Despite explosive growth, cracks in the global travel sector began to multiply over the last decade. More change and trouble will come before the industry can figure itself out again.
It’s been a long decade for the global travel industry.
In 2010, many questioned what kind of future travel had following the global economic crisis of 2008. Hotel chains withered from reduced demand, selling off properties around the world. Global airlines were forced to reorganize and consolidate. Online travel companies increased their focus on building apps to capitalize on the explosive growth of smartphone usage in wealthy countries.
Looking back, the doomsaying across the industry is almost laughable. Travel bounced back to extreme growth despite austerity in Europe and a slow recovery in North America. Asian travelers began to travel in record numbers, bringing new demand to the market.
Despite the growth of the travel business in new regions, with fresh concepts like short-term rentals, the sector at large currently sits on shaky ground due to fundamental shifts in global commerce and consumer behavior. Longtime power players like Thomas Cook have collapsed, while the biggest companies in both hospitality and aviation face increased pressure from competitors and shareholders.
The global backlash against tourism, as well, presents an existential threat to travel’s future growth — as do political realities like those seen in Hong Kong and with Brexit.
This was the decade travel lost control of its destiny, entering a new phase in its evolution. The sector’s lack of digital innovation and increased consolidation has led to serious questions about the sector’s future as new entrants do their best to build new paradigms. Most importantly, communities around the world woke up to the reality that increased tourism doesn’t bring a windfall or a better quality of life for residents.
The most important trend line has been the pushback against globalization in communities around the world and the phenomenon of overtourism giving a title to the destructive forces wielded by the travel sector. Politics has skewed to the right across the world, giving pause to the dream that increased travel and connection will bring the world into a new, more distributed era of prosperity.
From Iceland to Barcelona and Bali to the Galápagos Islands, residents began to resist the impact of increased tourism on their lives. The smaller the destination, it seems, the more likely legislation can help ameliorate some of the problems caused by overcrowding, rising property costs, and increased pollution. The ties between local business leaders and the global tourism sector, however, have proven too strong for the populist, protectionist movements that have sprung up.
It’s no surprise that airports and transportation hubs are now the flashpoint for labor strikes and protest movements around the world; stopping travel, at least temporarily, is one of the most effective methods for causing a stir among locals and capturing the attention of the global public.
Years of pressure from increased tourism will prove most memorable to people in communities around the world. They won’t forget the homes they’ve been pushed out of, family businesses that declined, or cultures that eroded. The question is what they do now to build a new future for themselves and whether resistance to the destructive elements of globalization is a part of that future.
Online Travel Loses Its Edge
The shift in global consumer behavior driven by smartphones has flummoxed the smartest companies in online travel. With digital apps and platforms mediating more purchases, the companies providing the best shopping and buying experiences have grown in power.
It’s no wonder why Google’s efforts in the online travel space have effectively disrupted so many; a trustworthy interface, not the promise of a certain type of experience during a trip, is a true differentiator. Consumers don’t care that Google is at “the top of the sales funnel” or that it often forces its advertising customers, the travel companies themselves, to compete against a tech giant with oodles of consumer data. They just want something that lets them compare prices and book simply, then get on with their lives. It also helps that almost all travelers use Google Maps before and during their trips.
Instead of building apps and websites with a fanatical focus on traveler experience, online travel agencies have embraced confusion and pressure as a guiding ethos. With a bevy of brands and interfaces, both Expedia Group and Booking Holdings have lost their edge and decades-long head start on Google.
The recent ouster of Expedia CEO Mark Okerstrom amid whispers honcho Barry Diller wants to sell off some of the company’s brands shows its leadership has finally accepted reality. The mere fact that many booking sites still don’t offer transparency on why particular fares and rates surface at the top of search results exposes the continued disconnect here. In fact, it shows the contempt of these intermediaries for consumers because the real customers of these booking sites are actually the travel companies selling on them. You’d better book this room, 22 people are looking at this hotel right now, you idiot! We need this conversion!
Maybe the apps have gotten slicker and metasearch has wormed its way into more products. The mobile revolution, though, hasn’t led to a revolution in the travel selling or service landscape. This stability has led to stagnation, with thousands of consumer-facing startups rising and failing to find product-market fit since 2010.
Hospitality Confuses Consumers and Itself
In hospitality, going asset-light after the Great Recession has led to new problems. A quick refresher: Hotel companies that owned and leased properties got slammed as business cratered beginning in 2008 and pivoted to becoming brand companies. Now companies like Marriott International and Hilton Hotels and Resorts run about 30 hotel brands each, leading to intense consumer confusion. They now own just a handful of properties, usually cash cows in the luxury market.
In the battle to own the customer, hotel giants have created a situation where brands run by different companies are nearly interchangeable and confusing to normal customers. Not only that: Selling off hotel properties at the bottom of the market led to chains missing out on the economic recovery and considerable growth in property values as we sit at the probable top of a real estate bubble. A new breed of short-term rental company has arisen in the meantime, with leaders now sipping champagne amid sky-high valuations. That’s shareholder capitalism for you.
Another outcome of this asset-light strategy has been confrontation with online travel agencies; hotel companies have become marketing companies, hoping to push buyers to their own platforms and avoid costly commission payments to intermediaries. The power of these platforms is also important to hotel owners, who need their brand affiliation to help generate demand through direct channels.
It’s no wonder Airbnb has upended the market for lodging during this period; just as the hotel business became about branding, Airbnb emerged with a far more compelling brand and value proposition than traditional hotel chains.
Airlines Fight a Race to Bottom
Unlike in the hotel sector, it has been consolidation in aviation that has led to new problems. In the U.S., aviation narrowing down into the Big Three has led to constrained supply and parity in quality. As low-cost-carriers took off around the world, bigger carriers simply could not compete on price. This has led them to strip out components of a trip and sell them back to customers in order to compete on base fares, further alienating potential buyers. At the same time, these consolidated carriers have removed flight routes that don’t perform, removing air access to many secondary and tertiary cities in the U.S. This has driven up fares and destroyed the once robust system of routes that powered air travel across the country.
Flyers must usually book directly with airlines for the ability to purchase the elements that have been removed from their fare, bringing airlines into conflict with online travel agencies in an effort to boost direct bookings. Over time, the comparative power of metasearch sites was hollowed out as competitors moved into pricing parity with each other. Perhaps most telling, the new distribution technology standard airlines were supposed to pioneer to help bring more advanced selling and merchandising to the market has yet to make a transformative impact despite supposed support from nearly every major airline.
Planes are flying whether or not every seat is filled, so it pays to fill empty seats even if they are sold at a reduced price. A decline in the value proposition and quality of the flying experience has been the result. Why choose one airline over a rival if you are going to have a miserable experience no matter which airlines you select? U.S. airlines have no good answer for this; even longtime holdout JetBlue is beginning to embrace basic economy to compete as it finally pushes into Europe.
Airlines outside the U.S. have struggled to cope with the low-cost revolution as well. Flag carriers around the world have stumbled and crumbled, while even upscale airlines powered by sovereign wealth funds like Etihad Airways have been stymied by market shifts. Low-cost carriers that so effectively disrupted established players are also now on the ropes, a race to the bottom on pricing leading to collapse and consolidation.
If the 2020s are marked by a widespread resistance to aviation as a result of flight shaming, it’s hard to see how even the most clever airlines can survive operating as usual.
The New Normal
Taken together, the trends of the last decade show travel is sorely in need of a reinvention. Beyond smartphones and personalization, the sector now needs to demonstrate its value to people in the communities most impacted by increased travel.
Hospitality companies will return to running owned hotels and airlines will tout all-inclusive economy fares once again as a competitive edge. Online travel will crumble or reinvent itself as a set of digital tools that actually solve problems for travelers instead of helping to create them.
Smart thinkers and bold leaders will attempt to solve these problems — and if history is any indication, they will fail.
Travel needs to move beyond its past and develop new solutions to lingering problems. Otherwise, the wave of growth in global travel will roll back to reveal how little value has really been built.
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Photo credit: Police forces in Hong Kong. Associated Press