Tracking Tourism: The Tourism Research Blog Archive for the ‘Future trends’ Category

I spoke recently to Ian Yeoman, formerly Scenario Planning for Visit Scotland. As Ian is in the process of taking up a position at Victoria University, New Zealand, and has recently published Tomorrow’s Tourist, it seemed a good time to catch him to get his views on where industry is heading.

Anyone who has seen Ian speak will know that he does not speak from an ivory-tower but rather in a very accessible way on what could be a dense topic. And the book is little different – it’s aimed at business and planners within the travel and tourism sector definitely not a scholarly tome designed to gather dust.

Although Ian mentioned that Scenario Planning was a little like science fiction, I don’t think we should interpret this as meaning that what he does is a flight of fantasy. On the contrary, his work is backed up by a lot of empirical research and this one of the reasons why it is worth paying attention to him.

It’s important to note that at the outset that Ian’s work concentrates on the changing nature of the traveller. While this obviously has implication for how the supply side of the industry meets that demand, his work is not about the development of the supply side per se. Instead he looks the changing picture of demands, desires, constraints and impacts that the traveller and thereby the travel industry may face.

Ian’s work offers predictions through to 2030 but this interview concentrated more on the short term issues that we could be facing. For those of you wanting to find out what happens next, you’ll just have to buy the book.

So what is changing for the traveller and what are the implications?

While it is tricky to condense the whole conversation down into a couple of lines, I’ll start by trying to do just that.

• We are moving from a world of seemingly unlimited opportunity through to a world of constraints. These drivers are largely external leading to constraints that are economic, environmental, political and moral in nature.
• The growth of tourism will not stop – although it might be slower than it has been.
• The traveller will want more in less time or with less effort – this has implications for everything from the format of events through to booking processes and the nature of breaks.

Before this becomes a shopping list of changes, lets take those points and develop them more fully.

We are entering a world of constraints

It will have escape no-one’s notice that the economy is not as robust as it once was. And, although there is still resistance in some quarters about the degree to which climate change is attributable to human activity, governments are acting to lessen its impact whatever the cause. On the home front, we notice that our disposable income doesn’t goes as far as it did, say, 18 months ago. We notice that the cost of travel is rising, both at the immediate level of our cars and at a wider level.

When Ian described this as “leaving a world of low inflation – moving to an era of constraints”, it suggests that this is not just a short term blip on a historically inevitable rate of progress but rather a longer lasting change of pace.

“The consumer is being squeezed by rising prices and falling levels of disposal incomes, as a consequence out of home expenditure will fall. In the short term, rural Scotland will feel the pinch rather than Glasgow/ Edinburgh / Aberdeen. Leisure spending will fall but business tourism in cities will remain robust in the short term. The middle classes are the market that is going to be effected the most.”

We have been in situations like this before though, most notably in the oil shocks of the 1970s. In the case of the 1974 oil shocks, the economy rebounded swiftly but the problems of the79-83 took a lot longer to recover from.

It should be noted that the constraints are not just economic but political as well as governments make move to combat climate changes and other examples of environmental degradation.

On a positive note, Ian noted that we are more fuel efficient today than in the 1970s – our cars do more miles/kilometers to the gallon/litre for example. In the medium term, he sees coal and nuclear as the only realistic players in the energy market but acknowledges that the political and environmental issues surrounding this are immense and are constraints in themselves.

However, although ‘grid’ power could be delivered through coal/nuclear energy generation, the fact still remains that the vast majority of transport in the UK is oil based which will have an impact on people’s willingness to travel longer distances by car in a time of rising prices.

Some other examples of constraining factors include:

• Environmental constraints: Some destinations start to become too hot to visit on account of climate change – the eastern and southern Mediterranean countries particularly will be challenged under this scenario. In other areas, decisions will be made to limit the number of visitors on account of their impact on a sensitive region (I suspect that Antarctica cruises might be see this)
• Moral constraints: Ostentatious luxury will be frowned upon in some travel sectors – Ian noted that there was a trend for businesses to meet in ‘misery locations’ that sent a clear message that money was being spent on doing business, not having fun.
• Cost constraints: Airlines will protect revenue by reduce capacity. Effectively, this would mean that we could go back to 1990s style prices for some of the less profitable routes.

The growth of tourism will not stop – but it might slow down

Ian discussed two scenarios - one in which demand is not constrained and one in which it is. His estimate was that under the scenario where there is no limiting factor on growth, then we could be looking at around a 3.4% rise per year leading to 1.9 international arrivals by 2030. However, in world of constraints, that growth rate would slow to 1.2-1.5% per annum, resulting in 0.8 billion fewer arrivals by the same data.

How the constraining factors affect visitors

But how will the present situation affect the travel industry? Well, I’ll detail a few of Ian’s predictions below but I think they can be summarised as, ”travellers will want more from what they can get.” This shouldn’t be immediately interpreted to mean (for example) that travellers will want 2 meals for the price of 1 as standard but rather they will want to seek travel options that enable them to do more in the time they have available to them and this has implications for the process, products, promotional and logistical aspects of the delivery of travel.

• Proximity of destination to home will rise in importance

In a post on peak oil tourism a while ago, I speculated on whether local destinations would again become popular. Ian answer suggested that local destinations would indeed become more important but probably not in the way that many of us might imagine it. 30 years ago, ‘local’ would have suggested ‘domestic’, it now suggests ‘regional’ and regional should be understood as being within a three hour travel zone. Therefore, from a UK perspective, Paris, Athens, Tunisia etc are local.

The driver behind this shift to local is that the traveller does not want to waste their precious break (or indeed their work time) travelling. If they can only afford to take 5 days break, they do not want to spend the equivalent of 2 days travelling.

This has a number of implications including:

• A rise in city breaks (but only if they offer good transport links)
• A fall in rural breaks in remote areas
• A fall in long-haul customers.

It should be noted that city status does not guarantee that an area remains attractive to potential travellers – the important thing will be its accessibility and it’s role as just one of many competing destinations. From a Scottish perspective, the ‘local’ nature of Edinburgh and Glasgow to London will be no guarantee of their status as major tourism centres when the London customer has a choice of the whole of Europe from their local airports and international rail terminals. It should also be noted that good transport links extends not only to the nearest airport to the destination but also the connection between the terminal and the end destination.

• There will be complex customer strategies of trading up and down

Although there will be a move in time of economic challenges for people to seek cheaper and better value accommodation, the picture isn’t a simple as everyone suddenly deciding that 5 star hotels are beyond their budget. Ian noted the tendency for some people to trade up – but only if they could trade up to their first choice of hotel (for example). And if this first choice were not available, then the visitor would trade down - meaning that the choice would be between Gleneagles or the local Travelodge.

This reminded me of a paragraph from a recent edition of the Wall Street Journal, discussing Walt Disney Co’s recent performance “[Chief Executive] Mr. Iger said one factor helping the company during the downturn - as opposed to previous economic slides like the one in the early 90’s - is that 75% of our hotel product is “moderately priced”or “value priced”. In 1991, over 55% of the rooms were considered “premium priced”. Our portfolio of rooms is more accessible.

The article also notes the impact of the weakness of the dollar leading to a) an influx of visitors from overseas and b) “US residents looking to avoid the high cost of travelling abroad are visiting the domestic parks instead.”

Ian said he thought that families especially were looking to trade down at the moment and that accommodation that was ‘difficult’ to book would suffer and this point is discussed more fully in the context of the next bullet point.

I found this observation about the how people trade down interesting because it obviously applies in some markets but not others. As we discovered recently, in some markets trading up is seen as a necessity as it is a hygiene/standards factor – people simply do not trust a three star in that area to be of comparative quality and so ensure that they are getting decent hotel by booking a five star.

Ian used a couple of examples to illustrate how activities re adapt themselves to a world where people are unwilling or unable to divert as much time to that activity that previously.

You see it in sporting events. In cricket the move toward the 20Twenty format (essentially a cricket match lasting about 3 hours instead of 3-5 days) reflects how people want the experience but want to be able to have it in a condensed form to fit in with their busy lifestyles.

Ian pointed to the importance of quicker booking and check-in processes as being something that issued from the same impulse – cutting down on the ‘hard’ parts of the travelling experience to maximise the pleasurable or profitable parts.

From a Scottish perspective, Ian thought that B&Bs will lose market share to budget accommodation due to their lack of ecommerce. “Only 4% of accommodation providers in Scotland operate a dynamic on line reservation system like Easyjet. Many SME’s still only have website that effectively says, “Please make a reservation and we will contact you the next day.” In today’s society the consumer won’t wait.”

Many SME’s still only have website that effectively says, “Please make a reservation and we will contact you the next day.” In today’s society the consumer won’t wait.

He also cited the City of York’s outside gallery as an example of allowing visitors access to culture ‘on the hoof.’

So who’s getting it right?

There will continue to be destinations that are approaching these challenges in the right way. Ian cited the following as examples of the right approach:

• Scotland: Scotland has invested in research and understanding its customers to an extent unrivalled by most other areas (and my own experience suggests that this is the case also).
• Vienna: Vienna (and Austria as a whole) also collects great visitor data and Vienna has a really strong emphasis on delivering quality to the MICE market.
• Las Vegas: Vegas is a hedonism hotspot and well positioned to exploit gambling opportunities coming from Asia

Additionally, some niche markets will continue to do well but other broader markets will struggle. This shouldn’t be understood as meaning just destinations but also visitor segments – for example, single people travelling in a group.

Ian’s message for operators and providers is simple. “Overall, this means that business needs to know the price elasticity of consumers - using a process of segmentation - some consumers will continue to pay a premium.” In other words, you need to know your customers inside out and really ‘up your game’ when it comes to customer intelligence as there will be people out there who will pay for good value. Obviously a lot of big players do this already but, from a personal perspective, I fear that there is a lot of the market who view the notion of understanding and identifying the tolerances and desires of distinct customer types as something akin to a science beyond their grasp and not worth attempting.

There will also be parts of the world that continue to be profitable. We suggested Canada would be a beneficiary of the fuel rise in a post a while ago and Ian added Aberdeen to this list on account of its status as the home of North Sea Oil.

So, what does this mean?

I think the thing that history tells us is that, although circumstances can look similar and indeed share similar traits, no period will be exactly like a previous period. So we will not be going forward to the past to 1974 or 1979 and here are a number of reason off the top of my head why this will be the case:

• Tourism and Travel have grown since the 1970s and so we live in under a completely different set of circumstances than those experienced at that time. Put simply, we are standing in a different place and that is not one characterized by 1970s travel levels and expectations.
• Technology plays a more integrated and personal role in the process of travel and tourism than it did in the 1970s and we can expect this to remain the case – the internet will not be ‘un-invented’ any more than commercial television was ‘un-invented’ in previous times of economic scarcity.
• The demographics are different – we are about to experience the mass retirement of the baby-boomer generation for example.
• Markets are more free now than in the 1970s

So the constraint of ‘only’ going to Milan for a break instead of a break to Vancouver will be the equivalent of someone in the 1950s only going to Blackpool instead of going to Paris

It is clear that some providers will need to fight harder for their customers. My take on it is that knowing your customer and the whole market in which you operate will be key to navigating these waters. Reading a book like Ian’s or blog like this are part of that process but understanding the customer and their trends needs to be ingrained within the tourism industry even at the smallest level. To navigate these water blind would be to immediately operate at a competitive disadvantage.

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I would just like to finish the post by thanking Ian for his time with this post and to wish him the best in his new position in New Zealand. I suspect, though, that we haven’t heard the last of him!

No longer can the Internet be viewed just as an add-on to marketing efforts - it is now an integral, critical part of travel distribution.

That was the view expressed by Diane Clarkson, Travel Industry Analysts at Jupiter Research and Bill Tancer, god of all things data at Hitwise, in this evening’s excellent webinar: Travel 2.0 Today, The Economy and the Evolving Travel Landscape.

More critically, Hitwise have found (through their clickstream analysis of internet users as they move from site to site) that traffic to the travel category of websites is actually increasing as people tighten their belts.

There has been no drop in travel website visits as fuel prices increase. People are instead researching their travel decisions more intensively online and are shifting to the online channel as they become more price sensitive.

Internet and online travel becomes more important in tough economic times.
Bill Tancer, Hitwise

Jupiter Research’s data backs this up. Their US Online Travel Consumer Survey from May ‘08 suggest that the next 12 months could see a sharp decline in travel frequency - with 39% of occasional leisure travellers and 43% of occaisional business travellers suggesting that they are planing fewer trips in the coming year. But the impact, Diane explains, is that “the Internet will increasingly become a tool as people research more intensely”.

The business implications of that are immense - while you may have cruised by on a sub-par website in good times, as things toughen up in the sector, people are looking at more websites and so it is critical you can attract and retain visitors on yours.

Bill and Diane’s webinar covered three key topics:

• The impact on travel of the economic downturn
• The impact of user generated content on travel brands and travel consumers
• The potential for travel and social network sites.

They kindly gave permission for their content to be blogged openly, which is much appreciated as it is not always the case with such industry analyst briefings. When the webinar is available online, I will add the link as its really worth a listen. In the meantime here are a few of the conclusions from their respective research efforts that really tingled some brain cells for me:

1. User generated content is used by 40% of online travel researchers

Yup, 40%. Not hardly anyone, or a bunch of geeks, or a few back packing students - but 4 out of 10 of the people researching travel. Jupiter’s US Online Travel Consumer Survey from May ‘08 found that for this 40% using user generated content, ratings were the most popular (used by 58%), followed by reviews and recommendations (49%). Next came user generated photo content (18%) and friend’s social networking websites (18%). Other travellers blogs we consulted by 12% and user generated video by 5%.

The impacts of this? Diane cited the importance of using this content regularly and systematically as a source of competitor intelligence. And as the next point will illustrate, she also highlighted the importance for the contribution of travellers to be included as part of brand strategy. Why? Because user generated content is highly trusted.

2. User generated content is nearly twice as influential as brand to accommodation researchers

User generated content is far more influential than brand or the recommendations of friends and family

After price and location, for those using ugc, reviews/ratings from other travellers was the major influence in the decision making process. 36% named it as an influential factor in their decision, compared to 21% citing brand/reputation and 14% citing that old chestnut of family/friend recommendation. (Source Jupiter as above).

Hitwise’s clickstream data shows that visits to travel user generated content have increased 40% in the year since June 2007. They also reveal (perhaps no surprises) that it is TripAdivsor that is the heavyweight, accounting for more than 75% of the Travel UGC and 2.0 market share. (IgoUgo pales into second at 9.5% and WAYN at 8.4%). Bill made the point that while standalone Travel UGC accounts for only a small fraction of travel visits online (2%), its reach and impact is in fact much wider as people engage in user generated content on traditional travel websites.

3.The Travel 2.0 heavyweights are in the mainstream research to purchase mix

With a graph to die for, Bill combined the flow of clicks from travel site to travel site, with market share of those sites. From this network map, he isolated those sites that are driving traffic to the big OTAs such as Expedia, Orbitz and Travelocity.

And a few Travel 2.0 players are having a big impact - TripAdvisor and the metasearch site Kayak and Sidestep. Metasearch, sites that search for price across muliple agency and supplier sites, before sending the search off to another site to book, are faring particularly well in these price sensitive times. Two years ago they were only used by the highly tech savvy, whereas now they are entering the mainstream as people research more intensively for the best prices.

However, what Bill’s uber-graph also shows is that outside these heavyweights, the smaller Travel 2.0 sites (from WAYN to WikiTravel) are very insular, with little cross flow of traffic and are currently outside the mainstream travel research traffic flow.

4. The social networking sites are not impacting as a travel planning resource yet

Jupiter (same source as above) found that only 8% of those online travellers who are using social networking sites do so for travel planning. 56% do not use social networks in any capacity whatsoever that relates to travel. The most common travel related uses come in the form of communication, with 23% looking at friends travel photos or videos, 22% keeping in touch while away and 19% posting photos.

Diane contrasted the high level of trust that people have in stranger generated reviews, which comes from critical mass. People can sift many reviews looking for patterns and things that resonate with them. In contrast, social networks have much lower critical mass.

Hitwise’s data has not seen significant increases in traffic being referred to travel sites from social network sites - Bill suggested that where it is appearing, it is potentially being caused by people that use their social networking site as their homepage.

And different segments and demographic profiles of travel researchers behave in different ways. The 55+ age group are more likely to use newspapers and magazines to find a new travel site that they haven;t used before, whereas younger users are more likely to use meta search. Website visitors, like travellers, can never be thought of as a single homogeneous mass.

So, thanks again to Hitwise and Jupiter Research for a great webinar and for allowing us bloggers to share their findings with the wider industry. I hope I’ve communicated some of the potential power of their data with this short round up.

Absolutely mainstream and absolutely heating up

In case anyone was doubting that the Internet is absolutely mainstream and absolutely critical to travel and tourism, here is my spring pick of statistics that I think deserve some serious attention:

1. Average UK Internet users now spend 164 minutes online each day, compared to 148 minutes spent watching TV. The research by TNS (on behalf of Google) demonstrates how profoundly consumer behaviour is changing online. The Internet is still regarded as some tourism businesses as a niche, somehow still less significant that other channels. The reality is that the Internet is absolutely mainstream and is challenging and surpassing more traditional media types.

2. Jakob Nielsen points out that only 25% of people travel through a site via a homepage - the rest use search and arrive deep in the site. This BBC article tells you more.

What is the implication of this? Well, many people imagine all their visitors arrive through the site’s front door and they design their site accordingly. Time and effort goes on improving the home page, while deeper pages are ignored.

How does your site fare in terms of navigation, clarity and usability for the 75% of people who enter down the chimney and through the windows of the site, rather than though the front door?

3. Google properties now drive 36% of all UK Internet traffic (source Hitwise).

What does this mean to you? Use your web analytics data to understand your share of traffic from Google. If it dramatically exceeds the 40% mark, you may need to look at building other sources of traffic and improving repeat visits to your site. If Google accounts for only a small proportion of your traffic, there may be a need to look at your organic search engine optimisation strategy.

4. comScore reports that in March, 221.2 million Europeans conducted 24.6 billion searches, averaging 111 searches per searcher. Searchers in Finland exhibited the heaviest search activity with 143 searchers per searcher, followed by Portugal (128 searches per searcher) and the U.K. (124 searches per searcher).

Search is critical to your business success online. But for the travel sector, search optimisation and visibility doesn’t stop at your own country activity (such as google.co.uk), as the next statistic shows.

5. comScore also showed that Google Sites account for more than 19 billion European searches conducted in March, representing 79 percent of the European search market.

“With nearly 80 percent of all searches conducted in March, Google is far and away the leading search property in Europe,” said Jack Flanagan, executive vice president of comScore. “However, we are seeing key local players show leadership in Eastern Europe where English is spoken less than in Western markets. With Russia’s online population now the fastest growing in Europe, it is likely that some of these local search engines will continue to gain traction and market share.”

6. 73.7 percent of the total U.S. Internet audience viewed online video in March 2008. comScore report that users viewed 11.5 billion online videos during the month, representing a 13-percent gain versus February and a 64-percent gain versus March 2007. Nearly 139 million U.S. Internet users watched an average of 83 videos per viewer in March.

Video is being found to drive travel and tourism conversion rates and consumers are both familiar with using it and increasingly search out accommodation, destination and activity related video as part of their travel research process. They are also uploading their own video reminiscences, which fuel future travellers’ decisions.

7. It’s not just the US that is seeing the impact of video. Hitwise reports that UK traffic to online video increased by 178 per cent between February 2007 and 2008, now accounting for one in every 45 Internet visits.

8. Competition is hotting up and so is online spend. Advertising spending online looks set to overtake spending on TV by the end of 2009 - the implication being that prices will rise as more advertisers chase the same inventory.

9. In 2008 12% (7.4million) of all mobile phone users in the UK are using mobile Internet services (source Continetal Research, on e-consultancy). Forrester Research project this will rise to 38% of mobile phone users in Western Europe by 2013.

This mobile phone based Internet activity often utilises ‘dead time’ while travelling and is associated with ‘task based’ activity such as checking train times, restaurant directions etc. Right now, those handful of sites doing mobile well are in a prime position to see the benefits in their bottom line.

10. As so many of these points suggest, the Internet is now absolutely mainstream for travel.

PhoCusWright’s latest Consumer Travel Trends Survey, due June 2008, reports that requent travellers and seasoned online buyers continue to dominate, but now the former “diehard” offline users have begun to use the Internet as their usual method for travel shopping and purchasing. PhoCusWright point out that as novice users, this majority of late adopters possesses different travel and purchase behaviours, have varying levels of online skills, requires different messaging and is demographically unique.

Is the party over?

As housing woes in the US spread around the globe and families feel the pinch from rising food prices and fuel, you could be forgiven a bit of bleak speculation that hard times lay ahead for the travel industry.

From local restaurants to major airlines, tourism related businesses are being pinched by rising costs of raw materials like food and energy. But do they also face the prospect of significantly falling demand?

So are travel plans amongst the first things to be abandoned in economic hard times?

First some good news

1. People won’t stop taking holidays altogether. The evidence suggests that as financial pressures increase, people adapt their plans rather than cancel them altogether.

As Travelmole recently reported, US travellers are “trading down, not out” They quote Peter Yesawich, CEO of analysts Ypartnership, as saying “In the next few months we will see a transformation of vacations, not cancellations.”

“Pragmatism and escapism are not mutually exclusive…. Consumers who are feeling deprived often seek solace in affordable entertainment alternatives. Beer, liquor, movies and home entertainment tend to do well in hard times.” Tuning Into The Recession Mind-Set

“Leisure travel…tends to remain fairly constant. People may alter their personal travel plans in search of more modest accommodations, but they still want to take their vacations,” said Mark Woodworth, president of PKF Hospitality Research in this Travelmole report.

The picture for business travel is somewhat different. When economic activity slows, one of the first expense items to get attention is a company’s travel budget. “Historically, we have observed a softening of corporate and group travel as the most immediate reaction to the threat of a recession. We believe this trend will repeat itself in the first half of 2008,” said Mark Woodworth, president of PKF Hospitality Research.

2. There will be winners as well as losers. Opportunities exist for those who can take an adaptive strategy, or whose services/products represent switch choices.

As Marc E. Babej and Tim Pollak write in this great article on Tuning Into The Recession Mind-Set “Affordable pleasures that aspire to premium perceptions in good times would do well to consider touting their affordability in a recessionary environment. Mid-market resorts and cruise lines, for example, should make a virtue out of being accessible escapes - all-inclusives can play predictable expense to competitive advantage.”

3. Growth is still forecast by the IATA, albeit at a slowed rate compared to previous years. “When we adjust for the impact of the leap year, passenger demand increased by 4-5% while freight was even more sluggish in the 2-3% range. Demand is still growing. But clearly we are in a different league from the 7.4% and 4.3% growth that we saw in 2007 for passenger and freight respectively. Things are slowing down,” said Giovanni Bisignani, IATA’s Director General and CEO.

The diagram below shows the IATA 2007 - 2011 traffic forecast.

Now some bad news

1. Cut backs are being made by consumers. Nearly three quarters of Britain’s more affluent households say they are planning to cut their spending this year, according to research from financial provider Axa.

They claim “72 per cent of households with a total income of £30,000 or higher will be taking steps this year to cut spending and many will be driven to radical measures as middle-class inflation, or those goods and services typically consumed by middle-income families hits 5.7 per cent. 44 per cent said they will be eating out less to cut costs, while around one in five said they would socialise less with friends (21 per cent).”

American consumers are already making changes. Travelmole reports that “More than two-thirds of respondents to the most recent survey by Ypartnership, co-authored with the Travel Industry Association, said they had downsized their trips in some way during the past six months because of personal financial concerns.”

The same article reports a survey by AIG Travel Guard found that 47% of US travellers plan to downscale their vacations to save money. More than two thirds of those polled by AIG Travel Guard said they wouldn’t reduce the number of leisure trips they take in 2008; “slightly more than half said they wouldn’t cut back on the quality. But 22% said they would eat in less expensive restaurants, and a slightly lower number said they would stick closer to home; another 16% said they would choose less expensive hotels than in the past.”

2. Anxiety is contagious. Behaviour is affected even if people are not directly under pressure themselves.

Marc E. Babej and Tim Pollak write in Tuning Into The Recession Mind-Set that “economic downturns instill anxiety. Almost no one is immune. Even people who are doing OK themselves will tread more cautiously as they see their peers cutting back on their spending or worrying about losing their jobs. What’s more, in this particular recession, even households with secure incomes will have reason to be on edge. Energy and food prices are likely to remain quite high, while the housing crisis is diminishing almost everyone’s net worth. So expect even those who aren’t really feeling a lot of pain to act as if they are.”

They also make the great point that those who are not suffering directly do not wish to cause their friends and families additional pain by flaunting conspicuous consumption.

So how do you plan for uncertain times?

Previously predictable behaviour can become much less so during an economic downturn. This makes it even more important to keep an even closer eye on market data, your business data and customer feedback.

Being aware of what is going on in as close to real time as possible, means you can be tactical and flexible. This avoids leaving you trapped in a strategy developed for a more optimistic market.

Finally, don’t bury your head in the sand. Acknowledge that downturns change consumer behaviour and realistically consider how changes in demand and consumption are likely to impact your business. This will leave you in a better position to innovate and respond to new opportunities, while others are paralysed and stagnate.

Post Summary

The party could soon be over and Peak Oil could start to radically upset our current notions of travel and tourism. As costs rise, the world will become smaller again although there will nevertheless still be opportunities.

While the full impacts of global warming and their timings continue to be debated, the effects of a post-Peak Oil world are more certain and threaten to have deeper and more immediate impacts on the travel and tourism industry.

The idea behind this post then is twofold - 1) to determine whether I’ve got a little over-excited or whether this is a genuine problem and 2) assuming it to be an issue, what will be the effects?

What is Peak Oil?

The concept of peak oil is simple - there is a finite amount of oil in the ground and we have reached (or about to reach) the peak of the supply. Hereafter, there will increasingly be less oil to meet demand.

Arguably, fossil fuels and oil especially are the key to the modern world - they make nearly everything we take for granted possible - from mechanized travel through to abundant food, plastics, heating and most modern industrial processes. A world completely without oil is the childhood world of our grandparents - a world smaller and harsher in many respects.

I’ve raised the issue of peak oil with a number of knowledgeable energy industry people over the last few years and, to be honest, never received wholly comforting answers answers. The oil industry acknowledges that peak oil is an issue - we will start to run out of oil at some point. One industry insider told me that 2008 will be the first year when supply cannot meet global demand.

The best I’ve had by way of reassurance is , “Oh well, something will come along, it always does.”

So how will this affect tourism?

This isn’t just about the cost of travelling. The modern western agricultural model, for example, depends on fertilisers which heavily use oil in their preparation. Without them, crops will be less productive, meaning that food (whether animal or vegetable) becomes more expensive. By way of another example, think about plastic, another oil based product and just think how much in your house is plastic and how integral it is to modern life. Finally, if the cost of living rises, so do the wages needed to sustain employees. This list could go on but, in summary, nearly every aspect of our lives would become more expensive in a future where there is not enough oil to satisfy demand.

This will affect travel just as much as any other sector and here are a few thoughts on how this could affect the sector.

• It puts a brake on tourism expansion

As costs start to rise, people’s ability to take more and longer holidays becomes constrained. Long haul destinations start to become luxuries instead of one choice among many.

• People choose local

I recall that when I was young, my father told me that he had to wait until he was almost 20 before he got the opportunity to travel abroad - to France, some 100 miles from where he lived. I also recall how of all my school mates when I was young, only one came from a family rich enough to afford to fly overseas - and that was to Spain, incomparably exotic at the time but now just one choice among many. The rest of us had holidays that were more local and it seems to me that this will become more likely again.

Which is possibly good news for local destinations. Anyone who grew up in a coastal town in the UK is usually surrounded by the evidence of a once thriving holiday industry that went into severe decline when local people were no longer bound by economics in having to chose the British seaside over somewhere abroad. However, if the world becomes smaller again, these areas could see a renaissance in their fortunes.

• Travel becomes less convenient

Expensive oil starts to make public transport a more appealing option - but this means that travelers will be more at the mercy of the timetables than they are presently. In the event that air travel became probitively expensive, then rail transport (in Europe anyway) could become the dominant means of long distance travel once again.

Europe still has a working legacy of good public transport (however frustrating it is in reality sometimes) - I fear that this is not the case in much of North America.

• The Curse and Benefits of Petro Tourists - or how Canada can travel the world but become too expensive to visit

Of course, some areas will benefit in the short and medium term from oil shortages. These include primarily those countries with oil reserves and which will continue to suck in money from the rest of the world. At a geopolitical level this is a serious concern as many of the countries that stand to benefit the most are often the most unstable or are (potentially) inimical to the West’s current interests.

It also means that those petro-currency nations will become increasingly expensive to visit (think Norway already) but their citizens will enjoy higher standards of living compared to many other countries.

I suspect that Canada (whose oil reserves are second only to Saudi Arabia) will fall into this category - and I think the current strength of the Canadian Dollar vs the US Dollar is propelled as much by this as any mismanagement of the US financial system. I’m sure it’s great if you’re Canadian but, from a foreign travelers perspective, it’s already cheaper for me to visit the US if I’m prepared to substitute, say, Washington State for British Columbia.

But of course there will also be opportunities for non-oil nations that are seen as good value by travelers from the oil nations of Russia, Canada and (potentially) Venezuela, Nigeria and the Middle East. People in these areas will have money to burn and I’m sure some travel operators will become adept in helping them do that.

Suggested Links

James Howard Kunstler: The Long Emergency

Wikipedia:
Peak Oil

Lincoln University, New Zealand: “NZ Government acknowledges seriousness of tourism researcher’s ‘peak oil’ claims”

VisitScotland: Scenario Planning: What if the Oil Runs Out?

We’re all doomed!

My feeling is that tourism and travel will be very different in forty years time but that it will not necessarily have continued on the growth curve we are currently used to. I think there will be a slow contraction in some areas and the current model of of tourism with its opulent abundance of choice will increasingly be a luxury.

However, there will be opportunities as well as challenges but I would be really interested to her your views on what I have written.

I’m aware that when you make guesses about how the world will be in the future, you invariably fall flat on your face. But, rather like the mid-20th century idea that we would all travel around strapped to atomic jet pack by the turn of the century, these guesses are as interesting for the way they reveal contemporary thinking as for the quaintness of their vision. So, if what I have written in baloney, I’ll be glad to have a laugh about it with you in 30 year’s time over a glass of rare Himalayan whisky served by a floating robot waiter in a geo-stationary luxury resort 100 miles above Africa.

Post Summary

Chris Anderson, author of The Long Tail, surmises that ‘free’ services will be a driver for business in the years to come. This post considers ways in which this could apply to the travel and hospitality market.

Chris Anderson, the man responsible for the idea of the Long Tail, has been at it again.

This month’s edition of Wired features an article called Free! Why $0.00 is the Future of Business which is about how items and services for which we are traditionally charged become free while as the potential to make money lies in ancillary services.

So, for example, you make your money not on the cost of a printer but instead the lifetime value of ink supplies. Or a newspaper becomes free on the internet as the increased audience enables it to earn enough from the increased advertising opportunities to cover the loss of income from people paying for a paper copy of the paper.

I have some issues with the articles conclusions but it is an interesting concept and one that is already being used within the travel and tourism industry.

Two examples:

1) Ryanair makes its money through food, drink, premium reservations - not just through seat sales. Michael O’Leary is on record as wanting to offer seats for free -and you just know he’s not doing this out of charity but because he knows there’s a workable business plan behind it.

2) Free Wifi Access in Hotels - it helps to differentiate one hotel from another but, presumably, could also be used to encourage cross subsidization of the service in other areas. For example, making WiFi access free could encourage guests to stay in their rooms and order more from the on-site catering.

Free Hotels?

When you come to think of it, there is little difference between a hotel room and a seat on a plane. Both are perishable commodities - once the fight takes off or the night is passed, there is no getting that unsold stock back. So, could we see the introduction at some point of the free hotel room?

Actually, I don’t see why not but I think it would need significant economies of scale to work - or a degree of monopoly provision to help things along. What I mean by ‘monopoly provision’ is this: if you are flying, you have little choice but to purchase water (for example) from the cabin crew if you have not planned ahead. You can’t pop out mid flight to get a cheaper bottle of water from the nearest newsagent or drugstore.

In other words, if there isn’t too much choice (as opposed to no choice) around, then there is a greater chance that you will be able to make money on incidentals. All airlines also have the appearance of a temporary monopoly for the duration of its flights in the form of a captive audience on the flights which means that they can sell advertising in the form of inflight magazines.

There’s no such thing as a free room.

So my thoughts are that this model might work in other areas of the tourism industry - but the trick is to identify those areas where choice is more restricted. Off the top of my head, I would suggest some remote rural locations might work under this model - there have been times when I have probably spent more on catering than accommodation in B and Bs in the North of Scotland because there simply isn’t any other alternatives.

Using my example, however, does raise the obvious question: “If I can charge £25 per person per night lodging and they spend £30 per person per night on meals, why should I make the room free and cut my income by £25 per night?” Well, the answer to that I guess is good old ‘price elasticity of demand’ - if the offer attracts enough new guests then it pays for the £25 per night loss.

Competing on Price and Quality?

So, in conclusion, I have reservations about this but I think that some brave tourism provider could well try this and if their business model is right then they will succeed. I have always been taught that to fight on price alone is a mug’s game unless you have deep pockets - however if you are able to fight on price and quality (in the form of meals, for example, that people will pay more for) then you perhaps have the makings of a winning combination.

Any thoughts?

Maybe it was the unexpected snow. Or perhaps the transport strike. But when Philip Wolf, CEO of travel industry analyst firm PhoCusWright, addressed the bloggers summit at ITB Berlin yesterday, he was putting his neck on the line and predicting big storms on the travel industry horizon.

A perfect storm in fact.

Not the kind featuring a wet George Clooney in a fishingboat, but a convergence of three separate stands of online behaviour and technology that look set to impact travel purchase both dramatically and profoundly.

Philip is predicting a perfect storm of search, shop and buy.

But what does he mean?

“A perfect storm is born when several events occur simultaneously which if occurring separately would be far less powerful. What we’ve identified is that the advance of search technology, online shopping and buying will lead to a whole technological revolution.”

What are these converging fronts? Search technology now means that people can find needle in haystack online. Search and user generated content are used together (and also in conjunction with other media) - people have access to so much information they can make the right travel choice accordingly.

Additionally, in a longtail environment of unlimited travel choice online, it can also now be economically viable to be the niche seller of a needle in haystack. From an Online Travel Agent, to a single small business operator - technology allows you to connect your niche, personalised product with its dream purchaser on the otherside of the world.

Purchasing habits are evolving too. While the “research online, purchase offline” is still an important search behaviour, online travel purchase has become mainstream to the extent that it no longer just represents flight and hotel sales, but also everything including costly luxury packages. More and more people contain to come online and to buy travel online - the US has already surpassed the 50% mark for online bookings and in emerging markets like India, travel is the “killer” e-commerce application.

Social media have also shifted power to the consumer. There is now a closer blurring of search, shop and buy. The process of conversing about travel, watching travel images and video, reading user reviews and sharing knowledge drives the sale process. It inspires travel decisions and influences the purchase specifics. In his presentation this morning, Tom Klein, Group President of Sabre Travel Network used the (unattributed) statistic that 75% of shoppers spend more on online travel after consulting reviews.

What does this perfect storm mean for travel and tourism businesses? Philip explains that:

“Unlike the metrological kind, this digital kind of perfect storm provides perfect opportunity. That will be provided to travel companies that exploit new technology and the momentum and they stop worrying about business model preservation. When you concentrate on trying to preserve business models instead of preserving customers, sometimes really scary things can happen.”

He predicts that as with earlier industry transformations, there will be new agents of change, new winners and losers. That may mean that the new generation of online travel firms that ousted the establishment a decade ago, will themselves then be ousted by a newer generation of firms if they fail to respond to converging customer needs with further technical innovation.

Philip adds that in these times of upheaval, it is more important than ever before to trust your instruments and consult your intelligence, but that the stage remains set to exploit opportunity everywhere is this online perfect storm.

Good news for researchers and industry analysts then?

Calling all Scottish tourism providers - we’re after your views for the 2008 Scottish e-Tourism Survey.

The survey looks at how tourism providers in Scotland are using technology and what their pain points are. The size or shape of the business doesn’t matter - we’re as interested in receiving replies from DMOs and event organizers as we are from camping sites or guides. All we ask is that you do business in Scotland and you are a tourism provider in some way - I’m afraid some public sector bodies will have to sit this one out!

When we conducted a similar survey a few years ago, we were able to discover small pockets of innovation while a lack of awareness was evident in other areas. We’re hoping that we might find a few new surprises this time round as well as some pointers to how the market is preparing for the challenges and where it might be lacking.

Let me know what you think by taking the survey. It should take about 5 minutes and, upon completion, you can register to receive a summary report when it is published as well as being entered into the draw for our Data Detective Kit.

I came across an article recently at tourismus.org (in German only) about a hotel in the South Tirol. To cut a long story short, there is a site extolling the benefits of staying in the South Tirol. The main entrance is www.urlaub-suedtirol.it and you’ll find there a full and informative page to help you book your stay in the South Tirol.

However, there is another url pointing at the site: http://sex_in_suedtirol.hotel-4-stelle-it.it/

The second link is safe to visit at work* and simply leads you back to the original URL. As a knock on effect, Google will also point you in this area should you be using search terms such as ’sex in sudtirol.’

A couple of minor observations before I launch into the bigger idea this provoked:

1) it has generated a lot of publicity for the site but does it water down or confuse the brand message?

2) do all the reports drown out the original site or are they augmenting it?

One thing the site really does fail on is its lack of ’scent’ - if you are wanting to find that perfect place for a saucy getaway, the landing page gives you no instructions on how to follow the trail and make a booking based on your criteria (this is something we’ll blog about specifically in a future post).

Mainly though I read the article in light of scenarios and trends affecting the tourism industry and wondered where this cheeky attempt at publicity actually fitted in.

On the one hand, this is little different from the something like Sandals with their ‘vacations for two people in love’ - it’s just more blatant appeal. And the ‘dirty weekend away’ is hardly a recent concept. What I’m left wondering is whether this actually fits into the themes of greater liberalism, greater hedonism and a greater emphasis on personal wellbeing - all of which are expected to become more important customer drivers.

In other words, is the ‘dirty weekend away’ is becoming respectable and repackaged as a ‘rejuvenating all-body and senses’ break?

Looking a little further down the customer lifecycle, ‘procreation vacations’ are of course a well developed concept. I think its possible this type of holiday could be a flip side of the issue of the aging (and/or shrinking) population as people look to address demographic challenges as well as taking time off from increasingly busy lives (in part caused by the need of the post-Boomer generations to support the retiring Boomers).

But lets look further ahead still. Medical tourism is a familiar concept but is it possible to imagine this medical tourism serving a rich aging population for an ‘end of life’ tourism experience?

Put simply, is there a market for people wanting to die in a nice place?

I’m not especially thinking of euthanasia here although it could be argued that this is indeed a form of medical tourism when carried out away from the patient’s home area. For example, the activities of Dignitas will probably have a small impact on the local accommodation sector.

What I’m thinking of is when people might decide that they want to come to the end of their natural life in more pleasant surroundings, such as a better climate, while others might feel the need to be in the lands of the ancestors, for example.

I probably have more questions than answers to many of these issues. For what it’s worth, I think the concept of ’sex tourism’ has a looooong way to go before being a positive term but it’s something that has always happened in reality. But I do think that the more overt marketing to ‘couples in love’ along the lines of liberated wellness will increase.

To my mind ‘procreation vacations’ will only increase as demographics bite.

And who knows about the ‘death tourism’. Like ’sex tourism’, it already happens although probably not in a way that it can be marketed as such.

My feeling is that death is mainly local/unpredictable/expensive (take your pick) and there would be considerable risk attached to this market (after all, you’ll probably expect a high number of your guests to die) meaning that the costs could be very high indeed. If it did emerge, I suspect that it might morph out of the hospice system worldwide but, as the link suggests, there are considerable hurdles to overcome.

Any thoughts?

*The URL was safe for work at the time of writing on the 21st Jan - apologies if I become responsible for the dismissal of tourism industry experts worldwide on account of the page changing!