Middle East, part 1: How a young, digital-savvy population is impacting travel

The Middle East is a large and very diverse region, comprising more than a dozen countries with unique characteristics regarding politics, culture, language and religion.

The area - including some North African countries - has an estimated population of more than 444 million people as of 2017, according to the World Bank.

And it’s a population that is relatively young, educated and technologically savvy.

“The Arab World Competitiveness Report 2018” from the World Economic Forum states that, in 2015, nearly one in five people in the region were between the ages of 15 and 24. And a World Economic Forum report says one-third of the population was below the age of 15 in 2017.

These young people have a voracious appetite for online content and social media.

According to Global Media Insight, active internet usage in the United Arab Emirates is more than 99%, users spend an average of nearly eight hours online each day and 61% of the internet usage is on mobile.

In Saudi Arabia, Global Media Insight says internet usage is 91%, and 71% of the country actively uses YouTube.

According to Google, mobile watch time of YouTube in the MENA region is one of the fastest growing in the world, rising by 90% year-on year-from 2014 to 2015.

Facebook, Instagram and Twitter are also popular in the region. According to the State of Social Media, Middle East: 2018 report from researchers at the University of Oregon, Facebook has 164 million active monthly users in the Arab world, up from 56 million five years ago. Saudi Arabia has the highest annual growth rate of social media users anywhere in the world.

This mix of a young, socially engaged population in the Middle East bodes well for travel brands and destinations as it fosters an awareness of - and desire to explore - other parts of the world.

According to Phocuswright’s Middle East Online Travel Overview, Third Edition, “Middle East travelers are ... traveling frequently - some four to five trips annually, on average.”

IATA’s 20-Year Air Passenger Forecast from October 2018 predicts the region will have a compound annual growth rate of 4.4%, with an extra 290 million passengers “on routes to, from and within the region by 2037. The total market size will be 501 million passengers.”

This month we explore travel in the Middle East, first looking at market characteristics, plus the startup ecosystem, regional brands and trends in the aviation sector.

Background

In October, Dubai-based Insight Out Consultancy produced a Middle East Consumer Travel Report, commissioned by Amadeus, Tajawal and Jumeirah.

Among the findings: Nearly one-third of respondents report traveling at least once a year, and two-thirds of them are going to international destinations. Another 25% of respondents travel at least twice a year, also favoring international locales.

As recently as 2015, nearly three-quarters of the search and booking activity around travel in the Middle East took place offline.

“Offline channels represent the bulk of travel gross bookings in the Middle East, a result of the prominent role that traditional travel agents play in the region. Personal relationships, native language use, loyalty programs and a lingering mistrust of online payment methods still influence many travel booking decisions,” says Phocuswright’s regional overview.

But that is gradually changing, driven by the young population that is going digital – and mobile – first. Phocuswright predicts online will account for 41% of travel bookings in the region by 2021.

In tandem with growing consumer willingness and desire to transact online has been the development of online search and booking platforms targeting the region in the past decade, both from existing offline brands and newer, online-only services.

Digital development

An example of that is Wego.

After initially focusing on Southeast Asia, founder Ross Veitch says he decided to expand his metasearch marketplace into the Middle East in 2012 and develop an Arabic-language version of the platform.

Our growth and the entire industry growth is driven by a new generation that have grown up with online services and technology, and it’s one of the reasons it’s changing so fast.

Ross Veitch - Wego

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“It was a big untapped opportunity,” Veitch says.

“In the Gulf, the GCC countries [Gulf Cooperation Council - Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman], there are about 50 to 60 million people with incomes not too different to the United States and Europe. They travel a lot, but they were completely underserved from an online travel agency point of view.”

Veitch says the timing was just right. Wego now connects to more than 1,000 sellers. This includes full-service and low-cost airlines serving the region, global OTAs such as Expedia and Booking.com - which was the first global OTA to localize content in Arabic - and more than 60 regional OTAs, most that did not even exist a few years ago.

Travel suppliers have also ramped up their digital presence.

According to Phocuswright, “Suppliers accounted for 59% of online gross bookings in 2017, a percentage that will hold steady for the next five years. Supplier-direct online distribution will shift from desktop to mobile apps and websites, as smartphone penetration in the region skyrockets.”

All of this activity in the digital space is “great for consumers as far as price competition, but it’s also good for anyone running a marketplace,” Veitch says.

In fact, the Middle East now accounts for half of Wego’s total business and is the main reason the company crossed $1 billion in gross merchandise volume in early December 2018.

Veitch says about 85% of Wego’s search and booking activity from the Middle East is happening on mobile.

“Our growth and the entire industry growth is driven by a new generation that have grown up with online services and technology, and it’s one of the reasons it’s changing so fast,” he says.

“A lot of the people using our platform and others in the region have probably never stepped foot in an offline agency.”

Dubai-based Tajawal is another digital travel brand that has both helped to drive and benefited from the region’s transition to online search and shopping.

Created in 2015 as a corporate startup and digital outpost of the region’s largest offline travel company, Saudi Arabia-based Al Tayyar Travel Group, Tajawal and sister brand Almosafer brought in about $1 billion in net bookings as of last fall.

The founder and former CEO of Tajawal, Muhammad Chbib, echoes the sentiment that it is the young population of Middle East consumers - most with at least two mobile phones - redefining the region’s travel industry.

“They [young people] see what is possible in other regions and they want this for themselves as well. So when they see that in the West everyone books online, they want to book online. When they see that they can go on vacation beyond London in the summer, they can do something that is really exciting, then they want to try it out,” Chbib says.

“And I think that by launching Tajawal as an online platform that was user-friendly and extremely focused and to the point, it helped us to shape this transformation, not only be part of it.”

Marketing mix

Efforts to catch the attention - and spending - of these digitally focused consumers is driving an uptick in online marketing in the Middle East.

If you look at digital channels, paid search is still the biggest – making up over 20% of people’s digital spend.

Stewart Smith - Sojern

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According to Phocuswright, “Some global travel brands operating in the region are allocating as much as 80% of their marketing budgets to digital campaigns.”

With online travel still in its relative infancy in the region, most efforts are focused on driving brand awareness rather than direct bookings.

According to Sojern’s Middle East director, Stewart Smith, digital channels accounted for half of all advertising spend by the region’s travel marketers in 2018 - for airlines, hotel groups and destination tourism agencies - and most are planning to increase that spending in 2019.

“If you look at digital channels, paid search is still the biggest - making up over 20% of people’s digital spend,” Smith says.

“But catching up fast is video. And within that, Facebook and Instagram are becoming very popular - the ‘Stories’ format will be the big thing in the next year.”

Smith says while most campaigns are focused on brand awareness, some marketers are starting to use Facebook and Instagram to drive direct bookings through their websites.

For now, according to Insight Out Consultancy’s report, the primary influence on travel decisions comes from friends, family and colleagues (53%). But close behind are search engines and review sites (47%), travel providers’ websites (46%) and social media influencers and channels (39%).

“I think it’s fair to say the Middle East is a couple of years behind where the rest of the world is right now [as far as digital marketing],” Smith says.

“But we are catching up, and there are people willing to invest and go into digital in a big way. That’s the way the world has gone, and that’s the way the Middle East market wants to go.”