What do we exactly mean by “travel Industry”? The travel Industry encompasses a lot of other Industries: Overnight accommodation Services Transport Arrangement Adventure Insurance What are we going to study in this report? We will not focus on the different industries composing the travel industry. Instead we will have a broader focus. It induces that some patterns, trends and issues are common between all these sectors. Figure 3: Source: Oxford Economics Demand analysis The first part of the report tackles the demand side of the industry. The first component of the analysis will be geographical.
Afterwards a segmentation of the consumers and their habits will be proposed. Geographic segmentation of the market In absolute terms the region of the world where tourism is the most active is Europe. As shown in Figure 4, Middle East and Africa are the regions where tourism is not as widespread. Figurer: source: UNTO Middle East has known a sharp decrease in 2012. This is mainly due to the political instability surrounding this area. The Arab spring damaged the travel industry in this area. Meanwhile the tourism in Europe, Asia and Pacific boomed this year.
Nevertheless, the average growth between 2005 and 2012 of Middle East is not low. Figure 5 : source: UNTO The data shown above concerns the hosting country and answers to the question Where do people travel? ” In order to have a deeper understanding it is crucial to understand “Where do these travelers come from? ” For that purpose the figure 6 shows a ranking of the expenditure per capita and per country. The observation that can be made is that even if the sum of expenditures of Chinese travelers is higher than any other country, the expenditure per capita is the lowest of the 10 countries in the table.
This does not mean that Chinese don’t spend money while traveling. It explained as the minority of the Chinese that actually travel. Out of 1,b inhabitants in China, only mom departures have been recorded. This gives a ratio departures/inhabitants equal to 5%. On the contrary the German and Canadian expenditure per capita is in the highest. The ratio departures/inhabitants is equal to 89% for Germany and the one of Canada is 85%. Knowing the actual big trend in China that is the emergence of a new middle class in China, we understand better the growth potential that represents the Chinese population.
Figure 6 : source : UNTO Segmentation by meaning of travel People travel for different reasons. A division between two different kinds of travel is made in the travel industry: The inbound and the outbound travel. Outbound travel offers to situations where people leave their country for a determined period of time. Inbound travel occurs when they travel in their own country. The purposes of visit for inbound travel are detailed in figure 7. More than 50% of the travels are made for leisure purpose and 14% for business.
Not specified 7% Reasons for travel Business and professional FRR, health, religion, other 27% Figure 7 : source UNTO Leisure, innovation and holidays 52% Product Segmentation The travel industry covers a wide variety of products. This represents the whole experience of traveling. This is interesting to understand how the money that flows wrought the travel industry is being shared between different categories. Figure 8 shows the spending categories for travelers. We can notice that the transportation Figure 8: Source: Fun Sharpe Different means of transport are used by travelers. Figure 9 shows their repartition.
Traveling by planes is the solution the most used. Meanwhile the train and water transport has a small share. Figure 9: Source: Fun Sharpe Seasonality in the demand One of the major characteristics of the travel industries lies in the seasonality of the demand. As shown in figure the number of trips and of night spent are higher ring the third quarter of the year. Distribution of nights spent Distribution of trips IQ Figure 10 This is mainly due to the travel for holidays purpose. The business travel demand is not affected by seasonality. This helps to smooth the demand during off-peak periods.
Segmentation by consumer behavior for the leisure travel Cosmopolitans ;Strong, active, confident ;Style and brand important, but as an oppression of their self-made identity ;High spender especially on innovation and technology ;Looking for new challenges, new opportunities ;Globetrotters Discoverers ;Independent in mind and action Little influenced by style or brand but interested in new options ;Buy on function and value to them ;Looking for new an educational experiences Traditional ;Self-reliant, internally referenced ;Slow to adopt new options ;Strong orientation towards traditional values ;Value individual attention and services Functional ;Self-reliant ;Price driven ;Value function over style Habitual ;Largely inactive, low spending group ;Very traditional, resistant to change ;Risk averse ;value relaxation, peace and quiet Followers ;Strongly influenced by what others will think ;Don’t want to be seen as old-fashioned Less active ;Slow to adopt ;Aboard risk ;Mainstream early adopters ;Followers of high street fashion ;Care what others think ;Happy to buy packaged options High street ;Young Free Singe’, impulsive ;Fashion counts ;Brand counts ;Looking for fun with friends ;Most not seriously sporty Style Hounds Segmentation by needs This segmentation is the best-shaped for strategic decision making. It represents business and leisure travelers. In this we are Just seeing their needs. A more detailed analysis concerning the key success factors to win these segments will be leaded. Segment
Service-intensive business travelers Needs Full-service and flexible solutions compliant with travel policies Self-service business Convenient booking interface compliant with travel policies Unmanaged business Loyal leisure travelers Support in managing travel Price-driven leisure travelers The best price available; likes to comparison shop Source: McKinney Relationship with supplier; confidence that the experience will be positive Secretiveness business Self-service Unmanaged Loyal leisure Perceived Value Growth Margin Risk fragmented market that the margins are very low. On the opposite the loyal leisure arrest is the rocket segment. A lot of new entrants in niche markets are appearing. They sell experience to the consumer by fulfilling their specific needs. Nevertheless this is a very risky market. In the business travel the challenge is to offer more flexible packages. 5% of business had to change their plane during the last 1 1 travels they have done. This is a strong signal that deserves attention. We k now the margin level of different consumer segment, it will be interesting to analyze who takes the margin in the supply chain. This will be done in the second part of the report. Supply Analysis Value Chain Several actors are involved in the value chain. This part aims to identify them and understand the connections between each others. This description of the value chain of the travel industry is proposed by COED. Figurer 1 shows 6 entities in the value chain. The first one represents the content supplier.
This includes hotels, car rentals, airlines… The following big actor are the travel agencies. They offer services in behalf of the content suppliers. Three choices are offered to the customer to buy a service or a product. He can do it via internet, a travel agency or directly to the content supplier. The GAS and Switch are part of the information systems that allows the travel agency to have a direct access to the content supplier’s reservation system. Currently the GAS are in trouble. They have to adapt to the new business that is a wider use of the direct sell and an increasing complexity in the product offering. This comes from the rising demand for complementary products.
Therefore better IT systems are required. The portal represents the internet sites that give access to all these components. This is a game changer since it improves transparency by allowing a better comparison between competitors. Figure 1 1: source: COED Since we know the different actors in the travel industry it is interesting to know who gets the margin. We have seen earlier the margin obtained by consumer segments. Let’s know have that approach for some kind of content suppliers, travel agencies and GAS. Accommodations Tour operators Transportation GAS Hospitality actors, tour operators and GAS are those that are currently taking the highest margins in the industry.
Nevertheless these are not those who have the highest growth. It can seem paradoxical. This is due to the fact that this is a fast changing industry. For instance the Gas’s are taking a very high margin but their respects are negative. Indeed the future trend will be a consolidation in the different levels of the supply chain. The GAS will be in trouble. The complexity of their business will be more and more complex with the offering of complementary products. The management of different database is not an easy task. What’s more the content suppliers will sell more directly. This means that GAS will be less and less used. The travel agents will know the biggest growth.
They will be the leader of this consolidation and integration. The complexity of their task will lie in the complexity of offering complementary and personalized products. Distributors and service providers During the last years the target of distributors was to lower the costs. Unfortunately this was almost the only goal. This cost reduction did not go hand in hand with a real strategic view. A lot of new products were offered to the customer. Nevertheless the set of product offered by one company is not complementary and the customer has to compare and look for complementary products by his own. The correlation between distribution costs and customer satisfaction is then negative.
Furthermore the suppliers also suffered from these cost savings. Indeed the systems do not gaslight the products. The way the websites displays and advertise their products is not efficient enough. They concentrate too much on the price even though the customers are already looking for cheap products and services. No need to highlight it even more. One crucial point to understand is that consumer value their time spent traveling. If so many people are looking for cheaper prices this means that their former travels did not worth the money they spent for it. As shown in figure 12 the money dedicated to the travel do not generally meet the value of the experience the consumer have lived. Happily Infrequent
Glad to travel less than average because travel takes a toll Enjoy short and frequent getaways and will spend when necessary Perpetual searchers Constantly searching for a travel deal and looking to cut costs on all trips Cautious calculators Make buying decisions carefully because travel is highly valued Carper deists Willing to seize an opportunity to travel with few advanced plans “Getting value for my travel dollar “Money spent on travel is is very important to me” money well spent” 62% 56% 92% 13% 82% 98% Figure 12: source: IBM This dissatisfaction is principally due to the long time needed to book a product or a Irvine. More than 40% of the business travelers and 50% of the leisure travelers declare spending more than two hours to effectuate that task. The third actor to suffer from the cost-cutting is the providers. The first reason is that they do not show efficiently the differences between the different products (Except the costs). Instead they only see marketing as a way to boost their short-term sales. The main issue that providers are facing is the increase of the look-to-book ratio across the years (Figure). This is a ratio calculated by dividing the number of page views by the number of bookings.