My team at the LSE were recently asked by Amadeus to deliver an independent analysis of the travel distribution industry and the disruptive factors that could potentially shape the market over the coming decade. The report’s title Travel distribution: the end of the world as we know it? goes some way to suggesting how dynamic this multi-billion marketplace is now becoming.
Travel distribution faces a range of potentially huge disruptions over the next 10 years that will significantly impact industry players and their business models.
A key factor will be the consumer revolution in the retail market – expectations for inspirational shopping, personalised services and frictionless payments – that will spill over into travel distribution. Although many in the industry are aware of change, the scale and speed of this revolution can be underestimated. Players in the travel distribution industry will need to respond with broad collaborations for aggregating, processing and harnessing the big data involved. Otherwise, the explosion of complexity and differentiation of services in the short term risks translating into a mass of confusion for the consumer.
For the industry, new capabilities such as big data analysis and artificial intelligence offer increased automation and real-time insights into consumer requests. Virtual assistants are already being integrated into mobile devices and messaging apps, directly interacting in online conversations with friends and business colleagues. Virtual reality is also likely to be a major driver of change in the industry as consumers explore destinations, get inspired and book their travel without leaving their virtual world. The growing sophistication of assistants and virtual reality will not only change consumer behaviour, but also shift greater power to those players who control the technology.
When specifically analysing how airline products are currently bought and sold we identified two future pathways.
The first sees full service carriers, particularly larger airlines with significant brand power, growing their direct sales into the medium term, especially in home markets. This dynamic is partly driven by the view of these airlines that direct distribution offers greater opportunity to differentiate their products and services under a retail model. Some also see it as an opportunity to bypass intermediaries through vertical integration.
The second foresees, perhaps conversely, that increased content, channel and technology fragmentation pushed for by some airlines will see increased complexity and actually present an opportunity for greater aggregation and indirect sales via intermediaries. Consequently, this could present opportunities for Global Distribution Systems (GDS) and other IT companies.
However these pathways develop in the future, the rise of the ‘gatekeepers’ such as Google, Facebook, Apple and Amazon will have major implications for travel. As the power of gatekeepers to acquire billions of consumers continues to grow, industry players will need to consider how and when to collaborate with them.
We hope that our analysis of the travel distribution market provides value to all players across the industry at a time of enormous potential change. I encourage you to read the full Travel distribution: the end of the world as we know it? report.