Artificial intelligence is seemingly becoming the solution to
everything - but I am skeptical, especially in travel. There is a risk of over
reliance on the outcome of AI. My
conclusion is that in the world of travel, AI is being overhyped. Below I explore two themes that are specifically aimed at travel.
The first thing we should do is to eliminate the use of the
term "artificial" My preferred alternate word is "assisted."
It really does give the right level of meaning and allows for lots of growth
and progress.
Theme 1: Big tech investment and its impact on startups
The investment landscape for travel startups has seen a
shift, especially post-pandemic. While fewer travel startups are attracting
funding, those that do are securing substantial amounts, with average funding
per round increasing from $4 million in 2010 to $20 million in 2022.
This trend
suggests that while funding is more selective, tech giants and investors are
willing to back established players or those demonstrating profitability. The
consolidation of the market has made it tougher for new entrants, as investors
prefer to fund category leaders over smaller companies with limited disruption
potential. I encourage you to check out the PhocusWright Innovation platform.
Tech giants like Amazon, Google and Microsoft have poured
billions into cloud infrastructure, data analytics and AI technology. These
investments create an ecosystem where startups can access resources that were
once reserved for industry behemoths. Madrona Venture Group
highlights how large-scale cloud investment empowers startups, offering the
kind of computational power and storage necessary to develop cutting-edge
travel technologies.
However, McKinsey’s research focus on AI reveals that this investment wave favors mature startups,
leaving younger and less-proven ventures on shaky ground. Although hospitality
startups remain the leading category for funding, other sectors, such as
pre-trip planning and customer service, receive far less investment.
Additionally, only 5% of travel startup funding in 2021 came from travel
companies themselves, reflecting an over-reliance on tech giants and venture
capitalists to drive innovation.
Subscribe to our newsletter below
This approach has led to high-profile failures. For example, AI-driven travel management startup Lola, which had all-star
team, shut down despite raising more than $80 million in venture funding.
Similarly, Hitlist, which leveraged AI to offer personalized travel deals, faded
due to a lack of effective monetization. These
cases highlight that investment doesn’t always equate to success. The travel
industry’s tendency to prioritize promising technology often overlooks its
practical limitations, resulting in a landscape filled with both winners and
high-profile failures.
Theme 2: Are digital agents the answer?
The travel industry has always relied on agents, either
through direct customer service or third-party travel agents. With the advent
of digital agents (AI chatbots, virtual assistants), there's a promise of a
seamless, automated experience. However, the risk again lies in over-reliance. Humans
still excel in providing nuanced, empathetic responses and managing complex
scenarios - traits that AI struggles to replicate fully. Talk to people trying to
make this work. The hard truth is a long way from this vision.
Part of this challenge is the multi-dimensional nature of travel. Humans are good at seeing and connecting patterns that logic might
miss. This is an area that fascinates me. I was involved in NORA [non-obvious relationship awareness], which really
expanded my own mind. AI models like ChatGPT and Gemini offer powerful tools for
automating certain aspects of customer service, but they fall short in
situations requiring contextual understanding and emotional intelligence. Large Language Models (LLMs) are mostly generic and this lack the specific travel context. There's promise in those using LLMs on private data. This will take a lot of upfront
learning.
One challenge to caution everyone on is a two-edged
sword. Too much focus brings self-fulfilling prophesies. (Loads of experiments
on this topic). The other challenge is that the bots are begetting their own
bots. And just like social media we end up in echo chambers.
Digital agents might handle basic queries, but the value of
human oversight remains essential. The risk of travel companies blindly leaning
into AI is the potential loss of personalized service, which has always been a
cornerstone of the travel experience. The industry risks overhyping AI as a
catch-all solution without accounting for these limitations. Pattern
recognition needs to advance and more power to those working in that area. Check out this piece from McKinsey for a deep dive into the topic.
Conclusion: AI in travel - overhyped or the future?
Duh… of course AI will have a role in travel. But AI's role
in the travel industry is, and for a very long time will be, complex. While
large-scale investment by tech giants can boost startups, it has not
necessarily fostered a broad, competitive ecosystem.
Digital agents offer
convenience but at the potential cost of the human touch. In travel, where
customer experience is paramount, the overhyped nature of AI becomes evident.
For AI to truly benefit travel, it must be seen as a tool to enhance human
agents, not replace them.
For startups, please stop trying to solve the biggest
problems.
- You are already too late, and
- You don't have enough breadth and depth to make it.
Where I do see startups becoming much more relevant is in
solving core problems in the middle and the back of the tech stack. One final plea from me … find a way to bring trust to results!
About the author...
Timothy O'Neil-Dunne is the principal at T2Impact, LLC.