Someone once asked me why WiT was in Seoul. My answers were simple. It is the second-largest outbound market in Asia, after China. Consumers are changing faster than traditional travel players. Into that vacuum has entered global online travel agencies and local startups that are rewriting the rules of the game.
Throw into the pot, more low-cost airlines in an already-crowded market, Asian homegrown brands looking to grow in South Korea, traditional giants waking up - is it too little, too late - and you have all the makings of an explosive, addictive K-drama, much like Mr. Sunshine.
Here are the key takeaways from the fourth WiT Seoul 2019.
Not a lot of sunshine ahead for airlines, but let’s do fewer team dinners and spread happiness
Asiana Airlines is up for sale, following a disastrous 2018. Its co-CEO Park Sam-koo, who was also chairman of the parent Kumho Asiana Group, has quit, and it’s received a US$1.4 billion loan to sort out its problems.
Into those stormy skies, three more low-cost airlines are set to enter. South Korea already has the highest LCC penetration in North Asia. From 2009 to 2018, its share of seat capacity grew from 23% to 53% (domestic) and from 1% to 35% (international), according to CAPA in this report.
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Despite the turbulent skies, Seok Joo Lee, president of Jeju Air, painted a positive picture as he spoke to the audience of how essential air travel is to modern life and happiness. Air travel has grown from 1.1 billion passengers in 1988 to 4.4 billion in 2018, with more than 300 million passengers added each year. Only 10% of the world’s population has traveled and 350 million new households will enter the global middle class by 2030.
He cited a survey which measured people’s anxiety moments in life, and it showed people were most anxious about “team dinners” and “happiest” about travel. As such, there was much room for growth in aviation.
As for how Jeju Air would tackle the challenges ahead, he cited these key words - one, FIT (free independent travelers) and digital transformation, two, China and new competitors, and three, fleet and network.
FIT’s the word of the times
Indeed, the word “FIT” came up a lot, and it’s this three-letter word that is fundamentally driving change in the market. An essentially group-driven travel market has splintered, and a travel industry, bound by legacy and traditions, is struggling to keep up.
The rise in low-cost airlines, use of technology (there’s almost a 100% smartphone penetration) and a globalized world has made South Korea into the second-largest outbound market in Asia, with the highest penetration. In 2018, this country of 52 million people recorded more than 28 million outbound travelers.
So clearly consumers have changed, but the trade hasn’t. Into this vacuum has entered global OTAs and local startups that are rewriting the rules of the game. South Koreans are among the heaviest users of travel apps, according to Timothy Hughes, vice president, corporate development, Agoda.
Justine Lim, regional manager, partner services, Booking.com, said she didn’t believe the OTA’s success in the market was because it was a global OTA; rather, it’s what the customers want.
Amid swing in demand from packages to FIT, Hanatour invests in digital and incubator
Hanatour, the traditional travel giant, is seeing a similar trend. CEO and chairman SangHwan Park shared internal data that showed a swing from package demand to FIT-only in the last six years - there was a 29% decrease in package demand and a corresponding 27% increase in FIT-only. The company’s sales is now split 49% FIT-only, 9% FIT plus package and 42% package.
Acknowledging the intense competition between OTAs and startups in the FIT market, he said Hanatour required “a new business model that could satisfy customers’ various needs” and “on demand” products.
It is investing 36 billion won in building a tech platform that will allow the company to “change the definition of group tour” by unbundling services and allowing customers to pick and choose what they want. Its vision is to build a “comprehensive e-commerce platform” that will enable it to expand globally by end of 2021.
He also announced at WiT Seoul the setting up of an incubator to nurture travel startups.
Local players and investors fighting back with funding and expansion
And then you have well-funded local players trying to shake up the market. Tidesquare, the leading flight OTA, has raised $44 million from investors such as Kakao and Dunamu to fend off global OTAs on its home turf.
CEO Min Yoon sees its partnership with Korea’s leading messaging app as an opportunity for customer acquisition and travel transactions, and the new funds will be invested in getting the company tech-robust and ready for the times.
A hint of what that will involve was shared by investor Ryan Lee, CEO and managing partner of Dunamu, when he spoke of his belief in “how AI and data can change the way consumers fund their products in travel.”
Yanolja, described as South Korea’s leading O2O accommodation service, has raised a total of $150 million and is looking to raise more to expand outside South Korea. It invested into Zen Rooms in Southeast Asia. A transformation two and a half years ago has worked and resulted in a doubling of revenues, said Jong Yoon Kim, CEO of online business and corporate strategy.
There are swirls of rumors around Yanolja with talk of an Agoda acquisition and an IPO, but no one’s confirming any of that.
MyRealTrip, founded in 2012 as a peer-to-peer tours and activities marketplace, has raised $26 million and has evolved into an OTA, offering flights as well, and CEO Donggun Lee said he’s happy with the results. He’s found that by offering cheap flights, he’s able to catch customers at the top of the funnel and convert them into buying tours and activities. His partnership with Naver, the country’s leading search engine, has also given him access to new customers.
Han Kim, managing director of Altos Ventures, an investor in MyRealTrip, said he was not duly worried about the level of funding and competition coming into the tours and activities space. MyRealTrip’s focus on being the expert in South Korea plus its body of online reviews would stand it in good stead, he said. “Plus, now the move into flights which will offer consumers more value.”
Staying focused and independent as they prepare for battle
The last word has to go to two low-cost airlines that are girding up for the competition ahead.
Sukwan Kim, vice president of T’way Air, and Jong-bae Moon, vice president of Eastar Jet, both say that focus will be their word going forward - focus on keeping costs low, focus on their route networks, focus on being Korean and focus on giving customers the best price and value. Both airlines have under 30% of their business coming direct.
And even though Trevor Spinks, senior director, audience strategy APAC, Sojern, formerly of Scoot, spoke of the advantages of being part of a network effect (such as AirAsia) or an alliance such as Value Alliance, Kim said no to both options. Instead, his priority is working on NDC connectivity, which will open up his airline’s sales to more channels.
The most memorable quote though came from Jiwoong Park, CEO and managing director of FastTrack Asia, whose fund has invested in Air Premia, one of the three airlines which received licenses this year.
(Air Premia will be South Korea’s third low-cost long-haul airline and plans to launch regional services within Asia by September 2020, followed by long-haul services in 2021. It has identified Honolulu, Los Angeles, San Jose and Vancouver as potential long-haul destinations.)
FastTrack Asia has been incredibly successful in areas such as online food delivery (Foodfly), online grocery commerce (Hello Nature), mobile doctor search (Goodoc) and vertical commerce for mothers (Quincee). It is the fund’s first investment in travel.
Quipped Park during the investors’ panel: “I wished I had attended more WiTs before, then maybe I wouldn’t have done this.”
* This article originally appeared on WebInTravel