Sharing, ‘Cheating’ and Direct BookingFebruary 1, 2016
3 Travel Trends to Watch in 2016
By Dan Ruch
February 1, 2016
Sharing, ‘Cheating’ and Direct Booking
3 Travel Trends to Watch in 2016
Dan Ruch is the founder and CEO of Rocketrip. Dan founded Rocketrip in 2013 after 10+ years in the ad tech space. Prior to founding Rocketrip, he was V.P. of Europe for Tremor Video, a leading provider of technology-driven video advertising solutions and ran Tremor’s business development efforts in the U.S. Early on in his career, he worked at Tacoda until its successful exit to AOL and at Mindshare and Maxus Global — GroupM’s agencies. www.rocketrip.com
This year is poised to be a good year for business travelers who want more options and better value. The maturation of the sharing economy, airline consolidation, and tension between online travel agencies (OTAs) and vendors will fuel this year’s travel trends. In short, we will see more sharing, less loyalty (more “cheating”) and more direct booking.
Before diving into each of the travel trends though, let’s paint the scene. The Global Business Travel Association (GBTA) reports that U.S. spending on travel increased 3.1 percent in 2015 and will grow only 3.7 percent in 2016. Growth is slow in large part because airfare inflation is nonexistent.
“The sharing economy will continue to challenge legacy travel services as millennials increase their share of business travel spending.”
Nonetheless, trip volume will grow over five percent in 2016, which is a sign that face-to-face interaction still matters. Indeed, the GBTA reports that 57 percent of millennials believe technology can never replace face-to-face business meetings, and millennials are two times more eager to travel for business than baby boomers. This matters because millennials will soon be the dominant business travel demographic, if they aren’t already.
Keep in mind that the business travel ecosystem is dealing with stagnant growth and demographic change. With that said, here are my predictions for 2016:
- The sharing economy wins a giant chunk of business travel spending.
The sharing economy, led by Uber and Airbnb, has struck home with business travelers. Certify, a provider of travel and expense management software, reports that 55 percent of business travelers now choose Uber, outpacing taxis for the first time ever. The sharing economy is here to stay.
Millennial travelers are accustomed to using the sharing economy in their personal lives, so they expect to use it in business, too. This is good news for employers because sharing economy vendors are usually more cost-effective than their traditional counterparts. For example, at my company Rocketrip, we find that travelers who use Airbnb beat their projected hotel budget by an average of $110 per night. Likewise, Certify finds that the average cost per Uber ride is $30.03 versus $34.38 for taxis.
In 2016, expect to see sharing economy services roll out more perks and partnerships for business travelers. A good example is “Business Travel Ready,” a new Airbnb certification for hosts that offer business-friendly amenities such as Wi-Fi and a designated work space as well as 24-hour check-in and a policy of no host cancellations within seven days. Another good example is the new partnership between Airbnb and American Express (a corporate travel powerhouse) that allows cardholders to spend American Express reward points on Airbnb bookings.
Uber and Airbnb get all the attention, but don’t underestimate other sharing economy players. HomeAway, a sharing platform for vacation rentals, was acquired by Expedia for nearly $4 billion. There’s no reason why they can’t pivot towards business travelers, taking advantage of Expedia’s reach and reputation.
- Less loyalty, more promiscuity.
Over the past seven years, the airline industry experienced a string of mergers that have changed the dynamics of loyalty. Delta picked up Northwest Airlines (completed in 2010); Continental merged with United (2012); and most recently, US Airways joined American Airlines (2015). For business travelers who were loyal to the legacy brands, it was like waking up next to a stranger. With fewer airlines but just as many frequent travelers, airlines had to address what journalist Josh Barros coined “Elite Bloat.”
Consequently, most of the airlines have debased their reward programs, and they have added more levels of elite status while raising minimum eligibility requirements. Whereas frequent flyer earnings and elite status used to be based on the distance and frequency of travel, they are now based on revenue. The old model favored road warriors; the new model favors cost-insensitive travelers and folks who spend heavily with airline credit cards. In November, American Airlines became the last major U.S. carrier to switch to a revenue-based reward program.
As a business traveler, why be loyal if it doesn’t pay off? It makes more sense to “swipe” airlines, a la Tinder, until you find the best combination of price and in-flight comforts. Southwest and Virgin understand this. They have aggressively wooed business travelers by expanding their coverage network and adding premium cabin amenities such as fast Wi-Fi and live streaming. With loyalty dying and travel spending stagnant, other airlines will likely follow in their footsteps.
- Travel vendors versus OTAs: the “frenemies” get feistier.
Hotels, airlines and rental car agencies will vie to reclaim direct bookings in 2016. This is the only way to cut down on the fees they pay to online travel agencies (OTAs) such as Expedia and Priceline. It’s a “frenemy” situation because as much as vendors hate paying OTAs, they do drive a lot of transactions. Generally, OTAs have much better booking sites and mobile apps, which are a draw for those tech-savvy millennials.
This vendor versus OTA conflict isn’t new — it’s just getting more aggressive. For instance, in September, Lufthansa Airlines introduced a surcharge of €16 on all tickets booked through global distribution systems (referred to as GDSs — essentially virtual networks that facilitate travel-related transactions between buyers and sellers). They believe this will encourage travelers to book directly on Lufthansa.com instead of with OTAs. It’s not an absurd idea — budget airlines such as Southwest have managed to thrive without OTAs. This strategy keeps their flights off the major travel agency sites, and, in theory, has enabled them to offer cheaper fares by eliminating agency fees and commissions.
Cutting out the middleman can backfire, however. In October 2014, Marriott started offering free Wi-Fi to guests who booked directly. Understandably, travel agents were angered. So in August 2015, when Marriott ran a global YouTube campaign encouraging guests to book directly, they caused a true uproar among travel agents. The backlash forced Marriott to pull the video ads.
This tug-of-war between vendors and travel agents will continue to fuel a spree of mergers and acquisitions on the OTA side. In 2015 alone, Expedia has acquired Travelocity, Orbitz and HomeAway, as I already mentioned. In the last two years, Priceline Group picked up Kayak and OpenTable, among other companies. The OTAs want to grow to a scale where they can’t be ignored, and they seem to be succeeding. Search “book travel” on Google and you’ll find that Kayak and Expedia own the first five results, or half the first page of listings.
In Competition, Travelers Win
2016 will be defined by competition. The sharing economy will continue to challenge legacy travel services as millennials increase their share of business travel spending. Airlines, all vying for loyalty amidst stagnant growth, will realize that perks have to extend beyond points and elite status. OTAs and vendors will try to one up each other in the booking wars. This is all great news for business travelers who can share, “cheat” and directly book their way to better deals, perks and experiences. C&IT