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Arrowpoint Advisory's Jamie Hutton assesses the prominence of do-it-yourself holidays.
Despite our stoic British nature and ongoing desire to spend our hard-earned cash visiting countries far-and-wide, the travel industry continues to be faced with widespread challenges. Economic and political uncertainty, a weak pound driving price increases and ongoing terrorism fears have (arguably) dampened our appetite for travel. However, is the biggest threat for tour operators and travel agencies in the UK, the rise in independent online travellers?
Continued shift to online booking
With the ongoing proliferation of the internet and meteoric rise of social media, consumers have unprecedented ease of access to vast reams of holiday information across all elements of travel, comprising price-comparisons, independent reviews and alluring imagery from all across the globe, without the need for any contact with traditional travel companies.
The rapid emergence of Airbnb, a true disrupter in the market, has also contributed to breaking down barriers, with consumers increasingly more likely to place bookings online, based purely on reviews and images. Airbnb's rapid growth shows no signs of abating with the company expected to process $12.3bn in reservations in 2016, a year-on-year increase of over 70% according to Tnooz.
Therefore, a growing number of independent digitally confident DIY travellers are more than happy to research, book and manage all aspects of their holidays online , many seeing it as an enjoyable part of the process.
Impact on travel agents and tour operators
These trends towards online DIY will, at worst, take business away from operators and agents altogether, or at best prevent them from benefiting from human touchpoints, which they effectively use to upsell, improve margins and ultimately drive higher customer lifetime value.
Mintel are forecasting a 0.6% per annum volume growth in the UK holiday market through to 2020 but that travel agents will lose 1.2 million bookings in the same five year period. Of the 7,000 agents and operators in the UK there has been a 4% rise in 'red flags' in the last twelve months, which indicate significant levels of distress as sales and profitability diminish. Unquestionably consumers are exploiting their infinite range of online options and foregoing traditional booking means, so how do agents and operators prevent the defection of DIY travellers?
How can the travel companies win and retain clients?
The most savvy and successful travel businesses penetrate and retain clients through effective marketing and delivering substantial added value throughout the customer journey. This is typically achieved by using a combination of price, unique product offering, customer service and technology to provide an indispensable value-for-money proposition.
Consumers can (at times!) be forgiven for thinking that using a travel company makes their holiday immediately more expensive, but this is far from the case. Operators and agents have preferential rates with hoteliers and ground handlers, committed flights at the lowest fares with airlines and access to 'sold-out' inventory, all ready and waiting to reduce the price for consumers.
Unique Product Offering
Certain specialist travel companies provide a truly unique product offering that cannot be replicated independently. Escorted tours are a prime example where customers travel together as a group on bespoke itineraries with expert private guides leading the party. This immediately removes the threat of DIY travellers and allows companies such as Riviera to benefit from a sustainable competitive advantage.
Customer service is now far more than just a friendly voice and requires employees to be extremely knowledgeable across all components of the holiday, highly motivated to deliver the perfect experience to every loyal customer and to exceed expectations every step of the way. For over 20 years Audley Travel has set the standard with its traditional client centric core values supplemented by country specialists, providing a best-in-class customer experience that others such as Scott Dunn have followed. It is no surprise that these two companies in particular achieved high multiples in their respective Private Equity buy-outs, have high repeat and recommend rates and are growing rapidly both in the UK and overseas.
The foundation to the majority of successful and growing travel businesses is an integrated technology platform. On the Beach has used its knowledge and expertise in this area to drive international expansion based on replicating its platform in overseas markets. They have developed a deep understanding of their customer and can tailor their online offering to meet evolving consumer demands.
Clients will inevitably be lost along the way but if operators and agents continue to deliver on all of the above and more they will win more customers than they lose and prevent online DIY travellers taking a greater share of the prized and lucrative UK travel market.