Key takeaways from Phocuswright – worlds apart but some similarities stand out
IN a week’s time, we will enter the last month of 2022. At Scottsdale Quarters, a shopping precinct in Arizona, the malls are already playing Christmas songs. At hotels, both in Phoenix and Tucson, you can see preparations being made for giant Christmas trees to be lit up and decorated. This weekend, Americans will mark Thanksgiving, which signals the start of the holidays and thus, peak travel season.
Already, domestic flights are packed to the rafters. And one behavior I am told that has changed because of the pandemic is that nobody checks in bags anymore. On the flight from Los Angeles to Phoenix, I was reminded of a domestic flight I was on in Laos years ago when it seemed everyone carried everything onboard, including live chickens.
Here, I did see a golden retriever service dog who was definitely better behaved than the live chickens – and the passengers who obviously come prepared to battle for storage space in the overhead bins.
It’s been interesting watching the ebb and flow of the pandemic, from when it started March 2020 to now. At the start, we said, we are all in this together. But as it turns out, we all got out of it at different times. Europe and the US were ahead and both regions have experienced incredible pent-up demand while Asia, first in, last out, is in still in the midst of recovery.
As I sat and listened to the discussions at Phocuswright, which took place in Phoenix, Arizona, from November 14-17, it was a stark reminder of the different stages of travel recovery across the world and the different but mostly similar trends that are emerging to influence the evolution of travel in the year to come.
Here are the key takeaways.
Pundits from left, Tim Hughes, Flo Lugli, Timothy O’Neil-Dunne and moderator Lorraine Sileo
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Europe in recession, US headed for “bloodbath”, Asia still in “sugar rush”
As Europe, burdened by the Ukraine war, slips into recession – the OECD this week forecasts that Russia, UK and Germany will be the only three economies to shrink next year – the US and other developed economies will also experience a “significant growth slowdown”, according to this BBC report.
Timothy O’Neil-Dunne, principal, T2Impact, speaking on the Pundits panel, predicted a “bloodbath” in the US in the first quarter of 2023. “I am not so enthusiastic,” he said. “It will be a year of uncertainty and there’s not going to be much demand. People would have spent everything by this holiday season.”
Flo Lugli, principal, Navesink Advisory Group, LLC, was more optimistic, saying, “People will trade down. The luxury market may come down but it is always one of the first to recover. Certain segments will continue to do well – limited service for example. The price value is becoming out of whack, consumers will push back on that.”
Timothy Hughes, vice president, corporate development, Agoda said because Asia got out of the pandemic later – it’s only now that North Asia has reopened (other than China) – “we are still in the pent-up demand, sugar rush, energy charged stage”.
The two corridors in North Asia to watch, he said, are the inbound rush into Japan and the outbound flow from South Korea. In the “Around Asia” panel, Kei Shibata, CEO, Venture Republic, said the low yen was making it even more attractive for travellers, especially from North America – as reported in this article from WiT Seoul.
And then there’s China which has yet to open up. Rajesh Magow, CEO of MakeMyTrip, whose company’s most significant shareholder is Trip.com Group, said that “we shouldn’t write off China just yet” or “nor should we underestimate China”. Mary Li, CEO of Atlas, agreed, saying when China opens, that will create another surge of travel in Asia because the first destinations will likely be nearby places.
Overall, Hughes said he was positive about the longterm outlook for travel. “We have learnt that humans will find a way to travel – we have an insatiable appetite for it. Yes, there will be steep change in prices but people will find a way around it. People will move to trains. If longhaul is expensive, people will move to shorthaul. People will find different places to travel.”
O’Neil-Dunne said that “VFR traffic will remain inelastic and there will be more congregation-type of travel. Business travel will continue to be elastic, there will be longer trips, so that will mean loss of airline trips. There won’t be as many airline trips and hotel nights.”
He said that through the pandemic, a total of 112 cities have lost access to flights. “That’s a step change.”
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India – its moment has arrived
Rajesh Magow, CEO of MakeMyTrip, sharing the OTA’s 22-year journey to travel superapp for India
The emergence of India as the opportunity market for 2023 was clear to see in the numbers shared by Rajesh Magow, CEO and co-founder of MakeMyTrip. The leading OTA’s numbers are back, indeed even higher, than pre-Covid levels. “We have seen sustained growth over the years,” he said. “Even without full international air travel back, we have exceeded pre-pandemic levels.)
The latest OECD report also tips India to be the fastest growing economy in the world in 2023, by 5.7%, ahead of Saudi Arabia at 5%.
Years of investing in infrastructure by the Indian government and the acceleration in digital forced by the pandemic has created a tipping point in e-commerce in the country, with travel leading the charge.
Magow said MakeMyTrip’s evolution into a travel superapp has been deliberate and strategic, following the arc of this development. Its user interface from 10 years ago looks markedly different to now and the biggest challenge was how, even as its product offerings became more complex, to keep the UX simple.
Its revenue mix is currently 50% from hotels and packages, 30-35% air, 10% bus, 5-6% ancillary and Magow predicted that in five years’ time, hotels and packages would form 60-65% of the revenue mix. He is most bullish about homestays, which took off during the pandemic when Indians could only travel domestically, and he sees this appetite for homestays staying strong as Indians travel overseas.
On one lesson to heed as we enter 2023, Magow, who’s been building MakeMyTrip since 2000 with his co-founders, said there’s no substitute for hard work and good team work.
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Welcome to travel, outsiders – but insiders, can we fix things, please?
From left, Phocuswright’s Pete Comeau, Matthias Hedlund, Etraveli Group, Caesar Indra, Traveloka, Brett Keller, Priceline.com, Damian Scokin, Despagar; and WiT’s Yeoh Siew Hoon
They may be operating worlds apart but OTAs in different parts of the world see the entry of non-traditional travel players coming into travel as more of an opportunity than a threat.
Commenting on developments such as Capital One investing in Hopper tech to build its own travel platform and JP Morgan Chase acquiring Frosch in its bid to build its own travel agency, Matthias Hedlund, Etraveli Group; Brett Keller, Priceline.com; Caesar Indra, Traveloka; and Damian Scokin, Despegar, were in one mind about the opportunity this created for global travel.
It expands the market and helps travellers ultimately, they said, magnanimously.
Realistically though, they acknowledged that lots can be done by travel insiders to make things better for the traveller.
Hedlund observed “we really need to do a far better of improving the customer experience for flights”, noting that the pandemic showed how weak the ecosystem was. While Etraveli would continue to work away at that, he observed that one company cannot do it alone and that it needed collaboration across all sectors.
And therein lies the challenge – through the pandemic, most companies have been too focused on survival and getting their teams and businesses through the crisis and now that travel has returned, they are too busy coping with the recovery, with all the challenges this has thrown up.
Said Keller, “We’ve all been busy minding our own business”, when asked why the travel industry, which does have a reputation for working together when it comes to different things, could not collaborate on fixing this pain point in flights.
Agoda’s Hughes also felt the opportunity to fix check-in at hotels was also not fully grasped by hoteliers. Two years after, he said, we will have to stand in line to check in, fill in forms and wait for room keys.
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B2B is the new black – Hopper Cloud flying high
Another recurring theme is how global OTAs are banking on B2B as the new area of growth. Expedia Group is doubling down on it, and Hopper says its Hopper Cloud now comprises more than 40% of its business.
CEO Frederic Lalonde said that Hopper Cloud, a partnership programme that allows travel providers including Kayak, Marriott and Trip.com to resell Hopper’s fintech and travel agency products through a white-label portal, is on track to make more in 2022 than all of Hopper did last year.
Etraveli Group acquired Tripstack in 2019 to strengthen its flight search capabilities and, in turn, it was acquired by Booking Holdings for about $1.8 billion, a transaction that has yet to be approved formally by the European Commission). Booking also recently acquired Getaroom for $1.2 billion to support the Priceline. Partner Network that Priceline says will improve B2B distribution for hotel partners while also offering a robust accommodations technology stack for affiliate partners.
Keller said that “strategic partnerships have played an important role in our efforts to reach more customers through new channels”.
Ditto with Traveloka which recently took in an investment from Thailand’s leading oil and gas company, PTT Orr, which operates a lifestyle superapp. Through this partnership, Traveloka will power PTT Orr’s travel business with its technology stack as well as content.
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Traveloka and Despegar, bridging Asia and Latin America
They may be operating worlds apart but Traveloka and Despegar, both operating in emerging markets (South-east Asia and Latin America) had to tackle similar problems at the start. As Damian Scokin, CEO of Despegar said, in the panel “The Bridge Series –The New World Beckons”, “we had to help our customers pay first before they could travel”.
Caesar Indra, president of Traveloka, said, “I think we can be proud of how we changed the way Indonesians booked flights, and made it easier for Indonesians to travel. And we also changed the way people paid – in a country where credit is not easily available, we introduced buy now, pay later in 2018. It took us time to educate the market – first to buy a ticket online and second, to pay online as well as buy now pay later.”
Both leaders operate in fragmented markets with low credit card penetration and largely unbanked populations, which allowed them to blaze the trail in payments and financial services, and both see huge upsides in offering financial services in future. Traveloka is looking at introducing the BNPL (Buy Now Pay Later) option in its other South-east Asian markets outside its home base of Indonesia, and offers up to 30 payment options on its platform.
It’s also interesting to see how both are committed to their regions. Despegar, founded in 1999, operates in 20 countries in Latin America and comprises a consolidated group that includes Best Day, Viajes Falabella, Viajanet and Koin, (the Company’s fintech business) and says it offers a tailor-made experience for more than 29 million customers.
Traveloka is focused on building out in South-east Asia – 80-90% of its business is domestic – and it has taken its Indonesia playbook to markets such as Singapore, Thailand, Philippines, Vietnam and Malaysia. “This is a market of more than 670 million consumers and we have 40m app downloads – that’s the equivalent of the population of Canada,” said Indra.
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PS – superapps, brand building with short form videos, blockchain
While the travel superapp model seems to work well in markets like India and Asia – with brands like MakeMyTrip, Trip.com and Traveloka pursuing that strategy – Timothy Hughes of Agoda said that it was challenging for general superapps, which are high frequency apps, to expand into travel.
“Firstly, they are not making money and using that to expand into travel which is low frequency is a struggle. Take food delivery – demand is high but they run as massive losses. Traveloka shut down its food delivery service last week.”
Timothy O’Neil-Dunne, T2Impact, said for sure the general superapp is not going to happen in the US. “Google is the superapp here.”
Hughes said that Covid changed the competitive landscape in Asia completely. “With two years of domestic travel, local players came to the fore, and pushed global players away. Now we are back in the competitive game. We had to shift out product people to domestic. We had to have a localised approach to fight the local players. It didn’t happen in Australia or Europe. In Asia, there are different dynamics and the power of a brand is very important.”
He said one trend he’s watching is short form video content and its ability to help build a brand. Agoda recently launched a video ad featuring Bollywood star Rashmika in India which has garnered closed to 50m views. In Japan, Agoda produced this video called “Travel Master’s Secret Deal”, featuring two famous Japanese comedians, Shitara and Himura, known as Bananaman. (Watch video below)
Hughes is also betting on the role that blockchain can play in travel. “I am warming to the idea of sovereign identity, not crypto. I love the idea of not having to fill in forms and as a way to distribute my identity.”
Hear, hear.
Featured image: Pinal Air Park, Tucson, Arizona
