Travel Innovated: Who Will Own the Customer?

Consider a vision of the travel experience in the not-too-distant future. Olivia, who is 28 and lives in Seattle, decides to add a few days of pleasure travel to a business trip to Sydney. She asks Travel Dreams on the Fly, one of several new travel-concierge apps that all her friends are using, for suggestions. Travel Dreams knows Olivia’s likes and preferences thoroughly—as well as those of millions of consumers like her. It serves up six suggestions for destinations that combine outdoor activities with good shopping as well as a selection of boutique hotels and seafood restaurants. Olivia explores them all on a virtual-reality headset. It’s a difficult decision, but New Zealand (North Island) edges out Brisbane and the Great Barrier Reef. Travel Dreams provides hotel and transportation options, makes restaurant suggestions, and books tour operators specializing in countryside hiking trips, bike excursions, and Wellington city tours. Olivia can check everything out on her headset as well.

Plans made, Olivia tells Travel Dreams to book her hotel room, two restaurants for dinners, and a full-day hiking trip. She doesn’t worry about flights; she knows that Travel Dreams will reroute her business trip automatically to take in the new destination, explore potential upgrades, and book the seats when prices are expected to be lowest. It will also purchase option tickets at a small fee so she has the flexibility to change her plans, which she often does. She doesn’t think about which airline she will fly or which chain her Wellington hotel belongs to. She is confident that the hotel will live up to its virtual-reality tour and the favorable reviews by previous guests, and she knows she’ll get the loyalty program points—Travel Dreams manages those for her. During the all-important dream, plan, and book phases of the travel journey, Olivia no longer has direct contact with most travel brands, and she doesn’t miss them. Travel Dreams makes the right decisions and takes care of her needs.

In New Zealand, Olivia goes directly to her hotel room, which is preset to her preferred temperature. In the morning, coffee (black with sugar) and fresh grapefruit juice (her favorite) are sent up automatically. The tour company picks her up, and the daylong hike more than lives up to the virtual-reality preview and Travel Dreams’ five-star user rating.

Back at the hotel, Olivia posts photos and reviews so that others can benefit from her experience just as she benefited from theirs in making her decisions and plans. But before bed, she worries that she might be giving New Zealand short shrift—the hike that morning had been more beautiful than she could imagine. She tells Travel Dreams to exercise the option for a flight home two days later, to line up a shopping itinerary for the morning, and to book a bicycle tour the following afternoon. She falls asleep without doubting that when she wakes up, she’ll find everything, along with her coffee and grapefruit juice, done just as she asked.

The question for travel companies is not whether this vision is impractical or too far in the future to think about. It’s neither. As digital technologies, big data, and innovation provide more and more seamless experiences for consumers like Olivia, the real questions that arise—and that we examine here—are these: How can travel suppliers protect their place in the value chain? And how can they leverage their strengths to take part in this innovation so that they can maintain and strengthen their position in the consumer’s travel experience?

Follow the Money: Three Trends in Travel Investment

Change is coming; consumers want it. They are quick to flock to new services that provide improved options, increased convenience, or just a better experience overall. Consider the extraordinary success of Airbnb and Uber—or BlaBlaCar, a French company that connects drivers who have empty seats with passengers looking for a ride, including for longer-distance journeys traditionally taken by train or bus. Bla-BlaCar has 20 million members in 19 countries and offers more than 2 million trips at any one time. “The model we have was to create a massive European footprint, and then a massive global footprint,” Nicolas Brusson, the company’s chief operating officer, told the Wall Street Journal in December 2014.

This time, the change won’t involve only global distribution systems (GDSs) or online travel agencies (OTAs), but also a potentially more disruptive one-two punch of big tech players and small tech start-ups that can reshape—and, from the consumer’s perspective, improve—what consumers see as a disjointed and cumbersome travel experience.

There’s ample capital to back those driving change. Tech giants such as Microsoft and Facebook have deep pockets and big ambitions. An increasing number of start-ups, including Airbnb and BlaBlaCar, have entered the travel sector in recent years with plenty of funding behind them. In the past three years alone (through the first half of 2015), travel companies—not including on-demand transportation companies such as Uber and Lyft—have received more than $4.5 billion in investment.

Innovation Is Accelerating—Away from Travel Companies

It is clear that the type of experience Olivia enjoyed is the direction in which travel will move. We base this conclusion on our analysis of venture-capital investment trends in the industry and interviews with more than 30 visionary thinkers (including travel company CEOs and CIOs, start-up CEOs, and others) in North America, Europe, and Asia, as well as on our own experience with a wide range of global airlines, hotel companies, and other travel suppliers. New solutions will solve today’s customer pain points. These solutions will be developed by companies that collect data, manage it effectively, and, more important, break down data silos to develop the most comprehensive—and personalized—picture possible of the travel customer.

But what role will travel companies play in this evolution? Will they be active in creating the exchange platforms that will be necessary to facilitate the trading and sharing of consumer and operational data in a controlled environment? Or will they let big technology companies and start-ups fulfill that function? Unless travel suppliers are developing the solutions themselves, or partnering with others that are doing so, they risk losing their place in the value chain. Being part of the solution means altering the way they do business, such as by looking at their role in the various stages of the travel journey—starting with dream and inspire—differently. They need to rethink their contact and interaction with customers, using the data they have access to as an asset to be put to work and leveraged. (See “An Interview with the CEO of Silvercar.”)

Historically, established travel companies have been responsible for much of the industry’s innovation: think about SABRE in the 1970s and Orbitz in the early 2000s. But the consumer experience remains fragmented. Massive amounts of data generated by travelers about where they go, how they go, and what they like to do while they are there are grossly underutilized because the data is either uncollected or isolated from other data in individual company silos. Travel companies have lost some of their innovative edge; they have neither built strong innovation capabilities internally nor made external investments to acquire these capabilities. None of the most disruptive innovations of the past decade (such as metasearch, on-demand transportation, and North America’s primary in-flight Wi-Fi technology) have been the product of travel suppliers.

As a result, start-ups and technology companies are now driving the innovation in the industry. Search engine operators and social networks such as Facebook, Instagram, and WeChat have already established advantages in key phases of the travel journey—inspiration, search, and sharing. That leaves travel suppliers and intermediaries with two related necessities: maintaining “ownership” of their customers and data, and needing to collaborate with others to break down silos, improve the customer experience, and generate new sources of revenue.

Protecting travel companies’ business will increasingly require an aggressive, thoughtful innovation strategy. For many companies, it may also require shifting from playing defense against innovative attackers that wield new ideas and models to going on the offensive by adopting the attacker mentality and looking for ways to disrupt their own industries. There are many areas in which suppliers can play to win—although they are more likely to play through partnerships than directly, since these areas are far from travel companies’ core capabilities. For example, United Airlines in the US and EasyJet in Europe have partnered with Jumio, a company whose technology lets customers use their mobile devices to scan their passports to check in for international flights. Suppliers looking to develop or access such new capabilities will need to employ new models, such as taking an agile approach that recognizes failures early, learns from them, and moves on; partnering with others, including, potentially, intermediaries and competitors; investing in a portfolio of start-ups; and acquiring young companies with key capabilities. (See “An Interview with the Executive Chairman of Surf Air.”)

Three Trends Will Shape Future Innovation

Our research into travel investment and innovation surfaced three key trends, each of which has big implications for current travel companies. First, the pace of travel innovation, already fast, is likely to accelerate. Innovation cycles in travel are short and getting shorter as new ideas rapidly find (or fail to find) markets, winners mature (and often are sold), and others pivot or move on. Think about OTAs such as Orbitz, Travelocity, and Priceline in the first few years of the 2000s and tools such as metasearch a bit later. In each case, the winners were quick to establish themselves, the losers to get consolidated, and investors to move their capital on to the next opportunity. Peer-to peer (P2P) companies such as Airbnb are hot now, but one can already see the P2P concept beginning to mature. (See Exhibit 1.) Any established travel company looking to participate in innovation by partnering, investing, or acquiring must be agile—with resources, teams, and decision-making processes that allow for rapid action.

Second, despite the investment attention that the travel sector attracts—and the number of start-ups it spawns—there is still plenty of opportunity for innovation. On the basis of extensive analysis of funding for travel start-ups over the past decade, we see limited investment in a number of areas that many consider high potential. One is personalization of travel—providing customers with the ability to customize their travel itineraries more easily. We expect that new inspiration and booking sites will marry data with predictive analytics to tailor recommendations and provide concierge-style packages. Another area is better integration across the travel journey. Back-end technology tools that are invisible to the user will improve integration across modes and providers, enabling sharing and collaboration among suppliers and creating a more integrated experience for the consumer along every step of the travel journey. Yet another area is business travel, where new tools will reshape a difficult and time-consuming booking process. Established travel companies have an opportunity to lead innovation in these areas, but history suggests that start-ups and tech companies will actually pave the way.

Third, although investment in start-up companies and ideas does take place in the travel industry today, technology companies, rather than travel suppliers, almost always take the initiative (See Exhibit 2.) Corporate investment has provided 19% of the total investments in travel start-up funding rounds in recent years. Technology companies, however, made the vast majority of these travel investments and acquisitions; we saw only a few investments by travel suppliers. There are clear opportunities for collaboration and more investment by travel players that can both learn from and shape innovation.

Where the Innovation Action Will Be

As a result of our interviews and our experience in both the travel and technology industries, we see three areas—two in leisure travel and one in business—that are ripe for innovation and disruption over the next several years: travel inspiration (the first vital phase of the travel journey), booking transparency, and unmanaged business travel. (See Exhibit 3.) The speed and extent of change in each will be determined in part by how and how much traditional travel companies, technology companies, and start-ups interact in areas such as sharing data and co-investing in shared infrastructure.

Travel Inspiration. Information distribution is shaped more by who supplies it than by what the consumer wants or needs. Consumers suffer from information overload, and they struggle to find information tailored to their preferences or needs. The CEO of one start-up said, “Inspiration is a big gap.... We all feel that TripAdvisor is for a different customer than me.”

Two-thirds of the experts we interviewed think that within ten years, consumers will be able to source their travel inspiration using tools that provide far more integrated and personalized experiences. These tools might even be aided by biometrics or virtual-reality devices that use sensors to pick up breathing patterns or heart rates to detect what individual consumers respond to, and then serve up content that’s relevant for them.

Some experts expect that the new tools will be developed by start-ups. Companies such as Gogobot and sites such as HotelMatch.me—which provide consumers with recommendations for hotels, restaurants, and activities based on input from like-minded individuals—have already begun to curate travel information tied to consumers’ preferences. WayBlazer pursues a similar idea using IBM Watson cognitive computing technology. Start-ups such as these, however, need to capture a significant share of travel search and booking in order to make money, and this model has yet to be proven.

Other experts expect consumers to source information from peers’ posts on social-media sites, such as Facebook and Instagram. They argue that the existing digital giants are most likely to develop or acquire the technology needed to provide consumers with personalized travel inspiration based on their social-media activity and other inferred preferences. The strong advantages of existing digital giants give these companies yet another big edge in this area.

From the customer’s point of view, the inspiration phase of the travel journey is critical. This is when dreams crystallize, plans form, and decisions are made. The subsequent steps are largely executional. If the tech giants (or start-ups) succeed in gaining advantage in the inspiration phase, travel providers will not only lose ownership of customers, but they will also risk commoditization of their product. The only question will be how the new players decide to monetize their advantage—by continuing to follow their current advertising model but with better targeting and higher conversion rates; by extending the advertising model to include deep links in mobile apps and other ways of tightening their influence over consumers, thus heightening their value to their corporate customers; or by actually making travel purchases on any given consumer’s behalf—at a substantial commission. The ramifications of each alternative are progressively more disruptive for travel providers.

Booking Transparency. When searching and booking travel today, consumers struggle to find information on attributes other than price, such as seat choice on an airplane or amenities at a hotel. And it is nearly impossible to know where and when to purchase travel tickets in order to get the best deal.

Efforts over the years by travel providers and others to address the transparency issue have not yielded the desired results. GDSs, OTAs, and metasearch sites and apps all have limited capabilities; they enable consumers to compare only the most basic information, such as schedule, availability, and price. Consumers are frustrated, and providers are commoditized—they are unable to put value and experience front and center in consumers’ considerations. IATA’s New Distribution Capability (NDC) initiative is the most recent attempt to address the transparency conundrum.

More than half of the experts we interviewed believe that new tools will be in place in the next ten years, giving consumers far more transparency in the booking process with respect to both price and nonprice attributes. As one start-up founder told us, “In the coming years, we will see big VC investments in search based on nonprice attributes, such as airplane seat types and configurations.”

Some predict that venture capital–backed start-ups will lead this innovation, inventing new booking ecosystems that use predictive algorithms to suggest itineraries, increase transparency on price and nonprice attributes, and provide consumers with secondary markets for selling or exchanging tickets or reservations when their plans change. We are already seeing inventive start-ups in this area, such as Routehappy, which says it seeks to build “the definitive platform to provide data, content and tools all focused on differentiation” for both consumers and travel suppliers, and Flyr, which uses data analytics to predict airfare price direction. (The jury is still out on which technologies or players will ultimately prevail.)

Other experts think that technology companies will leverage their strengths to lead in the development of new tools, with the ultimate goal of performing some functions of a travel agent and using predictive analytics to optimize the timing of bookings and offer greater flexibility to change or cancel tickets sold as nonrefundable.

Start-ups, which do not have legacy businesses or platforms to protect, are more likely to seek inventive ways to break down and combine data silos. That said, once they mature, start-ups are likely to be acquired by larger technology companies. This represents a significant potential threat to traditional travel suppliers—unless travel companies decide that they, too, want to play in this game and then back that decision with serious financial investment.

Unmanaged Business Travel. One-third of the experts we interviewed felt that new tools will reshape business travel just as profoundly as they will leisure travel in the next ten years. Unmanaged business-travel planning today is difficult and time consuming, with few, if any, search and booking tools geared for the business traveler. As one start-up CEO said, “There are more unmet needs in business travel than leisure.... Today nobody is really focusing on unmanaged travel.”

Once again, views are split: some believe that innovation will be led by venture-funded start-ups, while others believe it will be led by technology. In the former scenario, start-ups develop new tools that enable business travelers to tailor their travel experiences within price limitations, offering a choice between traditional and P2P suppliers. In the latter scenario, established companies with time-and-expense or business-software suites (such as Concur and Microsoft) build ever more convenient planning and day-of-travel tools into widely used tech platforms. The advantage generated for established technology companies by being deeply embedded with enterprises and business travelers today will be hard for others to overcome

Where Do Travel Companies Play?

The big question for travel suppliers in each of these areas, almost regardless of how innovation plays out, is what is their role going to be? Our analysis suggests that innovation will be led primarily by start-ups, digital giants, and business-software companies; absent a major change in business strategy and approach, travel suppliers and traditional travel intermediaries are unlikely to be strong innovative forces. If this is indeed the case, what actions will position suppliers and intermediaries for advantage as others innovate?

Keeping Up with the Start-Ups

We see four steps that travel companies can take to keep up with innovation and protect their share of the value chain.

First, they should focus on owning the customer, which means collecting, controlling, and building the infrastructure and partnerships to leverage as much customer data as possible. Doing this requires being part of as many customer transactions as possible, such as through innovative apps and services, even if these apps and services ultimately send business to competitors. Travel companies also need to invest deeply—more so than many have—in understanding the customer experience and unmet needs. If third-party innovations ease friction and capture part of the travel companies’ place in the value chain, then travel operators lose access to both customers and their data. Travel operators may need to collaborate with intermediaries and competitors to remove friction for customers. This will require deep, and probably new, expertise in intellectual property (IP), with a particular focus on how to share data without giving up ownership. Adopting the attacker mind-set will mean looking for cooperative data- and business-sharing models rather than trying to keep the customer inside one’s own system.

Second, travel companies need to get closer to the sources of innovation—and even participate directly or jointly with any they see as promising. They can use a variety of approaches to learn about, partner with, invest in, and even acquire innovators, working with private equity or venture capital firms to source information about start-ups. Both airlines and hotel companies have established venture labs in the past to explore innovations. Currently, EasyJet is partnering with several technology providers to experiment with the application of innovations such as virtual reality and 3-D printing.

Partnering with start-ups is a way to outsource innovation so that it does not distract a company’s own organization or require it to develop new skills or teams. The travel company also does not need to own the IP. Companies can consider making their own investments as well—but they should be prepared to take a portfolio approach because some bets will win, and others will inevitably fail.

Third, travel operators should consider strategies for engaging with the digital giants both now and in the future. Tech companies are already major forces in the industry, and they are likely to get bigger and stronger over time, especially since they have much more experience in, and are more comfortable with, taking on roles—such as start-up investor, partner, and acquirer—that travel companies often find foreign. This makes developing data and IP strategies critical for travel companies, which need to make deliberate decisions about what they will share and what they won’t.

Fourth, travel suppliers need to actively explore industry-based cooperation. IATA’s NDC is one model. Given the speed and aggressiveness of both big tech companies and start-ups, travel companies need to move quickly. Data is the critical currency of the future, and the ability to share and leverage consumer data, with appropriate safeguards, will be the key to customer engagement. We expect two models to emerge. One leads to the type of experience that Olivia enjoyed: tech companies and start-ups consolidate data at the device level (what consumers see on their smartphone screens using apps such as Facebook or our imaginary Travel Dreams), while noncooperating travel suppliers are left on the outside looking in. In the other model, several (or more) travel suppliers cooperate through a platform they create to share data at sufficient scale to solve consumers’ current frustrations and present a truly seamless experience in which the suppliers are at the center, especially in the early stages of the travel journey.

The latter vision will require investing in talent and expertise that may not be present in most travel companies today in fields such as data analytics and mobile technology. It may also require building distinct teams with nontraditional cultures within the company in order to attract technology talent that often seeks a “noncorporate” workplace. Such people are not easy to come by and such organizations are not necessarily easy to develop. A concerted effort will almost certainly require doing things differently.

In a modified version of the vision laid out at the start of this report, Olivia is assisted at each step of the travel process by smart travel companies that have found innovative ways to improve her experience. Not only do these suppliers market their products and services to her directly as she plans her trip, but they also are able to collect the data she generates at each step of the planning and travel process. They can then use this data in numerous ways to develop new products and marketing strategies tailored specially for Olivia—and they can do the same for each of the millions of people who would like to have a personalized experience like hers. In this version of the vision, Olivia looks to such companies as trusted and valued suppliers when dreaming about, planning, booking, or taking a trip—whether for pleasure or business.

The key for travel companies is to make sure that they are integral parts of the vision, however it plays out. This almost certainly means changing the way they look at the marketplace and approach the consumer. It requires playing offense as well as defense, developing new capabilities, and learning to work with others. Most of all, it means putting consumers such as Olivia first. As one start-up CEO told us, “If you act in the best interest of consumers, you will win. If you act in the best interest of your margins, you will lose.”

Acknowledgments

The authors thank the many CEOs, venture capitalists, entrepreneurs, and innovators who shared their views and perspectives during the preparation of this report. The authors also are grateful to Christian Maas, Olivia Bryant, and Ali Farahanchi for their assistance in its preparation. They thank David Duffy for his help in writing the report and Kim Plough for helping to coordinate its preparation and distribution.