How much is on the table with destination services for travel companies? [Hint: it’s huge]
A study by Euromonitor estimated the total leisure spend on travel and destination-related products was a massive Euro 2.5 trillion during 2012.
Roughly half that of expenditure is on so-called “commodity items”, such as flights, hotel and car rental.
That leaves a mammoth chunk – around Euro 1.25 trillion – accounting for money spent by travellers on in-destination products, such as transfers, things-to-do, attractions, shopping and tours.
It’s no wonder then that the tours and activities market is trying to explode, at least in terms of the number of startups and established players that have given the sector plenty of focus in recent years.
Inevitably it has been the startups which have captured a lot of the attention over this period, with the likes of GetYourGuide trousering lots of investment dollars, Isango selling to TUI Travel, and the likes of PocketVillage, Flextrip, Vayable and many others all eyeing the opportunity.
Pure-play technology suppliers in the sector, such as TourCMS and Rezgo, continue their work behind the scenes and the somewhat old kid on the block, Viator, is still seen by many as the pioneer in the sector.
Many cite the release of the PhoCusWright report in 2011 – When They Get There (and Why They Go) – as a wake-up call to many inside and outside of the industry as to the potential in the tours and activities sector.
This is not to say that given the bounty to be had that the task is an easy one – it isn’t, as many in the sector will privately concede to varying degrees.
These issues range from the huge fragmentation in the marketplace (no-one REALLY knows the size of the global product base), different rates of adoption of technology by suppliers and adoption of booking capability and real-time availability.
Depending on who you ask and the mood they are in, destination products and services are the few remaining areas in the industry that are still relatively untapped in terms of web-based search and booking.
Stalwarts looking on
TUI Travel, one of the biggest travel businesses in Europe, is no stranger to all this. As mentioned earlier, it bought Isango in February this year and has been helping customers in-resort with local services for years.
But it now believes, through its HotelBeds B2B division, industry intermediaries such as online travel agencies are in a good spot to capitalise.
The company, under the tutelage of director of destination services, independent traveller, Paul Anthony, has been crunching the numbers even more as it looks to unleash its in-destination services to customers.
It believes of the Euro 1.25 trillion spent by leisure travellers each year on destination products, once you strip out shopping, there is around Euro 33 billion available as an “addressable market size”.
Big numbers still.
HotelBeds currently has around 6,000 unique products on its portfolio, not including transfers. It wants to increase this to around 20,000 within five years and is now pushing it heavily to customers (not least during a keynote at the HotelBeds Market Hub conference in Spain last week).
Anthony concedes that there are numerous wrinkles in the wider tours and activities landscape that need to be ironed out.
- Suppliers are often small and require help to distribute and market products. A big technical challenge across the board.
- Around a quarter of destination products are booked at the customer’s origin, compared to 55% which are purchased once they have arrived on a trip. This needs some re-engineering if intermediaries looking to get a piece of action are going to capitalise.
- Many products are still seen as something that are purchased as an after-thought, rather than as the motivation for visiting a destination in the first place (perhaps with the exception of the world’s major theme parks, such as the Disney-owned facilities in the US and France).
- XML feeds, similar to how hotel or flight inventory and availability is piped around, are perhaps NOT the best method of distributing product from the suppliers to intermediaries. HotelBeds suggests, instead, a widget-based search and booking tool that sits within an existing OTA’s site is the best route forward (“priorities within an IT department’s mindset is on flights and hotels, not ancillaries, in terms of development”).
- Intermediaries need to think of selling destination ancillaries in a better, more strategic way. Cross-selling at the point of purchase of the flight and hotel, as well as up-selling closer to departure date through CRM and when issuing ticket confirmations.
- The mobile element in all this needs to unlocked. Data roaming will continue to be an issue, but equally intermediaries should think of destination services as part of the in-resort servicing they do for customers (HotelBeds plans to launch a white label activities app later this year).
- Disparate nature of listing products across the sector. Some companies say they X number of products, when in fact the unique number is often lower as a product which is available in ten languages, for example, is sometimes counted as ten individual products.
There is no definitive answer as to how all this works, of course, which perhaps explains why it is a fascinating part of the industry and why organisations are taking different approaches to it.
But with TUI/HotelBeds taking the intermediary route extremely seriously and other big players such as Expedia making a lot of noise as to how important all this is, new questions emerge:
- Will intermediaries see the opportunity and push destination services as important a part of the trip as the process of getting there and where travellers sleep at night (i.e. the flight and hotel)?
- Does having the customer power-base (and marketing muscle) of the big boys now wading in put additional pressure on the newbies trying to establish a presence in the marketplace?
NB: Disclosure – author was a guest of HotelBeds, which supplied travel/accommodation during the event.
NB2: Disclosure – the CEOs of TourCMS and Rezgo, as well as FlexTrip’s COO are contributing Nodes to Tnooz.
NB3: Diving equipment beach image via Shutterstock.
Kevin is senior editor and a co-founder at Tnooz. He was previously editor of UK-based magazine Travolution and web editor of Media Week UK from 2003 to 2005.
He has worked in regional newspapers (Essex Enquirer) and started his career at the Police Gazette at New Scotland Yard in London. He has a degree in criminology, a postgraduate diploma in magazine journalism and publishes his first book - a biography about Depeche Mode - in late-2016.