Digital travel sales have grown dramatically and shaped a new travel ecosystem; with Online Travel Agents (OTAs), review sites, and metasearch sites working side-by-side with brick and mortar travel agents, GDSs, and direct suppliers. As this growth intensifies, the giants of search, social, and e-commerce, are also making their own moves on the market. 

The winner in this dynamic is ultimately the consumer, but airlines gain from it too as they have more channels through which to offer their products and establish global brand recognition. 

Skyscanner is at the center of this travel space. Acting as a facilitator, we aim to offer consumers transparency, trust and more choice. And we have developed features such as the multi-city search and month view to make it easier for travelers to find and book their optimal itineraries. 
As the world’s leading travel distribution platform, we work with airlines and OTAs alike. And our position allows us to observe and respond to the needs of all stakeholders in the ever-evolving marketplace.  It also helps us to gather insights into consumer habits, and market opportunities. 

A particularly interesting insight gained recently, has been the apparent interdependence of OTAs and airlines within the travel ecosystem. In response, this white paper will look at the evolving role of OTAs as partners and enablers in the travel search and booking process. 

For consumers, online search is a fast and relatively easy way to find the right travel combinations and securely make bookings with airlines and hotels - both  familiar and new, wherever they may want to travel to. Travellers can research and plan their trips at any time, compare features and prices, and properly explore the journey before buying the ticket. 

Given the convenience of online travel search, it is not surprising that digital travel sites have become mainstream in markets around the world and experienced rapid growth in sales. From $470 billion in 2014, digital travel sales are estimated to reach $693 billion in 2017; and projected at over $817 billion by 2020, according to Statista.  

Transportation—including airlines, trains and buses, car rentals and ride sharing—dominates revenue in the digital travel booking space, and is largely led by airlines. As Statista reports, flights make up the lion share of transportation-related online travel booking, with revenue from flights amounting to $329,501 million in 2017.

The fact that flights make up such a large share of transport activity is unsurprising. In most cases, it will be the most expensive purchase in this travel services category, and can require complex coordination to match the schedule of other events during the trip or the schedules of travelling companions.

As online platforms, OTAs have a global reach and are able to serve a broad set of users. By simplifying multi-destination search results, and offering a mix of flight options from different carriers, OTAs are often able to shorten travel time and/or offer the best fare. They also deliver a range of options when it comes to booking - particularly around payments - evolving beyond credit cards to include digital payment options. As well as bringing benefits to travellers, their coverage of markets and carriers  helps to raise awareness of airlines outside of their local markets and help smaller regional carriers compete on equal footing with large carriers.  

By offering consumers the conveniences they value, and raising awareness of the many affordable and convenient flights available, OTAs have helped contribute to airline growth. 
 

OTAs also offer sales channels, for both large and small carriers, which keep pace with the changing market dynamics and consumer behaviour.

New electronic devices are introduced every month; with this month's shiny new device leapfrogging the technology of last-year’s favorite. Devices we’d only previously dreamed of, like wearables and home voice assistants, are becoming commonplace. And new apps, interfaces, software and social media platforms launch every day.

Technology giants such as Google are reshaping the travel search market; setting new standards for intuitive travel management. This is reflected in products like Google Flights and the Google Trips app. The user-experience (UX) gaps they’ve identified, paired with the relationship that Google has already established with consumers, gives the search giant a powerful opportunity to serve as an intermediary in the travel process. Though Google has said it has no plans to become an OTA, the travel-related services it has introduced serve as hints of where the travel search interface is heading; with a greater focus on the use of natural language, artificial intelligence, and filtering of results. 

And although Google is making advancements, OTAs are keeping up with the digital lifestyles of consumers. 

In the United States, the majority of travel sales still occur via desktop, but mobile is catching up – in 2015, U.S. mobile travel sales amounted to 52.08 billion U.S. dollars and are set to reach almost 95 billion U.S. dollars in 2019. As of March 2017, travel apps were consistently ranked among the most popular categories in the Apple App Store with a 3.93 percent share of all active apps. Travel & local apps also had a 95.88 percent reach among Android users in the United States as of December 2016. In addition to outright travel app coverage, travel brands have also got travel app usage covered on social media – 95 percent of the leading travel brands have an Instagram profile; ranking it fifth in global industry adoption.
— Statista, 2017

OTAs have also rolled out mobile apps which make travel planning possible on-the-go, something which is becoming increasingly important as consumers develop mobile-first habits.

Once largely a North American phenomenon, OTAs have become popular tools for travel bookings around the world, with future market projections pointing to Asia Pacific as the dominant market.

Statista figures show that consumers in the Asia Pacific region will be responsible for 40.2% of all digital travel sales activity in 2020. North America will represent only 27.6% of all digital travel sales and Western Europe will contribute 20.2%. 

The growth of the Asia Pacific market has shaped the strategies of OTAs, both in technological developments and the forging of partnerships.

As stated earlier, North American consumers are only beginning to shift to mobile as their preferred interface for digital commerce. Comparatively, consumers in Asia Pacific - especially in China - are already significantly more likely to use mobile. Phocuswright reports that China had already achieved 40% Mobile Booking Penetration (MBP) by 2014. That percentage is currently at 59% and Phocuswright projects that number will rise to 77% by 2020.

Phocuswright attributes this mobile preference to the fact that, for many Chinese consumers, the smartphone was their first digital device.

This environment fostered the popularity of WeChat, the world’s most advanced mobile messaging and commerce platform, which many Chinese use for daily tasks including messaging, making utility payments and ordering food delivery. While the share of travel bookings taking place within WeChat is relatively small, the ubiquity and widespread use of WeChat Wallet and Alibaba’s Alipay are helping Chinese travelers become much more comfortable making large purchases on their phones than the rest of the world. In addition, Chinese OTAs Ctrip, eLong and Qunar have successfully enticed travelers to book on mobile with deep discounts and a smooth booking experience.
— Michael Coletta, Phocuswright, 2017

An increase in mobile bookings is expected across the board in the world’s largest travel markets, though none are expected to match the MBP in China by 2020. And there is reason to believe that moving to mobile transactions may actually boost conversions and build brand preference. 

For example, Google has determined that consumers go through many digital “micromoments” during the shopping to checkout process. These include both mobile and desktop interfaces, but Google finds that the main factor discouraging mobile purchases is the complexity of the sales flow in the user interface. This can put a consumer off their purchase even when they are in the mood to buy. 

Eventbrite also finds that complex sales flows drive consumers away from buying when inspired, and finds that optimized mobile design can help increase event ticket conversions by as much as 160%

 

OTA services are now enhanced by the broader adoption of artificial intelligence (AI). Used to power everything from bots to voice assistants, AI promises to make the travel search and bookings process even more intuitive. And as consumers rely more on AI-enabled services in other areas of life, they expect their travel services to do the same.

 
So far, the most popular use case for consumer-facing AI within travel is virtual assistants and chatbots, which are typically embedded in messaging platforms. The vision of dozens of hopeful startups (and established industry players) is to remove some of the friction in online travel planning and booking, allowing consumers to text with virtual travel agents rather than visiting dozens of different travel websites. While virtual assistants are not new in travel, ones that become smarter as they interact with users are on the rise.
— Deloitte, 2017

OTAs are simplifying travel planning for passengers through adoption of AI tools - including service bots and voice search - to speed up the search process and fine-tune results based on past passenger preferences.

Voice search, as an enhanced AI application, is still very much an open field of development. While Alexa is in the lead, Google home is rushing to catch up. Consumers and companies alike should expect major advancements to come in the short term as these two giants battle for the top spot at home.

Perfecting the AI interface, and reaping the maximum benefits from AI, requires heavy investments in engineering and data processing. And the business strength of large OTAs makes those investments possible on the scale necessary to keep up with moves by Amazon, Facebook, Google and other tech giants.

As travel technology companies, OTAs are comfortable embracing measured risks to achieve dramatic results, through a process of quick iteration. They have built up the staff and IP resources to deliver rapid change with a higher degree of success.

For example, Ctrip has as many as 8,000 engineers on staff working on AI, big data, cloud computing and other technology programs to keep its platform ahead of consumer demands in a market where consumers are already well ahead of global peers in terms of ecommerce and mobile habits.

Technology is very critical to make sure we can give the best user experience for our customers. I call it ABC: “A” stands for artificial intelligence, “B” is big data, and “C” is cloud computing.
For the user interface, we want to make sure that we know every customer who has purchased or searched on the Ctrip website. So when we list our products for them, it’s not millions of items that they have to search through — the user experience wouldn’t be maximized. Hopefully we can personalize the display. All of that is in our design. When the customer purchases with us, they (may not) know what they want, but we know what would fit them. That’s a way technology will help us.
— Jane Sun, Ctrip International CEO

The IT resources of OTAs are invested in what is, effectively, rentable innovation on behalf of their travel industry partners. Enabling airlines - big and small - to benefit from the advancements that OTAs make in technology

Perhaps less glamorous than voice assistants, but certainly no less valuable, is keeping up with the rapid pace of change in global payments. Developments in FinTech are solving long-standing problems of payments around the globe, with solutions that free consumers from the limitations of cash and credit cards. 

OTAs meet consumer needs in this area too, by accepting a wide variety of payment methods, and acting as early adopters of digital payments solutions including Apple Pay, Google Wallet, PayPal, Alipay, WeChat pay, and China Union.

While airlines are extending their own digital payment capabilities, these services are not available everywhere around the world, or in proportion to consumer demand.

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Statista reports that Total Transaction Value worldwide in the "Digital Payments" segment amounts to $2,672,420 million in 2017, with the highest value worldwide in China, totalling $786,119 million in 2017. This includes payments processed online; mobile payments processed via smart devices at point-of-sale; cross-border peer-to-peer payments; and digital consumer commerce transactions with credit card and other online payment providers.

Digital payments will become increasingly important to consumers as we move to a mobile-first economy, particularly as they make it far more convenient to search and book on-the-go.

Ridesharing apps, taxi booking apps, and other ground transport services have already adopted digital payment options which free travellers from having to reach for their wallets, and some rail services have adopted mobile payment options allowing e-tickets to be purchased from the app with a quick swipe of the screen. 
 

Mobile payment capabilities will be crucial to capturing the growing digital travel sales market. India and Vietnam, for instance, have pursued aggressive ‘demonetization’ policies to make the transition to a cashless economy, while Nordic countries are well on their way to a cashless society. In Sweden, cash is used for just 15% of point of sale transactions, and by 2021 digital travel in Nordic countries will increase by nearly $2B.
— Noel Connolly, VP, Global Head of Sales, Cellpoint Mobile

To support consumers’ changing digital habits, and the varying needs across global markets, travel technology-specialists continue to explore opportunities to develop smarter searches, deploy new apps, develop the advanced algorithms required for optimized personalization, and adapt to new devices and new payment methods. And OTAs in particular have developed the value-added features needed to meet the payment needs of global travellers. In this way, they deliver the functions that work best to benefit their airline clients. 

Intensifying activity by the giants of search, social and ecommerce in the travel space also means that travel companies have to invest heavily in advertising, marketing and CRM, to strengthen their relationship with travellers. 

Amazon, for example, made a quiet and short-lived foray into the peripheries of travel through limited local hotel listings on Amazon Destinations; and in the minds of some it is still a potential power-player to-be in travel. A lot of that speculation stems from Amazon’s e-commerce prowess and the current market dominance of its Alexa voice assistant.

For its part, Google has already shown that it wants to do more than merely deliver search results for travel. As discussed, its Google Flights tool has been designed for ease of use; and it has a privileged spot at the top of Google’s search results whenever consumers query travel. 

What effectively drives Google’s advertising revenue model is a powerful ability to collect and process customer data, not only from search but also from interactions with its products. Gmail, for example, allows Google to peek at messages to highlight potential travel (unless a Gmail user opts-out). The technology company has also taken to mobile with Google Trips, a handy travel management app which could evolve into a mobile booking platform. For now, Google is principally competing in the metasearch space, and giving the likes of TripAdvisor and Yelp some competition by including Google reviews.

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Facebook is also getting involved in travel, as an advertising and corporate content channel - and by facilitating chatbot customer service on Messenger.

Both Google and Facebook favor advertisers in their algorithms. Google puts big spenders at the top of a limited list of results; a list which becomes even narrower on mobile. 

To bolster their position in the travel ecosystem, OTAs have scaled their spend on advertising, marketing, and customer service to maintain top search ranking, reach as many consumers as possible, and maintain the relationships they have with existing consumers. 

High advertising spend also benefits the travel partners listed by these agents, and there is evidence that being listed by an OTA can actually boost direct visits to the travel services provider’s website too. It is a dynamic known as the Billboard effect, first identified in hospitality by authors Chris K. Anderson and Saram Han of Cornell University, and could similarly apply to airlines.

One outcome of being listed on an OTA is additional bookings on the brand’s own website, a phenomenon that co-author Chris Anderson labeled the billboard effect. In a 2009 study, Anderson presented an experiment in which a group of hotels was listed and then removed from Expedia.com in alternate weeks. This test found that, compared to being hidden, being listed on the site increased reservations 9 percent to 26 percent (above transactions that occurred at Expedia). That was followed by a 2011 study examining consumers’ online pre-purchase research that found about 75 percent of consumers who made reservations with a major hotel brand had visited an OTA in advance of booking directly with the brand.
— Anderson C.K. and Han S., The billboard effect: Still alive and well, Cornell Hospitality Report

An example of the Billboard Effect in action for airlines may be when consumers research flights before booking and later recall that a particular airline had more attractive schedules. When they are ready to book, they may simply jump directly to the airline site to book when they are ready to complete the booking process later. Similarly, the Billboard Effect may help regional airlines gain new direct bookings, as travellers from other markets can discover that they offer a variety of convenient connections through their OTA presence.    
 

Airlines have led the way in revolutionizing travel through the development of loyalty programs, which have helped boost corporate revenue. Partnerships forged with other travel brands and credit card companies have proven very profitable. The dominant share of the $44.6 billion in ancillary revenue earned by airlines originated from these loyalty programs.  
                           
While this revenue is welcome, frequent flyer programs also offer airlines a source of consumer data which can be leveraged to introduce personalization, helping boost ancillary sales in other a-la-carte offerings like baggage fees, seat selection, upgrades, and in-flight food and beverage.      

For years, travel suppliers have been trying to crack consumer loyalty by offering intricate programs and schemes. 2017 calls for a shift in thinking to make customer experience paramount. Over the next 12 months, travel companies should leverage an increased awareness of customer expectations, re-imagined technology strategy, and differentiated offerings to provide unmatched travel experiences. Loyalty will follow.
— Deloitte, 2017

Using the consumer insights gleaned from buying behavior certainly presents a good opportunity to monetize that aggregate data, and can enable airlines to build more meaningful loyalty relationships. But personalization is difficult to achieve without scale.  And so far "much is left to be desired in terms of the travel industry's effort on the personlization front (Deliotte, 2017).   

To properly tailor products to the individual passenger’s lifestyle needs, a travel supplier needs to gather sufficient data points about the traveller’s preferences to make relevant offers. For optimum personalization, as offered by Amazon and similar global ecommerce leaders, airlines and other travel services companies would need to have a full picture of the consumer’s choices in different circumstances.

Most importantly, consumers are different travelers on different trips. Travel behavior and preferences change dramatically, depending on the context of a specific trip, such as traveling alone for business or taking a family vacation. It is extremely difficult for travel companies to predict intent before travel planners land on their website.
— Deloitte, 2017
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Because of the nature of the travel search and booking process - which involves users going from a general search for travel inspiration or for solutions to the needs of a specific journey - OTAs have a greater likelihood of serving customers in a variety of circumstances. OTAs also get a “big picture” view of the travellers full travel identity; whether they mostly travel for business or pleasure,  how they engage with different products, and how they respond to different messaging and design choices. The sheer number of users on OTA platforms, paired with demographic information, also yields valuable aggregate data revealing market trends as they emerge. This is data that OTAs can use to guide their partners on product offerings that are most likely to sell best, and can help boost sales of ancillaries on platforms that support them.  

To boost their recovery of this data, some OTAs have also introduced their own loyalty programs, which further benefit travel partners by encouraging repeat purchases.  

In loyalty, scale matters too. The average revenue per user (ARPU) in the "Flights" segment is $946.69 in 2017, according to Statista

That’s more than ten times higher than the average ARPU that Amazon might claim from its loyal Prime members (estimated at $88), but the frequency at which an individual might fly with a single airline program is significantly lower than the frequency and volume of business Amazon can expect from that same individual as a Prime Member. 

In fact, Business Insider estimates that the functional multi-purpose membership platform of Amazon Prime encourages spending, with 40% of Amazon Prime members spending over $1,000 a year on Amazon, compared to only 8% of non-Prime members who spend that amount of money a year. Offering a host of products for different lifestyle needs yields more repeat business and more revenue than offering only a single product. As with Amazon, this is true of the multiple travel service offerings of OTAs.

The role of agents, online and elsewhere, is to boost sales while providing added value. 

As consumer preference for e-commerce channels and digital transactions grows in the coming years, the drivers of change in the travel space will be the ease of access to relevant information, the convenience of the process, and the trust built to encourage repeat business. 

The scale of leading OTAs helps fund digital innovation which responds to consumer  demands. It makes advanced personalization affordable. It supports a host of alternative payment methods and raises capital for the high advertising spend required for travel brands to stay at the top of search engine algorithms. The reputation OTAs build for consistently delivering convenient travel options, and their marketing efforts, encourage bookings and build loyalty. This is the added value that OTAs, as digital agents, offer their travel industry partners.