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The last 20 years have been an unprecedented period of consolidation for the travel industry, particularly in North America.
The tangle of major U.S. airlines was whittled down to three following a period of economic contraction a decade ago, while hotel chains Marriott International and Hilton Hotels & Resorts have scooped up competitors in an unprecedented manner. International investment groups, likewise, have bought up and sold off various hotel assets during the same time period.
The quest for scale has only intensified in markets dominated by few players with the wherewithal to push for financial and geographic domination. How these companies choose to deploy their market-shaping power, however, causes frustration and angst for consumers. It also limits resources devoted to developing new solutions that could ease the travel booking process and improve the travel experience itself for customers.
These bullies tend to move in lockstep, one-upping each other in ways that drive revenue and geographic expansion at the expense of consumer experience. If travelers have no choice but to use your travel services, making them pay more for less becomes a competitive imperative. It also becomes less important to create powerful, disruptive services if the corporate focus is on incremental revenue and usership growth.
The airline sector, in particular, shows a follow-the-leader mentality where competition leads to increased costs and reduced amenities for customers. Since customers are so price-sensitive, airlines turned to fees and stripping inclusions from fares to artificially decrease the cost of flights on booking sites. The rise of basic economy fares among the big three U.S. airlines has increased complexity and confusion for travelers in order to extract additional revenue from flyers. At the same time, the muscle deployed by airlines to lock down gates at their primary airports has led to less choice for flyers in major cities.
Make no mistake: increased segmentation ends up costing consumers more and driving more revenue for airlines. It also forces flyers to adopt an aggravated state of constant vigilance during the booking and travel process that is at odds with the stated mission of the airlines to provide comfortable and timely travel service.
The global proliferation of low-cost and ultra-low-cost carriers has worked to reprogram consumers to expect discomfort in exchange for the blessing of an affordable flight. Now that larger carriers are emulating the low-cost pricing model in order to compete, most travelers don’t have a choice but to deal with the unpleasant reality of surcharges and bag fees.
Airline loyalty programs, too, have been tweaked to correspond to the money spent by a traveler instead of miles flown or other considerations. The most valuable customer to an airline is the one spending the most money, leaving the average economy passenger at a loss. Force the most frequent flyers to choose your carrier more often, and forget about fighting for the customer who only comes to you once or twice a year.
For hotels, consolidation has been accompanied by a fundamental shift in business models. Hotel chains don’t own hotels anymore; they simply franchise out brands and their distribution networks for a cut of a property’s profit.
Thus, brands have proliferated with confusing names and unclear identities. Motto, Aiden, Sadie, Clarion Pointe, and Voco are just a handful of the generic brands announced by hotel chains in the last year. None bring new concepts or amenities to the table.
It’s not a coincidence that resort fees are finding their way into the hospitality mainstream at this moment. A recent report from New York University’s Bjorn Hanson found that more urban hotels and hotels in secondary cities will begin adopting resort fees as a way to drive revenue by charging for elements of a stay that are normally included. Instead of paying for Wi-Fi and a bottle of water, hotels are now forcing guests to pay for amenities they don’t use. Travelers now end up paying for access to the pool or gym even if they don’t plan to use them.
There is also the reality that in travel markets with a few major players, much of the investment and effort is put toward competing effectively instead of developing new products and innovations for travelers.
In online travel, the competition between Expedia Group and Booking Holdings in recent years has revealed a quest to muscle consumers into using their platforms.
In its attempt to compete, Expedia Group has expanded into homesharing, vacation rental administration, and metasearch. Booking Holdings acquired OpenTable and Kayak, furthering its offerings without developing anything truly new. The struggling TripAdvisor has developed a form of travel inspiration social network for its users without altering its core product offerings, aping countless efforts over the last decade to create an Instagram for travel. It’s more of the same, all over.
Google, meanwhile, has steadily added travel services to its digital platform and is poised to make a major play for the wallets of consumers, selling them flights, hotels, and activities before they can even click a link to an Expedia or Booking site. It’s already expensive for the online travel giants to acquire customers through search advertising, and the price is likely to go up as Google pushes its own options instead.
By investing in acquisitions and marketing instead of developing new features for users, a certain sameness has settled in for travelers regardless of which service they use. It’s just a matter of which connected blob of brands offers whatever you need at any given moment instead of any company offering an interlocked, indispensable set of services. The quest for scale has led to an erosion of differentiation between the major global players in online travel.
Even companies like Airbnb seem to have substituted innovation for competition on a larger scale. The company’s announcement of a new strategic roadmap to commemorate its 10th anniversary was heavy on new product categories that compete against Expedia and Booking as intermediaries instead of interesting new services or digital tools for travelers.
As Airbnb bends to the financial necessities to back its push towards an inevitable initial public offering, it seems that the innovative spirit that built the platform has faded and been replaced with practical growth strategies.
Travelers have no choice but to tolerate the effects of consolidation on the travel ecosystem. The good news for smaller and emerging travel companies, though, is that while big competitors are focused on beating each other, there is fertile ground below to work on the technology and products that will push forward the more stagnant segments of the industry.
For now, though, global travelers are going to feel the pressure from brands that don’t care about their comfort.