3 Trends Shaping the Online Travel Industry

Source: Dallas News. Sabre Corp. HQ in Southlake, Texas.

The tremendous growth of Sabre—which provides software solutions to airlines and hotels—is a derivative of three industry-shaping trends currently underway:

1. The traveler’s journey doesn’t end at the ticket purchase.
2. Mobile now accounts for over 25% of travel industry revenue.
3. “Ancillary revenue”—what travel companies call add-on purchases like wi-fi, luggage, insurance, baggage, etc.—is now a $50+ billion dollar market. Ten years ago it was just $2B.

Let’s do a fly-by of each trend and explore how they’re shaping the industry along with optimization strategies.

1. The traveler’s journey doesn’t end at the ticket purchase.

Having worked with dozens of travel companies at Optimizely, I’m always excited to pick up the phone and speak with travel industry executives. Why? Because they are fervently trying to capitalize on the this trend. The sense of urgency they exude is downright electrifying.

The frenzy really got going once Google entered the travel industry in 2011. They called it Google Flights and they even built a cool (and unique) feature that lets you set an open-ended filter, e.g. Where can I visit in 4 hours for less than $500? The announcement went something like this:

Google: We’re launching Google Flights.
Every travel industry executive: Oh boy.

Considering Google’s treasure trove of near-limitless user information, one could expect Google to craft the ultimate user journey from the moment you decide to search, the travel experience itself (hotel, restaurants, work, play), culminating in that moment you’re back at your desk cursing your Gmail inbox.

This possibility came to fruition on March 8th 2016 when Destinations on Google was announced:

Google: We’re launching Destinations on Google.
Every travel industry executive: {shock and awe}   Holy S%^&*!!

But the other big travel players had been plotting too. For example, Priceline Group bought Opentable in 2014 for $2.6 billion which was a huge validation of the importance of crafting—and controlling—the traveler’s journey. It’s not just about the ticket sale. It’s about the travel’s comprehensive experience.

2. Mobile is now accounts for over 25% of travel industry revenue.*

25% of $100 billion is a lot. Wait, math: it’s $25 billion. It’s hard enough to deliver the right experience to potential travel customers on desktop. Once you mix in mobile web and apps, the challenge gets very complex, very quickly.

Let’s looks at the first mobile web experience for some of the big travel players:

This is the first-time experience for eight of the largest travel sites in a mobile incognito window.

Observations:

• Seven of the eight (88%) are immediately searchable (exception: Priceline)
• Five of the seven (71%) immediately searchable sites have a CTA of “Search” (exceptions: Kayak’s “Find Hotels” and Skyscanner’s “Search Flights”
• Four of the eight (50%) are aggressively pushing the app: Expedia, Priceline, Travelocity, Hotels.com
• Two of eight (25%) have a banner ad (Expedia & Travelocity)
• Two of eight (25%) include value-prop messaging (Booking.com, Skyscanner)
• One of the sites assumes I’m teleporting to Boston to stay the night (you’re terribly wrong Kayak, but I like where your head’s at)

From the above observations it becomes clear that travel companies are eagerly trying to figure out the mobile traveler’s experience, but with notably different strategies.

3. “Ancillary revenue” is now a $50+ billion dollar market. Ten years ago it was just $2B, i.e. it’s growing like crazy.

Much like passing through TSA security, ancillary revenue is a challenge that every travel exec is aware of, but very few have mastered.

“Ancillary revenue”—what travel companies call add-on purchases like wi-fi, luggage, insurance, baggage, etc.—is quickly becoming a lucrative side dish. According to IdeaWorksCompany and CarTrawler, two of the foremost consultancies in the airline industry, 2015 estimates for ancillary revenue topped $59 billion. That’s Leer Jet money.

“This is your Captain speaking”

Let’s start by defining the types of ancillary revenue you can optimize for:

• A la Carte Features: Amenities consumers can add to their air travel experience, including 1) onboard sales of food and beverages, 2) checking of baggage and excess baggage, 3) assigned seats or better seats within the same cabin, 4) call center support for reservations, 5) fees charged for purchases made with credit cards, 6) priority check-in and screening, 7) early boarding benefits, 8) onboard entertainment systems, and 9) wireless internet access.
• Commission-Based Products: Sale of hotel accommodations, car rentals and travel insurance. The commission-based category primarily involves the airline’s website, but it can include the sale of duty-free and consumer products onboard aircraft.
• Frequent Flier Programs: Sale of miles or points to program partners such as hotel chains and car rental companies, co-branded credit cards, online malls, retailers, and communication services. Sales of miles or points made directly to program members also qualify.
• Advertising Sold by the Airline: Any advertising initiative linked to passenger travel. The following are typical activities: 1) revenue generated from the in-flight magazine, 2) advertising messages sold in or on aircraft, loading bridges, gate areas, and airport lounges, and 3) fee-based placement of consumer products and samples.
• Fare or Product Bundle: Airlines may allocate a portion of the price associated with an economy class bundle or product bundle as ancillary revenue.  This is determined by assigning a revenue value to the services included in the bundle, such as checked baggage, early boarding, and extra legroom seating.

For example: a middle-aged business traveler might value promotions for in-flight wi-fi and a pre-paid drink cocktail. A mother of 3 might value extra luggage and early boarding privileges. How you tailor the traveler experience on your website or app will ultimately determine if you can cater to their very different preferences and needs.

Return Flight

So there we have it: the top 3 industry-shaping trends you can optimize for today.

1. The traveler’s journey doesn’t end at the ticket purchase.
2. Mobile now accounts for over 25% of travel industry revenue.
3. “Ancillary revenue”—what travel companies call add-on purchases like wi-fi, luggage, insurance, baggage, etc.—is now a $50+ billion dollar market. Ten years ago it was just $2B.