It's time to call it - we are heading for a travel recession, part 2

On Wednesday, MMGY Global CEO Clayton Reid presented analysis of economic and survey data that leads him to believe the travel industry is headed for a recession. Today, he offers thoughts on how travel brands can prepare for what he sees as an inevitable downturn. 

What are the opportunities to get out in front of a travel recession? 

1. Invest in pro‐growth and tax policy that supports travel. I recently heard Senator Rick Scott speak about how he used travel to buoy a struggling economy as the governor of Florida. It was about investment in travel marketing and infrastructure, with a confidence that travel is a revenue enhancement tool, not a cost to taxpayers.

I am hopeful that states and countries will adopt this same mentality. Most importantly, it is crucial that Brand USA and U.S. Travel continue to be fully funded to drive business into the United States travel economy. As Roger Dow of U.S. Travel says, “Travel is trade and travel is commerce.”

2. Use of data will produce winners and losers. Each day there is a reservoir of data points collected about how consumers shop, travel and transact, and the potential is now here to not only understand much more about individuals but to also predict how they will travel in the future.

As an increasing number of suppliers and intermediaries chase a reduced market demand, who will win the battle to attach data and machine learning to closed user groups (CUGs) and segments of would‐be customers with specific travel needs and who seek relevant product offers?

Who is in the best position to provide unique content, rate‐appropriate offers and a perfectly timed customer connection that then connects to a simple transaction platform?

Our bet: Amazon and Google will be at the top of the food chain in the U.S., and Ctrip, Alibaba and WeChat will be at the top in the Eastern world.

In a new environment where data and technology require huge investments, we would suspect this means fewer companies have more consolidated control of the market, not more intermediation by smaller players. Voice and visual recognition combined with personal assistant technology such as Microsoft’s Xiaoice or Google’s Allo have the potential to completely change the way people consume information and to shift loyalty away from consumer brands to loyalty of personalized technology and the decisions made by AI‐driven assistance.

3. Invest in brand voice. Although there is evidence that personal technology will begin to process more and more of our decision‐making, brand is still important. Before you accuse me of being old school, hear me out.

The truth is that we have reached a level of price parity in most aspects of the travel distribution path, and even where we still have price disparity, strong brands can better overcome the proposition of a third party poaching their supply. Search, meta and CRM platforms have created ubiquity for pricing and product, and giant aggregators such as Booking Holdings have moved to a “we have something for everyone” model.

So then how do suppliers win on the margins? We would argue that strong brands shape behavior that not only differentiates beyond price and product, but that good brands also shift share from weaker competitors and protect themselves against the need for deep discounting.

In our research, consumers tell us they want to attach a narrative to the travel experiences and brands with which they associate. And sometimes that brand narrative can be about price or owning a discount space – after all, that is how Southwest Airlines was born and how it still today trades on that position, even when it is not the discount supplier many believe it to be.

Brand as a price position is also fine for operators such as Spirit Airlines or CheapCaribbean.com, but it is most definitely not for many other parts of the market. Storytelling and established brand attributes can mean pricing strength, higher margins, increased loyalty and advocacy for customer retention.

With our own global clients, such as Lufthansa or Princess Cruises, we know that investing in brand voice drives business and that a platform combining smart pricing strategy and product merchandising with branded content lifts conversion.

4. Rethink what loyalty means to travelers. Everyone seems to be talking about the recent launch of Marriott’s Bonvoy, mostly on the merits of the name and rollout of the marketing campaign. But I think that misses the point.

The real power in the consolidation of Starwood and Marriott is the data and the ways in which Marriott can learn and engage with its guests. The question should be whether Marriott can capitalize on the industry’s largest loyalty base as an enterprise CRM platform.

Interestingly, our research shows that travelers are increasingly putting more emphasis on social channel validation than points accrual, and more than three‐fourths of airline loyalty members would join a social loyalty program that rewards brand behavior in ways other than points.

Twenty‐four percent of travelers in our study are making decisions based on social influencer content, and a recent 60 Minutes feature demonstrated how powerful social validation is becoming in shaping purchase behavior.

So, can loyalty programs such as Bonvoy close the gap between these factors?

It does stand to reason that the traditional approach of signing up anyone and everyone for a travel loyalty program does not fully appreciate the reduced value of points in the decision‐making process. Look at the disparity between enrolled members of hotel programs versus active ones.

Going forward, it must be more about connecting program membership to brand engagement, valuable and relevant offers and granular segmentation to build a relevant base of membership. Hotels, attractions, cruise and rental car suppliers are now working on new CRM platforms that address this reality, but many have been slow to connect to other channels such as social, search behavior and mobile proximity.

And the OTAs have proven to be much more advanced than the supplier community in developing mobile interfaces that make it easy to shop and transact, proving that a loyalty program, per se, will not carry the day over convenience and accessibility.

5. We are moving away from a reliance on central website platforms to flexible and fast content. The days of suppliers and destinations gathering and curating aggregated information on one massive website platform are quickly coming to an end.

Although desktop website behavior still converts traffic and will play a diminished but relevant role for the foreseeable future, the industry must move to more diverse e‐commerce ecosystems that take into account mobile, television commerce (T‐commerce) and augmented/virtual reality.

In Asia, the concept of platform website commerce is almost entirely dead. Consumers there are moving to native apps, social platforms, content engagement in smaller mobile web environments and third‐party shopping bots.

The need to invest in enterprise websites is analogous to having a battleship in an air war. Smart travel marketers would be better off standing up content teams, developing major retail alliances and investing in CRM platforms that integrate with social and booking systems.

These types of investments should replace the piling up of more central, encyclopedia-like website content that uses as a predicate for success metrics such as “time spent on site.” MMGY Global teams are, instead, working on media approaches that allow shopping and booking to take place entirely outside of the main client website but still within the client booking environment.

If China has the right idea (where Ctrip and Fliggy own the market but do so in an environment dominated by social platforms), the direction to go is a recognition that travelers want more content through their own networks and in a way that enables fast, easy access and sharing.

Have no fear - but have a little bit of anxiety

It’s not Armageddon. Travel will continue to be one of the most important industries on earth, and those who believe a recession will come later, not sooner, could prove correct.

ForwardKeys, as an example, just published a report that suggests there is still strength in the U.K. travel market. And at their annual summit this month, WTTC announced that 2018 was the eighth consecutive year that growth in travel and tourism exceeded global GDP growth.

But growth does not last forever, and we think now is the time to prepare for some tougher times. If history is any indication, a new era of challenges will produce more innovation and more opportunity for the companies that recognize the challenge and get out in front of what is to come.

Making sure you have a healthy respect for these coming changes can ensure you face them with your eyes wide open.