Former Head of Google Travel Vertical Search discusses the impact of the pandemic on the travel industry, power dynamics between online travel agencies and hotels, evolution of Booking.com, and insights on SEM and marketing strategies in the digital age.
The COVID-19 pandemic caused a massive disruption in the travel industry, leading to job losses, economic setbacks, and challenges for countries heavily reliant on tourism.
Adjustments in marketing strategies amid the crisis focus on performance marketing, distribution channels, and lower CPC costs to drive risk-free bookings and adapt to changing consumer behavior.
Online travel agencies (OTA's) are likely to gain more bargaining power due to the crisis, negotiating better terms with suppliers and charging higher take rates, impacting the travel value chain structure.
Deep dives
Unprecedented Impact of COVID-19 on the Travel Industry
The COVID-19 pandemic has caused an unprecedented disruption in the travel industry, with global impact. Airlines, cruise lines, and hotels have shut down operations, leading to a complete standstill in travel. Short-term projections indicate the loss of 75 million jobs and economic losses over 2 trillion dollars in the travel and tourism industry. Countries heavily dependent on tourism, such as Greece, Italy, France, Spain, and the US, will face significant economic challenges. The magnitude and speed at which the crisis unfolded is unlike anything experienced in the past, and recovery may take up to 24 months.
Occupancy Outlook and Demand Shift
The second quarter has been completely wiped out, with no business and widespread closures. The third quarter has seen relatively stable occupancy rates, but at lower levels compared to previous years. While overall occupancy rates for July and August remain around 30%, which is relatively good given the circumstances, it falls short of previous years' benchmarks. However, there are positive signs for the fourth quarter, with some regions experiencing a pickup in bookings. Mexico and the Canary Islands, in particular, are seeing an increase in demand. The timeline for recovery to pre-crisis levels is estimated to be around 24 months after the virus is declared under control.
Change in Marketing Strategy and Spend
Due to the current situation, marketing strategies have been adjusted. Non-performance marketing has been completely halted, and the focus is now on performance marketing and distribution channels. For performance marketing, conversion-based models are being implemented, shifting from paying per click to paying only post-stay, ensuring risk-free bookings. Marketing spend is being redirected towards specific platforms and messaging that aligns with the changing times. CPC costs have decreased, presenting an opportunity for generating new bookings. However, the challenge lies in balancing lower traffic and conversion rates due to uncertainty and potential future cancellations.
Bargaining Power and Intermediaries
The COVID disruption is expected to increase the bargaining power of intermediaries, particularly online travel agencies (OTA's). Historically, OTA's have been successful in gaining market share during previous crises, and this time is no different. With the travel industry facing extreme challenges, OTA's are in a position to negotiate better terms with suppliers. Their ability to adapt quickly, invest in marketing, and offer flexible models puts them at an advantage. OTA's are likely to charge higher take rates as suppliers rely more on them for reaching customers and driving bookings.
Challenges of Owning Distribution as a Supplier
Transitioning from working at an OTA and Google to being a supplier brings its own set of challenges. Organizational and cultural aspects can hinder the transformation process. Many companies are still heavily dependent on distribution channels and lack a strong focus on technology. Shifting the mindset and aligning the organization towards owning distribution requires enabling people to make data-driven decisions and understanding the cost of distribution versus direct channels. This involves evaluating the profitability of different channels, measuring customer acquisition costs, and creating teams aligned with the overall strategy. Balancing direct and non-direct distribution and considering consumer preferences and needs are crucial for successful distribution ownership.
