Predicting the long term future of what was a $254 Billion tours, activities and attractions industry when we are all still in full-on rescue mode seems a bit foolhardy. A million operators, most of them small businesses, are focused on survival. The possible outcomes for the sector 2021-2025 are an infinity of variables. Therefore, the only thing I can predict with certainty is I will be wrong but being wrong is not a reason to not try!
Some areas I will try to address will include
- Who will be the winners and losers in the tours and activities space?
- What will be the main longest-lasting impact on tours and activities?
- What will the tours and activities startup space look like?
The whole sector is being impacted negatively at a scale that none of us forecasted or dreamt off. Different areas within the industry are experiencing different impacts, and that will make a difference on who survives and who does not and who is then in a position to thrive as we rebuild the best part of travel.
I think it is becoming pretty clear that those huge businesses who are on the stock market have already refinanced and will survive to fight another day. The asset-light OTAs of Tripadvisor, Booking Holdings and Expedia will be able to manage the crisis in the 3-12 month range. If it goes on significantly longer than that then even their reserves and ability to raise cash may be called into question. However, the main issue for this segment of the industry will be: Will they continue to be as interested in tours and activities as they were before? Pre the crisis we had already seen them reducing investment in the sector as they all discovered it was a lot more complicated and harder than they had thought. In times of crisis, you look after your core business. I expect to see changes from at least one of these OTAs with regards tours and activities. These changes could include sales of stand-alone platforms like Viator or reversals from the market altogether. Will Amazon or another digital giant take this bargain of a lifetime opportunity to get seriously involved in travel?
Get Your Guide with its large funding round again should be able to sit this out for 3-12 month and as a pure-play tours and activities OTA will be looking on at those above for any sign of them withdrawing from the market. That said it probably still has and will continue to have a higher cost of acquiring customers due to being pure tours and activities OTA and even vast sums of money can be quickly reduced by Google to get access to customers.
All of the above have the advantage of global reach so will be taking bookings in the recovery quicker than most. Also, due to this reach, they will also be able to laser target their marketing spend on what is open and what is not and what product can retail and what cannot be. This advantage and will see them gain market share from the reduced market size.
One point of caution on the above. OTA's are not that great at driving local tourism. If the market stays local driven by locals for some time the OTA's will struggle to gain those bookings. They need regional and international travel to re-start asap. Not all operators do, in fact, depending on what country you are in, there are perfectly viable local tourism business models that operators can change to rapidly. It is harder in some destinations than others. If disruption lasts at scale for 18 months plus then local wins and OTA's are not good at local!
Middle Market Operators
These operators make up about 15-20% of the supply base, and it is going to be extremely tough for them to survive in any shape that resembles what they were pre-crisis. All will not have cut what they can, and if they have not, they should have, but they will still be burning cash every month. How deep are the cash reserves? Also, how much debt are they willing to take to survive? Many who are loading up with debt need to do the calculation on does the debt work long term with 50% reduced volume? Do you need that debt now or do you need it in the future to cash flow operations when tours start moving again?
The massively fragmented and hugely diverse global operators base that is 80% plus of the industry is in many ways best equipped to deal with the crisis. Many of these operators are in the team size, 1-5 people. They can scale down and hibernate; many do not have fixed monthly costs except for salaries for founders or maybe a vehicle. Many will be able to get work outside the sector and return to tourism later. Having said that I do expect the supply base to reduce. COVID 19 will be the first real business disaster many of these operators will have faced, the scale of it will tempt many of them to return to other industries that they deem more secure in the long term than tourism. Also, the vast majority of these businesses are self-funded from savings, families and friends and the longer the crisis goes on it will be like starting a new business again, and many may just decide they are not up for it.
At this point, it is worth noting that although tours and activities are without a doubt the best part of travel the industry does not exist in isolation and without a recovery in air travel and the hospitality sectors the tours and activities industry will be a shadow of what it was in 2019. So although we are all focused on our industry, it is what happens in these two other sectors that will dictate a lot of our future. I think everyone in the whole of the travel industry agrees that the recovery will be driven local, regional and then international. The only disagreements are the timelines.
As with all industries, tours and activities are increasingly reliant on technology providers be those reservation systems, channel managers and content systems. Be in no doubt, the industry needs fantastic technology at its core, and the requirement has just got more not less. However, it is difficult to see how many of those current providers will survive with the revenue models they have versus the development and maintenance costs. The investment levels many of these companies needed, which were never easy to access have just got a lot harder. I hope that the founders and leadership teams of all the many quality technology providers are in discussions and find a way to merge and rescue the best of what is available and the best talent to develop and grow our industry technology going forward. You are needed now more than ever.
All sectors of the tours and activities industry need to consider these limiting factors.
- Government restrictions: Who can travel? Where can they go? What do they need to do to be able to fly?
- Economic Situation: Some economic forecasts are showing double-digit to a qtr reduction in countries GDP. Previous disasters were in the 1-2% GDP range for a short time. No one in travel has experienced this level of economic change
- Costs: Many are assuming travel bargains, and yes there may be in the short term but medium to longer-term travel is going to be a lot more expensive.
- Insurance: You will need it, but can you get it, and what will the cost be? Applies both to businesses and their customer's insurance is a critical cog in the future. What is the insurance price for a 60-year-old getting on a cruise ship in 2021/22? I never thought I would ever hear myself say this, but insurance is likely to be an exciting place for travel startups post COVID!
So what is different from 2019 for these operators and who will not just survive but thrive?
It may surprise many, but I do not see much change. Those operators in any of the above sectors of our industry which are:
- Digitally focused.
- Understand that their only strategic asset is their customer relationships.
- Have a balanced distribution arrangement
- Can make a profit per tour departure
- Can control costs and have a variable cost model
- Have outstanding experiences as the entry to the game
- Can adapt to a different customer base
- Can tailor their marketing to a varied customer base
- Can deal with drive and alternative accommodation as partners in an experience ecosystem
The crisis just put into hyper-speed much of what was already happening. Those operators who were on top of some of the above will grow again.
Underreported impact: I just want to mention that the biggest losers in this disaster are all those small family tourism operators in the developing world. Most of these family operators do not have digital reach. Technology is a mobile phone. They are in countries with zero safety nets. No matter how bad you are currently feeling about your business please just remember we are lucky to be dealing with this from a position of strength many sadly are not.
Short To Medium Term Focus And Opportunity For Operators
Local: My own personal focus is now 90/10 local versus international until I get better intelligence on the future global market with regards the likely restrictions which will dampen demand.
What is local? Well, my own Scotland based day and short break adventure tour operator had a domestic market of about 100-150mile radius. The population within 30 miles very rarely used us, but from 30-150 miles there was good business. I am currently focusing on my core local market now being all of Scotland 5.4m population and outer local market the rest of the UK, which is 61m population. A potential 500-mile drive market, train market and internal flight market. Domestic flights are likely to be more appealing than international for some time.
The basics of experience to market fit are essential. Some operators just need to tweak their current offerings and pricing, others have to do more significant changes. Some operators who were 100% international customer source markets, they have a massive task of not just creating suitable experiences but then getting them marketed to the right future guests.
We need to look at the rest of the travel industry to see how they recover. Learning from other sectors will help us to judge our moves. I am betting on alternative accommodations improving; first, hotels second, flights internal and regional third, long haul flights forth and cruise ships last. Yes, I have seen the data showing an increased interest in cruises in 2021, but I suspect those 60 years plus fans who are super loyal have not seen the changes to their insurance policy that are coming! I do not see international travel getting back to 2019 levels until 2025 maybe later. Local gets seriously exciting when you think in those terms! Just make sure you can handle the booking window getting really short!
The biggest winner in all of this disaster is Google Travel.
What will be the main longest-lasting impact on tours and activities?
Those operators that survive are going to be much better business people. None of us joined this industry to be business people, but the hard reality is you need to understand business. The high growth market of the last five years plus has allowed thousands of operators to enter the market with great new experiences delivering fantastic service to their guests. Still, the underlying business models were not great. Many would have struggled with a 10-20 % market contraction never mind where we are now. Therefore those that survive are going to be a lot more focused on business basics. So we should end up with a more business educated operator base.
Those operators that were not in control of their distribution all now really want to build directly to consumer businesses supplemented by OTA's and the trade rather than be majority OTA and trade. They now have time to put the foundations of direct marketing in place it will be interesting to see who does and who jumps straight back into taking any bookings from all sources. When that markets open that will be everyone as a booking from anywhere will be prized but over the medium term operators who can build more resilient businesses should do.
The type of tour and activities on offer will continue to evolve and grow. A disaster like this breeds innovation, so I expect to see a whole new range of experiences as we get back to business. Some will last the test of time others will not.
Growth is going to be available, but it will be much harder to borrow to fund growth. More sustainable business models should appear, and operators will be more focused on having as few fixed costs as possible so we will have a boom in even more freelance staff supporting operators.
Terms and conditions across the board are going to change, and customers are going to read them pre-booking. Cancellation terms are going to be front and centre of customers minds. OTA's have an advantage here, so operators need to think this through. If I ever recover my long haul expedition business, I will be at zero deposits for 2021/22. I will be using the customer's flight purchase as confirmation that they are attending.
So what will be the most significant most extended impact? Well, at its core, what we are suffering is a health-related disaster. Therefore, you have to think the most prolonged and most significant effect will change with regards to health. Customers are going to be thinking about it; destinations have to consider it, all transport and accommodation have to address it, so we are no different? Or are we? All other sectors are going to be doing things to make customers feel safer, social distancing, cleanliness, low touch services and products etc. All of this comes at a cost. Tour and activity operators are in the business of creating experiences, so when we have a global population concerned about health, I would suggest it is now time to create new experiences that address those concerns. Do remember that although it is a health-related disaster, it has rapidly become and will continue to be an economic disaster so when altering and creating new products, keep these two society drivers in mind.
What will happen in the tours and activities startup sector?
Many will think that it is crazy even to think about doing a startup in this space just now. I take the opposite view. The jungle is now neutral, and we are all startups again. Some have a little bit of advantage of past customers and digital presence, but it has never been easier for innovative startups to make a mark. The considerable marketing spends some were doing pre-disaster are not coming back soon so there will be space to find your customer product fit. Judging by the number of calls from startups I have had in the last six weeks, others are thinking the same. Raising money will be incredibly hard in this space, so being lean takes on a whole new meaning.
I hope to see startups entering who look to change the industry with a focus on the experience and sustainability of the experience. I hope not to see yet another technology layer that goes between the customer and the operator. We have enough of those already. Please can someone build Customer-Technology- Operator at scale with the technology part not being several levels deep?
I hope to see startups that can help destinations genuinely place a value on different types of tourism that they attract and what should be encouraged and what should not be. I hope to see startups that merge travel with helping the environment, the local populations and the wildlife.
Often startups in this sector are all about addressing the massive fragmentation of our industry. Well, I suspect that fragmentation will increase and that may just be a good thing if the new operators are focused on doing the right things.
Startups that focus on escaping the mad crowds that many of our tourism destinations had attracted will do well. Startups that allow people to connect with nature, themselves and improve health and wellbeing will also do well. Quality over volume, deep experience over speed. Closed borders are dangerous and help no one but when these borders open again does anyone want to just return to regular tourism? Startups that connect with people and help them answer questions about how their travel adventure will impact on the people they meet, the destinations they visit and the resources they use. Startups that can prove that they are indeed helping not just the traveller but the communities and the environments that the traveller encounters.
I think we can all see the huge challenges we have and discuss them to the cows come home but let's start thinking about and discussing the opportunities. Howe do tours and activity operators address the following.
- Local and domestic travel at scale. Can you be a local operator in many different destinations?
- How do you take the health concerns and not just do hand washing but create experiences that really minimise the concerns?
- How do you deliver the guest the most flexible booking possible?
- How does insurance play a more important part going forward that can help the guest and the operators? ( My own business disruption insurance did not like this disruption!)
- Lots of big travel companies have discovered customers really like speaking to other people when disaster strikes. How do you maximise your communication value in the future?
- Destinations, how do you communicate closer, safer, less crowded and how do you work with local operators to deliver on that?
- Virtual is here and scaling it will not disappear but how do you integrate it to enhance rather than replace?
- Has alternative transport solutions which were coming anyway coming faster and if so how can you work with them?
- What experiences will help the customers feel safer, better about themselves and be positive to all involved?
- What can you do as an operator to reduce as much risk to the customer as possible in the whole travel experience?
You, me and the rest of the World have never been so connected. This period of isolation from each other has driven even more connections all be them virtual. We will travel and meet again and have a coffee or drink a beer together. I am hoping we are not building what we built before but something much better. Something that really touches all those involved in tourism in a positive manner and minimises the negative impacts. We have been given the opportunity to do it so the only question is. Will we?