Shocks, Spills and Thrills in the Travel Space
by Caroline Bremner, Head of Travel at Euromonitor
Travel at the epicentre
The travel industry is highly susceptible to external shocks, and 2016 has served up a host of geopolitical tensions, including mass migration and conflict. However, the industry is resilient, with 4% growth in trips taken internationally and domestically, driven especially by Asia, stealing a march on Europe.
Travel continues to be a target for terrorist attacks across the world. Atrocities cause a short, sharp decline followed by a rebound. However, sustained and frequent attacks, as in Turkey and Egypt, have a more long-term effect.
Impact of extraneous events
The UK’s decision to leave the EU has led to high levels of uncertainty, casting dark shadows over the UK economy. The depreciation of sterling will constrain the UK outbound market significantly, but will be a boon for inbound travel.
Factors impacting tourism demand are wide-ranging. Post-Brexit vote, the macro and political environment is highly complex and uncertain, and will remain so for the next two years whilst exit negotiations and strategies are put in place.
The biggest unknowns concern the UK’s future relationship with Europe. The UK currently has a high dependency on Western and Eastern Europe for its international tourists, with the regions accounting for 73% of all inbound tourism in 2015.
Ensuring that the UK continues to benefit from the single European aviation market is fundamental, and it is critical to clarify the situation regarding access, visas and open skies as soon as possible, considering that 75% of inbound trips are by air (amounting to 26 million air arrivals in 2015) and their importance continues to increase. The future of the EU-US transport agreement for open skies, and the UK’s future involvement, is also unclear. UK tourism is highly vulnerable to any changes in aviation policy that will restrict or constrain flows.
Ireland, Cyprus and Spain have significant exposure to any falls in UK outbound travel following the Brexit vote, and the UK faces a possible recession, a sharp slump in sterling and high levels of long-term uncertainty that will undermine consumer confidence and the ability to travel, as the UK economy begins to contract. Steps are already being taken by Spain and other countries to find new sources of demand. Spain receives 16 million visitors from the UK a year.
Asia packs a punch
Asia Pacific is a true success story when it comes to travel. The region punches well above its weight in terms of travel indicators compared to its share of global GDP, of 31% in 2015, but not in terms of population, which underpins the region’s future potential.
Asia Pacific is not enjoying as much success inbound as it is on a domestic and outbound scale, which illustrates that Asian travellers are moving into the next development phase of tourism, venturing away from intra-regional travel to international travel. The decline in Asia’s value share of world inbound receipts over 2015–2020, from 46% to 37%, will in part be due to greater price pressure, particularly as online sales are growing rapidly.
Intermediaries, such as online travel agents, will be pushing outbound travel, providing greater price transparency, and Asian travellers are clearly jumping at the chance to venture further afield. Players like Ctrip are driving this charge, as are capital injections into the sector by HNA Group, which acquired Tuniu.com in late 2015.
Short-term rentals have proved their success, with over 50% online penetration and sales worth US$65 billion in 2015, having overtaken the well-established budget hotel category, giving hotels a run for their money for price/value. Airbnb launched in 2008 and has trail-blazed a path of consolidation in a previously highly unorganised and fragmented category, aided by its online business model, through which it has rapidly gained global scale. Online penetration for short-term rentals is already over 50%, with hotels lagging behind at 36% in 2015, with much ground to make up.
The sheer rate of mobile travel sales adoption has been impressive, and it is now a mainstream booking channel. By 2020, online travel will account for over 45% of total sales, and mobile will account for 40% of online sales.
However, mobile has not yet reached critical mass as witnessed by the very low 5% share of online and mobile sales for in-trip activities, such as purchasing tickets for attractions, whilst there is also a huge opportunity in-destination, as well as throughout all the different stages of a trip.
Hotels and attractions are clearly lagging behind, but resistance to online and over-dependency on offline is a major risk, as offline becomes increasingly obsolete and the travel industry moves to an integrated online to offline (O2O) offer. Airlines are looking at ways to boost their ancillary revenues in-flight through mobile interactions.
Mobile for growth momentum
This post is part of a monthly contribution from WTTC’s Knowledge Partner, Euromonitor International.