-17 in Chicago, spoke about the economic and consumer trends affecting the travel industry. Excerpts:
Helen Raff: I started by asking Clarkson and Mahaney the question we all want to know, when will this downturn be over?
Diane Clarkson: We anticipate in late 2009 we will see an upswing, with real results apparent in early 2010.
Mark Mahaney: The clouds were at their darkest last fall. But it’s clear to me that we have now seen the worst of it. But for how much longer will we have to deal with the ongoing bad weather? By September I think we will start to see growth again, but it won’t be on the same level as 2006 – 2007. I think one year from now we’ll see clear skies.
Helen Raff: Mark, one of the issues that crops up on the Summit agenda is consolidation. Do you think we’re set to see more industry consolidation?
Mark Mahaney: I think we will see more industry consolidation and my guess it will feature online travel agencies. I don’t think in five years time the picture will be the same, with four big guys dominating the space.
(OTAs are experiencing sustained pressure from suppliers who are increasingly competing for direct bookings with travellers while simultaneously compressing OTA margins).
Helen Raff: How do you assess the decision related to elimination of booking fees by the OTAs?
Mark Mahaney: One of the major changes we have seen recently is online travel agencies cutting fees, and I think that this may signal a share shift. We may well see leisure travellers shifting back towards OTAs. We have to accept this strategy is here to stay, because it’ll be very difficult to re-introduce the fees. In the past customers used the online travel agencies as search tools rather than booking tools. They would use sites, like Expedia, to figure out which destination suits them and develop itineraries, then after doing this research they leave the website and book direct to avoid fees. Now, with no fees, I think we will see customers concluding their booking with OTAs, as there is less incentive to leave.
Helen Raff: EyeforTravel research has shown that over the next 12 months the mobile channel will be a key concern for travel executives. In response to this, we’re holding our first Mobile Strategies for Travel conference, alongside the Summit. Do you agree with our findings and do you think the timing of this event is right?
Diane Clarkson: I think that mobile is going have a big impact on the travel industry, but the timing is tricky. To fully launch the mobile channel, companies need a technological investment and a promotional strategy – both of which are hard to come by with restricted budgets. The big question is for travel executives is, will mobile generate incremental revenue or will this simply be a channel shift? In these difficult times travel marketers have to justify ROI more aggressively, so it’s a difficult area to go into. But I definitely feel that smart marketers should have mobile on their radar .
Helen Raff: Diane, I know you’ve done some research into Twitter recently, what were your main findings?
Diane Clarkson: Companies who participate in Twitter must commit. From a customer service perspective, Twitter drives customers to have higher expectations. They will expect an even faster response and customer service departments should be preparing for this.
As consumers’ expectations change, this drives change in the way that travel marketers must communicate with potential customers. At the moment, we’re seeing a preoccupation with finding out who the person is behind the brand; people are craving a dialogue, and this is where Twitter comes into its own.
Helen Raff: How do you assess the situation from consumer’s perspective?
Diane Clarkson: Research has shown that nearly half of US online leisure travelers plan to reduce their spend. So I think the big question is how do you make customers feel more valued?
Travelers may sympathise with the struggling travel industry, but they are not going to give their hard-earned money to someone who doesn’t make them feel valued.
Helen Raff: So how can travel companies make consumers feel “valued”?
Diane Clarkson: Most travel companies are failing to make customer feel valued and there are a number of things they can do differently. Firstly, be transparent about prices. The current fluctuation of prices is making customers feel uncomfortable. Secondly, companies need to communicate in a more personal and relevant way.
Travel companies should be focusing on creating value-added components. They need to ensure that these value-added components are relevant, for example there is no point offering someone free airport parking if you know they will be returning a rented car. Customers like to see some kind of identifiable dollar figure for these add-ons. For example, Omni Hotels normally charge $9.99 per day for Internet, but if you join their loyalty scheme it’s free, so their customers immediately see a clear monetary value.
Helen Raff: Loyalty members are consolidating their spend with fewer hotels and airlines. What should travel companies be wary of?
Diane Clarkson: Traveler perception is changing because of the economy. We have seen a 19% decline in customers who say that they are loyal to a particular travel brand, which means that companies are failing to earn customer loyalty. Many companies have to make the decision to follow loyal customers rather than focus on customer acquisition - It’s the hard reality of marketing budgets and ROI.
Helen Raff: Is customer experience online also on decline?
Diane Clarkson: We’re finding that customer experience online is declining. In 2007, 53% of people enjoyed using the Internet to book their travel, now it is only 46%. So why is this? Firstly, travel companies are not presenting enough choice. Secondly, there are few incentives to become a loyal customer. And finally, user-generated challenges loyalty and the amount of online content can be overwhelming. I think most travel companies have not distinguished themselves online to make the customer experience positive.