U.S. travel and tourism is by no means floudering, but if the country wants even greater international visitor numbers, it needs to follow through with its plan to appoint a dedicated tourism official.
Skift Global Forum was held in New York City on September 26-28, 2023. Read coverage of the event at the link below.
The U.S. is still waiting to fill its newly-created position of assistant secretary of travel and tourism – dubbed the country’s future ‘Czar of Tourism‘. For now, Brian Beall is acting deputy assistant secretary for travel and tourism and director of the National Travel and Tourism Office, but according to investor Greg O’Hara, the role must be filled if the country wants to roll out a more inviting tourism sector.
O’Hara is the founder and senior managing director of Certares, the private equity firm that owns Internova Travel Group. He spoke at the Skift Global Forum 2023, touching on the various wins and losses across tourism right now: From a travel boom in the Middle East, a foreboding period of overtourism in Europe; and America’s state of regulatory limbo without a dedicated official.
(See the video and transcript below)
Rafat Ali: So welcome back, everyone. Come on please. Fast, to the room. People, settle down. Let’s do this.
Greg O’Hara: I’m not that interesting. Take your time.
Ali: Let the audience decide by the end of this.
O’Hara: Fair, fair, fair.
Ali: Let the audience decide by the end of this. So this is the first time ever Greg is speaking at the Skift Global Forum on stage. During COVID, he’s done a few times by video. For those of you who don’t know Greg O’Hara after this session, there’s never not a time you’re not going to know him. And so, he’s the largest private investor in the world today in travel industry. You manage how many billions today?
O’Hara: Just shy of 11.
Ali: Just shy of $11 billion. Purely focused on travel writ large. The reason he and I chat quite often is because the way we look at the world of travel, which is an expansive definition of travel, is exactly how the company that he founded and runs Certares does it. The first deal that I think many of you may remember Certares from is when he spun out Amex GBT out of Amex.
I’m still the chairman of that company. We still have material investment in that company. We’ve done a lot of acquisitions. You saw me the other night thank Arion for selling me Egencia.
Ali: Egencia is now part of Amex GBT.
O’Hara: And that’s an important strategic fit for American Express as it serves small and medium-sized enterprises all over the world but I’m still the chairman of that company.
Ali: You’re still the chairman of the company. You also bought Hertz last year.
O’Hara: Yeah. I was the chairman of that company for a little while and then I felt really odd about being the chairman of a company that Steve managed. Because we did something unusual and that’s we hired the former CFO of Goldman Sachs to be the CEO of Hertz. So I turned the chairmanship over to him so he’s now the chairman of that company.
Ali: So you said, “COVID has hit. This is the best time to invest in travel. Travel industry is booming.”
O’Hara: Oh my god. I wish that was true. That wasn’t true. We had a bunch of dry capital and COVID hit and we thought… I see there’s… The smartest public market investor I know is sitting in the audience so I want to be really careful about what I say. But I would say even he would agree that a lot of public names were oversold for a brief period of time and maybe they accurately reflected the spot value and the uncertainty at that time. But if you look at a 50-year history of travel, every time there’s a disruption, we… I think Alex has this chart if anyone wants it. But every time there’s a disruption, travel reverts to a demand curve that outperforms GDP, right? And I can show you that like bird flu, I can show you that with the global financial crisis, I can show you that with anything, and-
Ali: Why does that happen?
O’Hara: It reverts to the mean. I think the demand for travel always goes up. More people are traveling. We can have a longer discussion about this later. But what we’re seeing is… So the markets themselves probably are looking at travel and saying, “A recession is coming and that’s going to affect travel spending.” That is absolutely an accurate view that one could take. Another view that one could take, and we have a lot of data to support this and I’m happy to go into whatever you want to ask me later on, is that consumer spending patterns have shifted that may more than offset travel.
So for instance, I don’t see as many young people in the audience as there usually is so I’m going to pick on Alex because I know how old he is. Alex Meyer works for me. If you hear me talk about him, that’s the reason. I’m not sure that Alex and his cohort is ever going to own a house. I’m not sure that they’re ever going to own a car. If you look at GDP 15 years ago, it used to be 80% goods, 20% services, and now that’s flipped. It’s 80% services and 20% goods.
And some of that is explainable by the fact that you and I used to buy DVDs and we used to buy CDs and now, we subscribe to Spotify. So that’s a service, not a good. Some of it’s explainable by the fact that people are starting to value service over goods. So if you look at all consumer spending patterns and everything that consumers spend money on, their entertainment is about flat, right? Travel is up and wellness is up so people are taking better care of themselves, valuing experiences over services, but almost all the other consumer spending is down on a unit basis. And so, you could take the opinion that over time, people will continue to spend money on travel. I think the best forward indicator of that is cruise line bookings. So those of you who are in the cruise industry or follow the cruise industry, they had a record wave season this year, right?
Ali: And explain what the wave season is.
O’Hara: Oh, I’m sorry. So there’s a period during the year when most of the cruise bookings occur and if you do a simple regression algorithm off of the wave season, you can accurately predict what the following year is going to… Sorry. I apologize.
Ali: No, it’s okay.
O’Hara: If I use the data from the wave season, it predicts what the rest of the year and next year’s going to look like. And so, we’re seeing super robust bookings well into ’24. So if you took a skeptic’s view, it’s people who have money who don’t believe a recession’s coming or if you take an optimist view, it’s people saying, “I’m going to go on this cruise because I really want to. And if my savings dissipate over the next year, I will not spend money on something else so I can take the cruise.” And I think those are the two views. The market definitely has weighed in and said, “We think the recession is coming.” So-
Ali: Yeah. You’ve been trying that for the last year, two years, and it certainly hasn’t come in travel service.
O’Hara: They have and I promised you I wouldn’t bore the crap out of everybody with market data. But if you look underneath, one of the reasons that inflation is so stubborn is because even in the face of interest rates and whatnot, is you have relatively high employment. And if people are employed and they have jobs… You would think a market like France would be a very tough market right now. People talk about the malaise in Europe. We have two businesses in France that are doing 150 to 170% of their 2019 numbers with no acquisition, that’s year over year. That’s a great market. It seems to be robust. Now, I wouldn’t have even said to Paul that was going to happen during COVID, that France was going to lead the rebound recovery in Europe. But the joke used to be, “What’s the best way to run a small business in France?” and that was go buy a large one and wait. And so-
Ali: That sounds like airlines too by the way.
O’Hara: Yeah. Airline are different.
Ali: So you invest in airlines.
O’Hara: We did for the first time.
Ali: What are you seeing that nobody else has seen?
O’Hara: Listen, most of our investments during COVID were called structured investments. They came with downside protection and upside so we did two things. We did a dip financing. Everyone calls it an investment but it was a dip financing in LATAM. If you looked at the Latin American recovery numbers, right? And remember, we get a lot of people clicking on things that we get to look at so we can measure intent and interest before the rest of the market knows. We know who’s asking for what and what they’re asking for. So when we looked at Latin America very similar to Hertz, we saw that the recovery was going to be dramatic and we had enough security to be confident in investing in LATAM Airlines and we also knew there was a couple guys that wanted to own LATAM Airlines and would take it at a bankruptcy.
So I think that was a relatively safe investment. We ended up exiting that investment already. And I think if you’re careful, you can do it. Listen, you’ve got enormously talented management teams now running airlines. And so when we were young, that wasn’t always the case. You have Bob at American, you have Ed at Delta, you have Scott at United. These are all smart people that know what they’re doing. When we read the headlines in the paper, sometimes you get part of their overall story, you don’t get the whole story.
But in meeting with these guys, I think they’re responsible and I think they’ve learned that capacity discipline matters, right? And whenever that happens in the industry, I don’t know about all of you but when I travel, the airports are full, right?
The planes are full and the ticket prices are stiff, right? And so, if you look at the airlines in the second quarter, they did really well-
Ali: Record numbers. Yeah.
O’Hara: Record numbers.
Ali: So you gave me this very interesting anecdote about Italy backstage.
O’Hara: Oh yeah. Sure.
Ali: Please tell me because it’s very interesting.
So yes. One of the things that, travel industry, when we did the reporting over the summer was that US domestic tourism market was hurt because Americans were flying in record numbers to Europe. I’m sure all of you did, probably had a horrible time there as well. A lot of people had terrible time going to Italy. You are very knowledgeable about Italy. You happen to live in the country as well.
O’Hara: I live in Italy. Yeah.
So we’re talking about Europe and Rafat’s actual question was, “Has summer travel changed forever?”
And so, let me give you a couple of examples. Italy, because people speak Italian there obviously and not a lot of other places speak Italian around the world, it’s largely a domestic vacation market. So Italy, Italians vacation in Italy. Really odd dynamic but that’s what they do. This year, more Italians went to places like Egypt and Tunisia than vacation in Italy. And I was telling Rafat, the reason for that was twofold. One is the experience has changed for them. So if any of you went to Capri this summer, it felt like downtown Cincinnati. It did. It felt like it wasn’t the people from LA or the people from New York groovely dressing in linen and celebrating their life’s success. It was everybody, Midwesterners Southerners, everyone were running around the place. So the experience changed for them. I think that was one.
But the second thing is all those people coming in priced the Italians out of their own domestic market. They couldn’t afford… Listen, there’s nobody… No, not nobody. There are very few people in Italy that are going to pay 2000 euros for a four to five star hotel on the Amalfi Coast where Americans seem happy to do that. The downside of that is, I think, and I’m not blaming the Italians for this, this was all across Europe. If you went to San Tropez, this happened to you.
If Alex and I were in Capri five years ago and we took a cab ride from the port to Anacapri, I don’t know, this is maybe 10 minutes long, that was about a 10 to 15 euro ride. This summer, it was 80, right? So Americans and other tourists that came into Europe got their faces torn off after they got there. The hotel pricing was okay because you knew what you were paying. The air pricing was okay because you knew what you were paying. But if you felt like you were getting skinned alive for everything else, the experience wasn’t as positive as it could be. One more example, if that’s okay?
Ali: Yes, yes. Go ahead. Yeah.
O’Hara: So everyone’s been reading about the Middle East and all the things they’re doing there.
So I may be the world’s best jailhouse expert on the Middle East and the Middle East regional travel numbers are spectacular. They remind me of China when you see these large numbers of people moving around. And so, investments there are going to be interesting. There’s going to be ways to lose money for sure, there’s going to be ways to make money for sure, but they look spectacular. They’ve got this tourism minister over there, His Excellency, Al Khateeb, that has a huge vision for what they do in Saudi Arabia.
O’Hara: But Oman is the same [and] Dubai has been a spectacular success and all the countries over there. And now, they’re giving people in that region places to go and things to do that they couldn’t do before. So you find this regional travel in the Middle East super interesting. They’re promoting. Everyone knows what the Hajj is. In Saudi, they’re promoting this thing called Umrah, right? Which is like a… I’ll just describe it as a ‘Hajj-lite’, right?
If we all went to Rome to see the Colosseum and you’re Catholic, you have to go to the Vatican, right? You have to visit it. They have the opposite problem where people were going to make Umrah’s or Hajj’s and then leaving Saudi Arabia to go to Dubai or Bahrain or something.
Ali: Because they didn’t have permission to go to other parts of the country.
O’Hara: Correct. If you haven’t paid attention to this, for those of you in the travel community, I suggest you start because it is amazing what they’re spending. By my count, they’re spending well over a trillion dollars and that’s a trillion with a T at developing the area. We were talking about this the other day with someone and they’ve got the first giga project done called Diriyah which is run by a guy from Brooklyn named Jerry Inzerillo, right?
Ali: Jerry, I think many of you know this, was the CEO of the Forbes Travel Guide. I’m sure many of you have met him before.
O’Hara: And he’s done flawless execution. Like I would challenge Disney or someone like that to do as good execution as he is done on Diriyah. So I think that’s another thing. So summer travel changes because you don’t have as many of the Middle Easterners leaving, right? I was in Egypt and Saudi Arabia this summer with my family and it was full. It’s 43 degrees outside but it’s full. But guess what? It’s also 43 degrees in Sicily. So the temperature wise, the rest of the world seems to be catching up with that area.
Ali: Let’s shift gears a tiny bit. So one of the things that I’ve asked some of the questions, I asked this to Chris Nassetta, the CEO of Hilton, when he was here. At the board level, you’re on a bunch of boards, you said you’re chairman of many companies as well, does AI come up on the board level today?
O’Hara: Every board meeting, it comes up…I actually pay for the premium subscription premium of ChatGPT.
Ali: Premium one. Yes, yes.
O’Hara: So I think it’s important for me on a practical basis to know what exactly that is.
O’Hara: I will confess, I have a 17-year-old boy who I take constant tutorials from because the way you ask the question informs the answer that you get and he has done a great job at educating me on how to ask the right question. So a couple examples. So you can call it AI, you can call it automation, you can call it robotics, right? We have a company that’s on the west coast called Avoya and it does basically lead gen for the cruise industry. And we’ve spent millions of dollars in developing a system that as it’s… And this, you can call this AI, I am going to say it is but we started doing this before people called it AI.
And what it does is it says, “Rafat wants to take a certain kind of cruise or is interested in this sector,” and it assigns the best cruise expert to talk to Rafat about that. So it uses artificial intelligence to figure out, “Oh, Alex or Ron or Bob is the best person to meet this.” It’s like that Glengarry Glen Ross quote, “Coffee is for closers.” This is like, “Rafat is for Dan because he’s the best person to do this.”
At Hertz, we use AI to figure out where the cars should be, when to repair the cars. We have telematics going in all the cars so we can tell how far the car is driven, how it was driven, did it get into an accident, did all these things. So we are using telematics and AI to do a lot of predictive tooling. Having the guy from Goldman Sachs there is helpful because banks have been using automation and robotics for a long time.
And then, the last thing is you have this thing with AI where it’s supposed to replace a lot of people or be a replacement for human touch. So far, I haven’t seen that. I think it can make people more efficient. I think it gives better answers. So at GBT, for instance, American Express GBT, which is a corporate travel agent, that AI is particularly a good application there. Because if you work at Goldman Sachs or if you work at JP Morgan or if you work at Google, your travel department has rules and the agents and the systems are responsible for enforcing those rules, right? You can only fly in this airline. You only can fly business class under these rules. You do these things. The AI does a great job at making sure it follows rules.
Ali: Follows rules. Correct.
O’Hara: If Rafat is taking a vacation, and let’s use Italy again, to Italy and you try to get a unique itinerary or anything, I’ve struggled. Maybe there’s someone here from ChatGPT or Bard or something like that. I’ve struggled to get any other answer than it gives to everybody. So it’s going to tell you, “Go to Florence. Go to Rome. Go to Capri. Go to Tuscany. Maybe go to Venice,” or in some order. And then, the hotels it suggests are always the same hotels and guess what? There’s 2, 3, 400 rooms at these hotels. Once they fill up, it’s not very good. So if you want a unique experience and everybody wants a unique experience when they travel, there’s some human touch that goes into this. So we view AI as a partner for those things or where it can be if we can make our decision-making better with AI or we can provide a better customer experience for AI and we’re investing-
Ali: The decision-making on the investment side, are you thinking about that?
O’Hara: So we don’t use AI for decision-making on the investment side but we do use a lot of data, right? You and I have talked about this before-
You use data to consult governments as well.
O’Hara: Yeah. So what’s happened… I would say this is a trend in the last year. So what’s happened, for instance, is we’re now big enough, tens and tens of billions, a hundred billion, whatever you want to say, in sales across all our portfolio companies that governments have started to get interested in what we can do to stimulate travel demand.
So if I can use Greece as an example, maybe. So during the pandemic, we got a call from Greece and Greece is interesting because 36% of the people in Greece are employed in the tourism industry and some high twenties number is part of their GDP. In terms of importance of tourism, Greece is off the charts. And so, we got a call from them saying, “Hey, we need to re-open. We can’t afford to stay closed.” And for those of you with good memories, Greece was really the first place that let everybody in.
So they wanted to do it as safely and easily as possible. So you call it AI, call it whatever you want, we tried to figure out a system that would tell the Greek government where the outbreaks were. And when testing kits were limited, we used those testing kits to test the people who were flying in from a place with an outbreak to give you an example. So people thought it was safer.
There were a bunch of Scandinavian people who went to Greece who didn’t realize COVID existed, I will tell you. If you went to Mykonos in middle of ’20, COVID didn’t exist, the pandemic didn’t exist. Then, we worked with the airlines to say, “Here’s what the demand profile looks like because this demand profile you’ve never seen before.” Because all of a sudden, France isn’t open, Italy’s not open, but Greece is open. So should you be flying to Greece and should you be delivering travelers to Greece? This I don’t think I’ve ever told you. So we didn’t really have a way to charge for that because we don’t do that. So we did most of the work for no money and the Greek Prime Minister made me a Greek citizen at the end of this as a-
Ali: What’s your Greek name?
O’Hara: Oh, you don’t even want… M-A-I-K-L, Maikl Grikkori with a bunch of K’s in it that don’t belong in an I at the end-
Ali: I was just joking. That’s a real… Do you have a Greek name?
O’Hara: Yeah. So do you have two seconds?
Ali: Yes, yes.
O’Hara: So when I went to get the Greek passport, I’m Canadian, took my Canadian passport, gave it to the guy, and the Europeans have these ID cards. And so, they translated my name as Michael Gregory O’Hara into Greek. Then you go into the next room to get your passport because it was done on the spot for me. And when they translated my Greek name back into English, it didn’t resemble my original name. So for a brief period of time, I had this Jason Bourne-esque passport because I had a different ID that caused all kinds of problems so I recently went back to Greece and got it fixed. So now, it’s the same name. But yeah, so they gave us a Greek passport.
In Saudi, for instance. They’re spending a trillion eighth at home building it and it reminds me of that Kevin Costner movie, right? “If you build it, they will come.” It’s Field of Dreams. Second movie quote, I’m not doing too bad. And what they haven’t invested in is distribution outside. So they’re very focused on how do we get people to come. I don’t know when you were there, if you got a chance to go to AlUla.
Ali: No, but I’m going again end of this year so-
O’Hara: Okay. So when you go, you let me know and I’ll have the guy who runs AlUla take you there. AlUla may be the best example of a cultural heritage site that barely anyone has been to and they’ve done a fantastic job at developing it. And so, as you go… I’m trying not to give too many Saudi examples but it’s staggering. But how do you know about AlUla? Everybody here is in the travel industry and if I ask for a show of hands which I know-
Ali: Well, they’re a sponsor of Skift, so please everybody raise your hand.
O’Hara: Okay. But not everyone if I said, “How many of you have been there?” but it’s equivalent to places like Petra or Angkor Wat. It’s that good a place. And so, it’s going to get its visitors and they’re great about developing it in a sustainable way. They’re developing it in a way where you feel authentic when you get there. They’ve done a good job. They have some growth issues. But our job as someone, and you asked these questions like what responsibilities do I have when we were talking over dinner the other night. So the pace of reform in countries like Saudi Arabia is staggering compared to what’s been reported in the Western press. I think you’d agree with that.
Ali: Yes, 100%.
O’Hara: So if we like that pace of reform and we want that to continue and we want to have reform-minded countries, people have to go there and they have to say, “Okay. We’re going to get out of an oil economy or whatever economy they’re in and they’re going to a tourism-based economy,” and how do we make that happen, right? We have to encourage people to go there. So we’ve been in lots of talks with governments like Greece, Italy, Morocco-
Ali: I do have one government idea for you.
Ali: This country that we’re sitting in [the US].
Ali: Can we help them?
O’Hara: So I got in trouble the last time I asked this question. I was chased down by someone in the US government afterwards. The US government-
Ali: Let’s get into trouble. Please.
Ali: So I mean, the government is about to shut down all the stuff you very well know. There’s a reason why you fled from here to Italy. I’m kidding.
O’Hara: No, there’s not actually. So the US government is not as well organized from the outside, at least, in, I’m going to be a little more careful this time, in there’s no tourism secretary to talk to, right? I don’t know how many of you do business around the world but there’s almost always a tourism minister or a tourism secretary. I’m not as knowledgeable on the way the US government works as I probably should be but I think that responsibility lies inside the Commerce Department somehow. And there isn’t a czar of tourism and I-
Ali: Well, they did pass the law but they didn’t fund it.
O’Hara: I think one of the problems, Rafat, is when foreigners look at the US, some of the policies that we have, like for years and years and years, just think about this. All of us who are US citizens or Canadian system could go to Germany visa free but the Germans had to have an ESTA to come here. Now, the Europeans are responding in kind and they’re putting in… But should we really care that there’s a bunch of Germans coming here? I don’t know. Or French, right? I don’t know. So I think sometimes some of the US policies might feel bad to people. That said, the US is still a really popular tourism destination.
Ali: Of course. Yeah.
O’Hara: The only place where we’ve seen a precipitous drop off is China, right?
Ali: Yes, yes. I really would’ve wanted to go into China but there are questions. So most of the conference has been about leisure travel but what about corporate travel? How will traditional TMC models be disintermediated by OTAs, for instance? I mean, obviously, since you own the largest corporate travel agency in the world, do you think it will be disrupted by new players that are coming in?
O’Hara: So a global TMC is an interesting thing. I listened to the people from Booking talk and I listened to Dara talk both at Uber and when he was at Expedia. I don’t know that it’s going to be that attractive a space for them because what the travel businesses do is really, really hard. So think about you buying an online ticket except for you don’t speak English, you speak Korean or you speak Thai and you need to be able to provide 7 by 24 service in the language. You need ticketing authority in every country around the world. You need to be able to follow rules around the world. You need to provide vastly different levels of service for executives as for others.
Now that said, are they going to be successful? I hope not. But are they going to be… Like am I worried about one guy coming in and taking 20% of GBT’s business? Probably less. But you know me, I worry about everything so I’m a worried guy. Am I worried about that? No. Am I worried about 20 people possibly taking 1%? That’s a bigger worry than one person taking 20. And so, at a place like Booking, they’re experimenting with things to do. I think they’ve been successful with one client. You’ve got this Navan thing that-
Ali: Yeah, yeah. Ariel was here yesterday.
O’Hara: I don’t have anything not nice to say. One of the things that everyone has to understand is we want our investments to be successful but more important to us is that travel is successful, right? We’re big enough now that what we want is everyone to go everywhere all the time. That’s what we want. And if that’s through Booking sometimes, that’s great. If that’s through Navan sometimes, that’s great. If that’s through GBT, even greater.
Ali: Even greater.
O’Hara: But that business has a really deep moat dug around it and think about the infrastructure you would have to build with no customers to get Goldman Sachs to sign up. You would have to make this enormous global investment with thousands of people and offices and all these things before you could take on a global customer. So you might see small medium-sized enterprise, probably more competition, top end, really, there’s only two or three people that can service those accounts.
Ali: So you and I talked about this and you said, “If you really want to go into sustainable ESG, make sure you have a lot of time.” But there is a question, what are your sustainable investing initiatives are expecting investing in sustainability, AI, we’ve already talked about, as the future of success in the travel industry?
O’Hara: So we’re concerned about this. I’ll give you a couple examples then general statement. And then, I think we’re probably out of time. A place like Voyageurs du Monde which is a high end travel agency has a commitment to be carbon-neutral. We have Mystic which built brand new explorer ships that have all kinds of features that reduce the carbon footprint. I think on all things being… I can give you more examples. We have lots of them but we’re going to be out of time.
So each one of our companies, we ask to be better than the year before, right? Everyone’s got to get better. If I owned an airline, I can buy carbon offsets and that is a whole other- 90-minute discussion. But I can get more sustainable, I can be more friendly to the planet. That said, I think that has to be balanced. Do we have a responsibility to offer sustainable products and do better for the world? Yes, we do. The customer also has the ability to choose. So I think all things being equal price, everything else, and one is much more sustainable and more environmentally friendly than the other guy, the customer will choose that option.
Iberostar, for instance, opened an entirely hydrogen cell powered hotel in Majorca this year. They claim that it’s the same cost and the same… Now, if that’s true, I think you’ll see a huge movement to hydrogen cells, if that’s true. So we talk about this, almost all of our boards have… It depends on the size of the company. Have a committee where we have an ESG presentation on progress towards targets and what we’re doing.
So far, we’ve seen that be more important in Europe. The European consumer has a higher affinity towards those things and less important in the US. It doesn’t make it less important to us, right? It’s going to be important to us no matter what. I want my kids to live in a place that’s healthy and well going forward. And so, we’re going to make sure, at least from our perspective, that our companies are doing the right thing.
Ali: All right. Let’s end at that note. Thank you, Greg. Thank you very much for coming.
O’Hara: Thank you.
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