Something is going on in the European leisure travel market – in part, due to the distribution strategies of airlines and hotels.
As both continue to develop their own travel packaging strategies online, existing tour operators and online travel agencies are being forced to redefine their own unique selling propositions.
And, interestingly, it might be the OTA segment that has to change most, with the word “consolidation” becoming not a scenario but simply a question of when.
Firstly, some background.
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It's never that easy in November for Europe's package travel sector. Both bookings and departures are melting to the minimum and, with that, cash and balance on the bank accounts is low.
Furthermore, this year has not been a good one for the sector: holiday airlines Monarch (with its sister Monarch Holidays brand) and Air Berlin collapsed; J.T. Touristik, one of the leading virtual tour operators in Germany, was not far behind.
Customer demand is also shifting back from the Eastern Mediterranean, with Turkey being hit as the natural backbone for packaging from Central Europe.
The exit of Monarch and Air Berlin is limiting the capacity and choice in air charter.
Easyjet and Lufthansa, with its new subsidiary Niki, freshly taken over from from Air Berlin, might fill the gap in the medium term, but calculations and capacity planning for summer 2018 is rather hard to do right now.
And that, inevitably, is what tour operators generally do in the gray month of November, ready to open up the summer bookings for Christmas.
But there are other unpredictable elements in play in the tour operator segment at the moment.
The political situation brings uncertainty
The European Package Travel Directive (PTD) and it's new definition of linked travel arrangements will be transformed into national law for each EU member country by July 2018, including the UK, where the government just closed its consultation on the implementation of PTD.
Inevitably, the UK´s spectacular Brexit vote – and the ongoing uncertainty around how it will play out - has unnerved the country’s travel industry.
Google will become a game-changer in package travel
While Google's Package Meta Search just made a soft launch on the search giant’s mobile app, integrated package offers will soon arrive elsewhere on Google’s platforms.
One of the most important features to watch will be how Google compares tour operator offers with individual trips, based on separate bookings for hotels and flights.
This is essentially metasearch of dynamic packaging – a move some considered impossible not that many years ago.
Individual trips are a key issue for tour operators
It's becoming even more popular for Europeans to book flights and hotels separately, similar to how the rest of the world has done for decades.
The large big hotels and OTAs are pushing this segment, while flight tickets remain competitive for both airlines and intermediaries, with the latter also getting pushed by the direct booking strategies from carriers and the hotels.
Suppliers are changing their partnerships
As mentioned earlier, more airlines are building up their own tour operating activities.
Lufthansa Holidays and Ryanair Holidays are gaining market share, and the Barcelo Hotel Group has a partnership with Expedia for package bookings.
This kind of venture is not new for Expedia, partnering successfully with Marriott, SNCF and the Thomas Cook Group.
Yet it is the first time a leisure hotel group is going in direct competition with its core customer via Expedia: the European tour operator.
Both Expedia and Booking.com are also getting more competitive in hotel sourcing around the Mediterranean Sea.
Even if they do not work on a net pricing model (as bedbanks and tour operators prefer to do), they play an important role in the package business, partnering both with supplier and tour operator and, inevitably, generating large booking volumes on their own platforms.
As a result of all these forces in play, Europe's OTA marketplace could change radically.
While the tour operator landscape is already in flux, online travel agencies have largely been left untouched – but there are several reasons why this might change rather sooner than later.
A unique product portfolio is hard to get
Even as some of the European tour operators have built up their own activities in dynamic packaging, it's mostly Expedia that has made a success story of it.
Hotel sourcing gets rather difficult despite a lack of choice of partner in the accommodation sector being concentrated in the Hotelbeds Group, with few competitors left in the bedbank sector.
It's essential to have a portfolio of unique products, but this is hard for other OTAs when they are just dependent on the almost identical products from a third-party supplier and tour operator.
A few European OTAs are for sale
At least two of the leading OTAs are seeking new partners.
German media company ProsiebenSat.1 put its travel section into the shopping window over the summer and sold its flight brand Etraveli to CVC earlier this year.
Spanish-based eDreams Odigeo followed suit in November when it put up its own for sale sign.
Aside from any potential merger and acquisition activity, to remain successful, OTAs will need to refresh their booking technology, build up new and smarter supply chains and invest both into performance and brand marketing.
Who might be willing to invest in a European OTA?
Alongside the deal by CVC Capital Partners for Etraveli, Rockaway Capital took over most of the travel assets from Unister Group in April this year, backed by Chinese money.
CEFC, one of China’s top investment groups, as well Rockaway, have made it clear that Unister shouldn't be the final investment in online travel following similar deals for Invia in the Czech Republic and Travelplanet in Poland.
Though not directly in the package space, Ctrip’s acquisition of Skyscanner last year was another signal of the Chinese giant’s desire to branch out - a move bolstered by its acquisition of Trip.com, which could help the metasearch brand beyond outside its core of flight comparison.
We will see more new ventures and partnerships in the European OTA landscape – it’s inevitable.
The most important question for everyone involved is how to build a strategy around size, efficiency, technology and branding and having a unique product portfolio.