The evolution of travel distribution – TravelMole guest comment

TravelMole guest comment by Clement Wong, Euromonitor International travel and tourism research manager

In tandem with the current global economic climate, together with the rise of Web 2.0, the travel distribution sector is facing its greatest challenges and opportunities ahead.

Euromonitor International’s latest 2008 research shows that the global online travel retail sector is currently worth $125 billion, and is forecast to grow by a $100 billion over the next five years.

With the rapid growth of online user generated content, travel agents are trying to reinvent themselves to maintain relevance, especially in North America and Western Europe.

The Global Distribution Systems are all recognising a channel shift, with airlines such as Ryanair providing a direct channel to purchase air tickets, bypassing the GDSs altogether.

In addition, many travel retailers, travel accommodation providers and the transportation sector are moving from distributing via intermediaries to developing their own direct channels. Hotel, airline, travel retail websites are all offering price guarantees to customers who purchase from their websites, driving traffic away from costly intermediaries that charge high commissions.

The UK travel retail market is one key example where the market is at its tipping point, where as recent as 2005, intermediaries such as Expedia and Opodo had a larger market share of £1.5 billion vs traditional direct suppliers such as Thomas Cook & TUI of £1.3 billion.

However, in 2007, direct suppliers have now taken a slim lead over intermediaries in terms of market value of £2 billion vs £1.8 billion.

This is expected to widen come 2012, when the lead will be £3 billion over £2 billion, according to Euromonitor International.

The key battle will be in emerging markets such as the Middle East and Far East, where the battle is ongoing for the GDSs and travel agents.

Growth will be in these regions of high contact cultures, where customer loyalties, built on the foundation of relationships, are still strong. Robust tourism flows are expected from these regions.

Outbound tourism in the Middle East is expected to grow by 30% over the next five years, a result of increased oil revenues, the region having a relatively young population and a population boom. Much of these travels will however be regional travel. 

As for the Asia Pacific region, outbound departures will grow by 50% to 240 million. The next five years will see the shift of outbound tourism from regional to intercontinental. These tourists will require the need of travel agents and intermediaries when booking their first travels out of the region.

The ingredients for success, namely the large potential market, lower costs of labour and a pent-up demand for travel, are already present.

With the maturity of the travel distribution sector in the Western travel and tourism markets, looking East, be it the Eastern Europe, Middle East or Far East will be key in the next step for the evolution of travel distribution.