One of the castles up for grabs
The travel industry’s rapid evolution continues unabated. To profit through this turbulence, leaders must focus on what really matters—the customer. The landscape of travel distribution has been shifting. Until the mid-1990s, distribution was a straightforward mix of brand call centers, travel agencies, and in-person bookings at the hotel front desk, airline ticket counter, or car-rental outpost. The launch of online booking gave companies a new way to engage with customers and also opened the door to new business models such as online travel agencies (OTAs). However, in the 2000s, most travel suppliers, aggregators, and service providers focused on managing transaction costs rather than improving the customer experience, with serious implications. The game is now about delivering a superior customer experience.
Italy is giving away more than 100 historic buildings – including castles, houses, and towers – in a bid to boost ‘slow tourism’ and tempt visitors away from the overcrowded city centers. Old houses, inns, farmhouses, monasteries and ancient castles are all up for grabs – and you won’t have to pay a penny. In total, 103 sites are available, dotted across the country from north to south. The only catch is that those who take up the offer will have to commit to restoring and transforming the sites into tourist facilities, such as hotels, restaurants, or spas.
This former school in Puglia could be yours.
The State Property Agency and Ministry of Cultural Heritage announced the project as part of Italy’s Strategic Tourist Plan, aimed at relieving some of the strain on the country’s most popular and overcrowded areas and promoting lesser-explored destinations.
Canal city Venice in particular has attempted to clamp down on mass tourism with a set of radical measures from limiting accommodation to publicizing less well-known areas.
“The project will promote and support the development of the slow tourism sector,” Roberto Reggi from the State Property Agency told The Local. “The goal is for private and public buildings which are no longer used to be transformed into facilities for pilgrims, hikers, tourists, and cyclists.”
The pace of change has accelerated due to three factors. First, the competitive bar continues to rise. Among OTAs, three leading players—Ctrip, Expedia, and Priceline—have achieved global scale and relevance. And suppliers are seeking a competitive edge through several levers, including loyalty partnerships; building on the foundation set by Delta and Starwood, today’s major travel partnerships include those between Starwood and Uber, United and Marriott, and Qantas and Airbnb, among others. Second, travel technologies—especially mobile platforms—have continued to evolve as customers alter how they browse for and purchase travel. Expedia reports that 40 to 60 percent of its leisure-travel-brand traffic is through mobile devices, and about half of bookings on some brands comes from mobile. Third, potential sources of disruption are on the horizon. For example, business travel currently accounts for 10 percent of Airbnb bookings—but that number is growing, thanks to the company’s integration into the platforms of several leading travel-management companies.
The shifting conditions make it more important than ever to put the customer at the center. But despite some examples of progress, we continue to see companies solve for business requirements over customer needs. Many suppliers are falling short of their potential because they focus on transaction costs instead of lifetime value. And for many intermediaries, earnings expectations, contentious supplier relationships, and an onslaught of digital newcomers have eroded the ability to test, learn, and “fail fast” that helped them identify and solve unmet needs in the first place.
The good news? The path to success is likely more straightforward than it seems. In fact, we see examples of companies implementing some or all of the strategies we will discuss:
- Harness advanced analytics to understand the customer better.
- Adjust mobile offerings to capture, secure, and serve the customer.
- Safeguard against future disruption.
What’s the catch? Unless executives focus relentlessly on solving for customer needs, we will continue to see ineffective promotions, lackluster apps, and uninspired pivots and product launches. Companies that can solve real customer needs, including through partnerships with other members of the travel ecosystem, will position themselves at the vanguard of travel distribution.
A villa and former summer residence along the Via Francigena
The buildings are all located off the beaten path, with 44 of the sites situated along historic or religious walking routes, and the remaining 59 along cycle paths.
They can be found along the Appian Way (a Roman road connecting the capital with Brindisi on the southern coast), the Via Francigena (an ancient pilgrimage route stretching from Rome to the northern border), and several of Italy’s cycling routes.
On the list of available properties, you’ll find old schoolhouses, farmhouses, ex-convents and defence towers overlooking coastlines or countryside. And there are a few unusual finds.
In the Marche region, you could get the 13th-century Castello di Montefiore, built to defend the town of Recanati against attacks from neighbouring towns.
From travelers to technology, several significant trends are influencing how companies engage with customers.
Suppliers are emboldened to innovate product development, marketing, and distribution
Intermediaries connect suppliers with consumers, but such bookings come at a cost. Thus, suppliers are pursuing strategies to drive more direct bookings:
- Launching large-scale marketing campaigns. For example, Hilton’s “Stop Clicking Around” campaign, along with other initiatives, contributed to a 60 percent increase in HHonors enrollments and a shift toward direct channels in the third quarter of 2016.
- Enhancing direct-channel offerings. AccorHotels has begun distributing independent hotels through AccorHotels.com at up to 14 percent commission and plans to reach more than 8,000 properties over time.
- Providing disincentives for indirect bookings. In September 2015, Lufthansa implemented a €16 fee for bookings made through global distribution systems (GDSs). While Lufthansa and third parties differ in their assessment of the fee’s impact, the move helps enable a longer-term shift to more dynamic pricing.
- Consolidating to achieve scale. Among US airlines, mergers over the past ten years have led to four clear leaders with combined 80 percent domestic market share (and Alaska Air recently became the fifth-leading carrier, with 6 percent share, after the acquisition of Virgin America).
While the specific strategy varies by supplier, the trend is clear: suppliers throughout the travel industry are willing to go further than ever to convince customers to book directly.
Castello di Montefiore
And not too far from Rome, you could opt for the Castello di Blera in Lazio, an 11th-century property built by a local noble family and perched on a cliffside, with many of its original medieval features still intact.
To get your hands on the sites, you need to have a clear plan of how they’d be transformed into a tourist facility.
The government is targeting entrepreneurs, co-operatives and businesses primarily made up of under-40-year-olds, who are eligible for an ‘Art Bonus’. Successful applicants will get the rights to the property for nine years, with the option to renew the contract for a further nine.
And entrepreneurs with a concrete proposal for turning the sites into a tourist facility could be given a 50-year lease in some cases.
Three leading OTAs—Expedia, Priceline, and Ctrip—also own (at least for now) the world’s leading metasearch players. Each continues to assume, in its own way, an expanded role in the customer journey:
- Expedia (which recorded $61 billion in 2015 gross bookings) acquired Orbitz and Travelocity in 2015. It is the clear leader in the United States, with approximately two-thirds OTA market share. It is present in many travel verticals, including metasearch (Trivago), vacation rentals (HomeAway), and corporate travel (Egencia).
- Priceline ($56 billion in 2015 gross bookings) is the largest player by revenue and market value, given strength in hotels through Booking.com. The clear leader in Europe, it is also present in many travel verticals, including metasearch (Kayak.com), vacation rentals (Booking.com), and restaurant bookings (OpenTable). It owns a 9 percent stake in Ctrip.
- Ctrip ($27 billion in 2015 gross bookings) is the fastest-growing global OTA, with a growth rate of 58 percent in 2015 alone. It is the clear leader in Chinese domestic and outbound travel and is a mobile leader, with an estimated 70 percent of bookings via app. It is consolidating its position in Asia through stakes in Qunar, eLong, and MakeMyTrip. It also has an expanding presence in many travel verticals, including metasearch (Skyscanner) and tour operators.
These giants, along with Google and TripAdvisor, will continue to play a major role in shaping the future of distribution. In many cases, the relationship between these intermediaries, and between intermediaries and suppliers, is multifaceted. As recently as 2014, analysts estimated that Expedia and Priceline accounted for up to 5 percent of Google’s total ad revenue. Marriott partners with Expedia to sell dynamic travel packages through Vacations by Marriott. And Southwest Airlines’ hotel offerings are provided by Priceline’s Booking.com. The continued evolution of intermediary business models will be critical to watch.
Mobile is increasingly the customer’s channel of choice: by 2019, nearly 80 percent of US travelers who book online will do so via mobile, up from 36 percent in 2014. “Mobile first” has become a favorite catchphrase, but given the massive shift in behavior, travel companies must develop a deep understanding of why and how customers are using mobile. Consider, for example, the following trends:
- Mobile search is on the rise. In 2015, mobile flight and hotel searches on Google increased 33 and 49 percent year over year, respectively.
- Mobile plays a critical role after arrival. For instance, 85 percent of leisure travelers choose activities after their arrival, and half of international travelers use their mobile devices to search for such activities after their arrival.
- Not all mobile experiences are created equal. The average rating of OTA/metasearch apps is 19 percent higher than the average of hotel brand apps.
The industry has seen some recent mobile-focused innovations. These include day-of-travel features such as keyless or app-enabled hotel room entry, in-app passport scanning at check-in, and real-time luggage tracking. Other developments involve context-based design; for example, 24 hours before a scheduled flight, Virgin America’s app shifts from emphasizing booking to focusing on check-in. Finally, a growing list of brands across the value chain—including Booking.com, Cheapflights, Expedia, Hyatt, Kayak, KLM, Lola, and Skyscanner—have introduced messaging platforms and bots.
Looking forward, booking may be the function ripest for innovation, as relatively few players have created a compelling, mobile-friendly booking experience.
In Spoleto, Umbria you can find this gem.
After the initial 100 properties this year, a further 200 are set to be included in the project over the next two years.
Italy has turned to the public to help restore its historic sites before.
Over the past two years, the ‘Lighthouse Project’ has seen the Italian government auction off around 30 historic lighthouses to investors in return for converting them into hotels and tourist facilities.
And in 2013, the country put 50 of its prized sites up for auction as part of an effort to raise €502 million for its ‘Kill Public Debt Plan’.
The list included fortresses, two Venetian islands and the castle which hosted Tom Cruise’s Scientology wedding, and again, investors were only allowed to use the sites for tourist purposes.
As our colleagues recently wrote, “The data analytics revolution now under way has the potential to transform how companies organize, operate, manage talent, and create value. That’s starting to happen in a few companies—typically ones that are reaping major rewards from their data—but it’s far from the norm.” This truth certainly holds in travel, where a wide range of use cases is emerging:
- Enhancing commercial effectiveness. Red Roof Inn used analytics on publicly available weather and flight data to predict and target customers facing flight cancellations.
- Refining customer experience. British Airways’ “Know Me” program, driven partially by Opera Solutions, mines customer data including loyalty information and buying habits to generate targeted offers and experiences.
- Optimizing network and portfolio. Aloft, for example, is piloting a digital hotel experience, with rooms equipped with Internet of Things–enabled technologies such as intelligent climate control, and using the data generated to support product innovation.
- Driving operational and administrative efficiency. Hotels are using platforms such as ALICE (which counts Expedia as an investor) to consolidate, track, and analyze guest requests and interactions to improve the quality and speed of operations.
Before embarking on new big data or analytics ventures, it is critical to ensure adequate data security—particularly given the numerous high-profile, highly damaging data breaches in other industries.
The sharing or on-demand economy, exemplified by companies such as Airbnb and Uber, is the most significant business model to emerge and scale over the past five years. The numbers themselves are notable—including rapid growth (Piper Jaffray estimates a 10 percent compound annual growth rate for short-term and peer-to-peer accommodations from 2014 to 2025, versus 3 percent for traditional accommodations ) and valuations (including Uber at $68 billion, Didi Chuxing at $33 billion, and Airbnb at $30 billion ). But more interesting is the degree to which innovative current players continue to innovate:
- Uber’s expansion continues not only into new cities but also into new modes of transportation. In a recently published white paper, the company laid out the potential for vertical take-off and landing (VTOL) aircraft for on-demand transportation, particularly in dense urban networks.
- Airbnb’s recently announced expansion into Trips (peer-to-peer tours and activities ranging from a few hours to a few days) and Places (including meet-ups with other users, destination guides, local recommendations, audio guides, and eventually, restaurant reservations) represents the latest step in a journey from air mattresses in spare rooms to a “super brand of travel.”
While hospitality and ground transportation have been most heavily disrupted, other modes such as air travel also continue to see innovation from models such as Rise, Surf Air, OneGo, and Set Jet. Beyond the sharing economy, specialized models continue to emerge with a focus on capturing an outsize share of specific segments. For example, Priceline founder Jay Walker’s Upside rewards “free agent” business travelers for flexibility in flight and hotel bookings.
Executives should resist the temptation to be pulled in directions that distract from their top priorities: engaging with customers more effectively, enhancing attraction and retention, and capturing more value throughout the customer life cycle. To begin the process of thinking in terms of customer lifetime value instead of cost per booking, they must answer some fundamental questions:
- How much is a customer worth? In banking and many other industries, analyzing and predicting a customer’s lifetime value at acquisition is standard operating procedure. In travel, we’ve encountered very few companies that conduct this analysis consistently or at scale, despite the available data on marketing, transactions, loyalty, satisfaction, and referrals.
- What can every employee do to secure the next purchase? Customer acquisition and retention can no longer be the purview of marketing and sales groups alone. Everything from back-office accounting to human resources to maintenance must be oriented toward enhancing the lifetime value of each customer.
How do customer needs and booking scenarios influence the choice of booking channel? Companies must identify and exploit the many “micro moments” in the customer journey. This journey should be mapped starting with the inspiration for the trip and combined with factors such as the customer’s location at point of purchase, the device used, historical preferences, and past experiences to deliver the right offer through the right channel at the right time.