Mobile devices are now outperforming PCs in terms of both product sales and broadband subscriptions.
As a result, mobile is going to play an increasingly central role in the travel industry in the next few years, in terms of both customer service and bookings.
The mobile channel has transformed travel consumer behaviour in the sense that consumers are today connected to the internet throughout their journeys, and as a result they expect assistance, service and the opportunity to make additional purchases during their trips and through their mobile devices.
NB: This is an analysis by Angelo Rossini, online travel analyst at Euromonitor International.
To answer this change in consumer behaviour, companies need to focus on the time after the booking and throughout the travel experience in terms of both service and sales.
This also means an increased focus on mobile bookings of in-destination services.
A fragmented market with vast potential
The market for in-destination services is very vast. According to our data it accounted for almost $2,000 billion globally in 2013, being significantly larger than the transportation and travel accommodation markets, and it is expected to record a strong 8% CAGR (compound annual growth rate) in the 2013-2018 period, to reach $2,800 billion.
Due to its fragmentation this category has been so far less concerned by online reservations and by sales through intermediaries, with independent travellers typically buying these products from the provider once at destination, sometimes with the help of the hotel concierge or receptionist.
However, the mobile channel is currently acting as a game changer, with travellers increasingly looking for in-destination services through their smartphones and tablets when at destination.
This creates a large opportunity to tap into this market for a number of travel players, including online travel agencies, tour operators, travel review sites, hotel companies and specialised startups.
The fragmented nature of in-destination tourist services represents a challenge for travel players in order to aggregate their offer, but also represents an opportunity, as it is still largely unexploited, and has considerable potential, with attractive margins.
Beyond tours and activities
The attention of travel companies looking at in-destination tourist services has generally been focused on tours and activities; however, other categories are much larger in terms of sales.
Among the types of in-destination services for tourists, shopping and food are currently generating the largest sales globally, at $580 billion and $565 billion respectively in 2013.
Shopping is expected to record the fastest growth in the next five years at a 9% CAGR.
Other categories in in-destination tourist services include entertainment (including tickets for events and shows), excursions (including tours) and - among the “other” tourist services in the chart below - tourist attractions, car rental, spas and other tourist activities.
Mobile channel is the game changer
For large travel companies to contract in-destination services with small local players and bring this inventory online is not an easy task.
A number of startups and other established technology companies are working on consolidating this vast offer, including companies in tours and activities such as Viator, Vayable, Isango and GetYourGuide and in dining reservations such as OpenTable and LaFourchette.
Their work on building a consolidated offer makes these companies an interesting target for acquisition by large travel players, and quite a few of them have for this reason already been acquired.
Acquisition activity has increased in the last couple of years, including the 2013 acquisition of Isango by TUI Travel, the 2014 acquisition of Viator by TripAdvisor and, in dining, the 2014 acquisitions of LaFourchette, again by TripAdvisor, and of OpenTable by Priceline.
The game changer attracting the interest of big players is the rise of the mobile channel, expected to drive growth of online bookings of in-destination services made by travellers during their trips.
A new area of competition for travel players
Another significant issue affecting online bookings of in-destination tourist services is the high cost of customer acquisition, which represents a major obstacle for the take-off of startups.
For this reason, the players expected to benefit the most are those which have strong relationships with their consumers, to which travellers will naturally turn to buy local services.
These players include OTAs, which can target their customers who have made other bookings with them for the same trip; tour operators, which already provide their customers with a number of local services such as tours, activities, transfers and meals; hotels, which can offer additional services to their guests before and during their stay – also online and through mobile apps; and review sites, such as TripAdvisor, which can direct traffic from their attractions, restaurants and local activities reviews.
The strength of the mobile presence of these companies in terms of downloaded applications and ability to effectively and naturally target customers through push notifications about local services will be key competitive factors.
In this field OTAs, TOs and TripAdvisor seem to be ahead of the other players, while hotels, especially the independent ones, appear at the moment less competitive, and airlines are still behind in addressing this demand.
From OTAs to MTAs (mobile travel agencies)
For online travel agencies, the rise of the mobile channel is expected to drive the adoption of a new MTA (mobile travel agency) business model built around the central role of mobile devices and resulting in a growing focus on the time beyond the booking throughout the whole travel experience.
This will mean increased focus on providing in-destination services to their customers through their apps, including meals, entertainment, tours, excursions and other local activities, at the same time strengthening their offer and increasing their revenues.
The move of online travel intermediaries to provide in-destination services will open another front of competition with hotel companies, which on one hand will co-operate with them to provide these services and on the other hand will compete with them.
This will also be an area of competition among intermediaries, with Priceline and Expedia already ahead of other OTAs in this area, and with other industry players, such as TripAdvisor and TUI Travel, also making important moves..
TripAdvisor: Aiming to become a mobile travel assistant
TripAdvisor is a review site which has implemented metasearch functionalities over the last two years and, following the rapid adoption of mobile devices, is now increasingly looking at in-destination services in order to be present in the whole travel cycle.
The company has a big strength in the field of in-destination services - its large base of reviews on local attractions and activities.
It has, moreover, recently added further strength to that, through the 2014 acquisitions of Viator and LaFourchette.
TripAdvisor’s goal is to become travellers’ favourite mobile travel assistant in order to gain their loyalty and have them turning to it every time they look for a travel service.
The company has been constantly making changes to its business model in these fast changing times for the travel industry - from review site to adding meta search functionalities to mobile personal assistant.
Priceline: Expanding to online restaurant reservations
Priceline Group’s acquisition of online restaurant reservation service OpenTable for $2.6 billion in June 2014 was a clear move of the OTA giant to go beyond the time of the hotel booking and follow its customers throughout their journey and provide mobile in-destination reservations.
In particular, the acquisition of a leading company in online restaurant reservations allows Priceline to establish a strong presence in tourist meals, accounting for $565 billion globally in 2013 and with vast growth potential for online and especially mobile bookings.
OpenTable includes an inventory of 32,000 restaurants and serves more than 15 million diners a month. The company is strong, especially in the US, but with a growing international presence.
Priceline’s goal is clearly to expand OpenTable international reach and offer online reservation services to its customers in order to gain a share of this significant part of tourist spend, which could nicely complement and significantly increase its hotel booking revenues.
Another interesting aspect for Priceline in OpenTable’s acquisition was its mobile booking system, active from 2008 and which generated 44% of its online restaurant bookings in North America in the second quarter of 2014.
Expedia: Organic growth through the Local Expert division
Expedia’s strategy regarding in-destination tourist services has not included acquisitions so far but has been based on the expansion of its offer of these services through in-house organic growth, contracting them through its Expedia Local Expert (ELE) division, currently offering in-destination services in over 900 locations.
Local companies offering in-destination services and signing up to be part of the ELE network can use an extranet to manage their rates and inventory, in a way similar to OTAs’ hotel partners.
The importance of in-destination services within Expedia’s offer is constantly growing on its websites and is also available through the Local Expert API, easy to integrate for its partners and affiliates, including hotels, airlines and other travel companies wanting to add local services to their offer in order to strengthen it and earn affiliate fees.
TUI Travel: A&D division embracing online and mobile channels
World leading tour operator TUI Travel is also a global leader in in-destination tourist services through its Accommodation and Destinations (A&D) division.
TUI Travel’s A&D division is responsible for organising reception, airport transfer and local tours and activities for its customers worldwide.
This division has been concerned by significant developments in recent years to respond to disruptive changes in the travel competitive environment driven by the online and mobile channels.
It now includes the Isango tours and activities company, bought by TUI Travel in 2013, while Hotelbeds, TUI Travel’s bed bank, is currently very active contracting in-destination services through its Activities unit. Hotelbeds currently offers in-destination services in 430 locations to its travel intermediary and hotel customers, which sell them to final consumers.
Gullivers Travel Associates (GTA), the other global giant in bed banks, bought by Kuoni in 2011, is also currently very active in contracting in-destination tourist services for fully independent tourists (FIT) through a dedicated team of buyers it has created.
TUI Travel is increasingly embracing the mobile trend. Its MyThomson app is a digital assistant providing service before, during and after the trip with ancillary revenues from in-destination services playing a significant role.
Moreover, Hotelbeds launched a mobile site called Guidego to sell in-destination services directly to consumers on the go. This site is currently being tested on Barcelona and Tenerife only and is expected to expand its destinations coverage in 2015.
In-destination services, personalisation and peer-to-peer trends
The rise in online bookings of in-destination services is linked to some of the hottest current trends in the travel industry; not only the mobile trend but also personalisation and peer-to-peer travel services.
In-destination services provided by local people rather than companies are expected to grow steadily in the next few years, following in the footsteps of peer-to-peer holiday rentals, as they offer more authentic experiences and value for money.
Companies such as EatWith and Bookalokal are already tapping into this trend as far as meals are concerned, while Vayable and SideTour are active in peer-to-peer tourist activities.
Peer-to-peer in-destination service providers have struggled so far to reach the mainstream market, as companies like Airbnb and HomeAway did in the holiday rental space; however, they could be integrated in the offer of larger players, which could enrich their offer with more authentic experiences, which are increasingly appealing for independent travellers.
Moreover, personalised push notifications, linked to consumer preferences stored by companies, will be a powerful tool for online travel players to increase sales of in-destination services, as part of the strong move towards personalised online travel marketing we will witness in the next few years.
As a result of the rise of the mobile channel, in-destination tourist services appear set to become another area of growth for online travel intermediaries, and of disruption for the travel industry.
NB: This is an analysis by Angelo Rossini, online travel analyst at Euromonitor International.
NB2: Mobile New York image via Shutterstock.