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Reimagining Travel Distribution by Lorraine Sileo

Reimagining Travel Distribution by Lorraine Sileo


It's 3Q 2021, and nearly every narrative has a "re" in front of it - which is practically unavoidable when describing the state of travel. Businesses refocus, travelers reassess, and hope is renewed. As some of us start to envision ourselves out of the pandemic, we reexamine the past and prepare for the next go-around. As a prefix, re- means "again", or "renew" so it seems fitting as we ponder travel's sequel. After being flattened, the travel industry has been given a second chance to correct its mistakes and transcend the relics of the past. Wouldn't it be nice if we all had that chance with other things in life?

Fixing travel became a moot point when the $1.4 trillion industry had to fight for survival after the pandemic hit in March 2020. With Planes grounded, hotels shuttered, and cruise ships docked, the industry became mired in concerns about health, safety protocols, government restrictions, and obtaining loans to keep the lights on.

Addressing the friction and discord in the search-shop-buy journey - a long-term issue in the travel industry with multiple channels and devices - had to take a back seat to pay employees and navigating the present days' challenges. But the past 18 months also gave travel companies much time to shift priorities. Now, with Covid restrictions lifting in many parts of the world as more populations are vaccinated, it's time to act on those promises.

To reimagine travel means recognizing what needs fixing. Deep-rooted procedures and legacy systems still remain barriers to traveler choice. Many new solutions have been introduced, including the New Distribution Capability (NDC), paving the way for advanced forms of connectivity and merchandising, but we're not there yet. Artificial Intelligence/Machine Learning (AI/ML) is not just a daydream, but personalization - even customization - is still elusive. But why? Post pandemic, it is imperative to honor travelers' preferences for products and channels and ensure a safe, enjoyable, and efficient trip. Where do we start?


For over 40 years, since the GDSs brought automation to travel retailing, there has been a certain way of doing business. GDSs still process most third-party air bookings, but suppliers have since built their own connections that are even more dominant. Nearly 40% of the world's air travel is now purchased direct, most of that leisure and unmanaged business travel: GDSs still control much of what is sold to corporations. Among online sales, 72% are sold direct. While a direct solution serves the airlines well as a low-cost distribution channel, it does not create an ideal marketplace for travelers who need to compare options among carriers.

On the opposite end of the spectrum is hotel retailing. Here, inventory is often stored in a hotels' own property management system (PMS), relying on switches to connect to the outside world, thus creating a fragmented marketplace that easily became intermediate by online travel agencies (OTAs) in the mid-1990s. Amazingly, even with the growth of powerful OTAs, 45% of U.S. hotel room sales are still being booked the old-fashioned way - through a telephone or in-person (source - Phocuswright),

The history lesson can go on to describe distribution for cars, tours, cruises, etc, but the point is made. Each travel segment is distinct, not just in the nature of the product (e.g. fare class or room type), but in how it's stored, packaged, and sold. This has created friction and complexity in the search-shop-buy process. The result is often traveler frustration and distrust in the product and price displayed and ultimately chosen.


Did you know?

• Nearly 40% of the world's air travel is now purchased direct, most of that leisure and unmanaged business travel.

• 45% of U.S. hotel room sales are still booked the old-fashioned way - through a telephone or in-person.

• Among online air sales, 72% is sold direct.



Aside from multiple channels and disparate connections, there are two distinct markets to deal with - corporate (managed) travel and leisure travel. Each segment has its own set of rules, but they are converging, since they each dip into the same content pool. Each segment also has its own set of unique challenges that much address if travel retailing is ever to improve.

Leisure travelers perusing multiple OTAs and supplier websites are often presented with too much choice and shown multiple options that are just dollars apart. Results are limited by the inventory available on each site and sorting may be biased based on a set of factors that are motivated by the margins of the intermediary, not the customer's needs. And while air/car/hotel packages are available, 90%+ of each travel type is still sold and stored separately.

Leisure travelers always have the option of clicking in succession until they find the right combination that fits their needs. Choices may be made based on ease of use, price, convenience, schedules, amenities, and sometimes (less often than you think) brand loyalty. Corporate travelers, on the other hand, have the opposite problem, with the choices limited and preset by their organization travel program often dictating the selection of booking tool, supplier, or type of travel.


Hundreds of billions of dollars in business travel are booked within these confines. Of the $1.4 trillion travel industry (2019), roughly 20% is considered corporate travel - or $280 billion. Of course, not all of that is booked within policy. Compliance rates vary, with a recent Phocuswright survey of travel managers finding that 37% reported air compliance of 50% or less.


Hotel leakage is also a problem, with more than 30% of travelers not booking their business accommodation within the guidelines of their travel policy in 2019 (source - Business Travel News). With some much rogue (out of policy) travel, capturing data to make smarter decisions when assessing budgets or renegotiating with suppliers is still a problem as bookings are dispersed among direct-to-supplier websites/apps, OTAs, and other third-party sources, especially popular for non-air products.

Corporate booking tools are meant to eliminate the problem of disparate bookings on multiple channels, but that only works if they are 100% mandated. While there are software and systems that attempt to capture each booking and store them centrally on the backend, it is still an imperfect system on the front end. 

Besides these obvious limitations, there's more. Travelers' personal needs are often at odds with the rules set by the corporation, especially as they relate to policies around ancillaries (extra legroom, meals, lounge access) and 'bleisure' - or combination business/leisure trips. This type of travel often must be booked separately outside of corporate systems. And while managed travelers in a 2019 Phocuswright survey were generally satisfied with their corporate booking process, the majority believed that OTAs (54%) and supplier sites (60%) were easier to use and had better prices (source - Phocuswright). The same survey also found that 74% of managed travelers wanted more airline bundles at the point of sale, indicating greater demand for access to both direct and indirect channels.

While it's true that much progress has been made in bringing corporate programs into the new era, especially as it relates to the duty of care and online access to content, serious gaps still exist.


74% of corporate (managed) travelers wanted more airline bundles at the point of sale, indicating a greater demand for access to both direct and indirect channels



Modern retailing, multichannel, omnichannel - these all have nice rings to them, but what do they really mean? What would a travel distribution unicorn look like?

Forcing a traveler to use a certain channel when booking is like giving someone a menu and forcing them to order the soup. What choice? Travel doesn't always have to be a commodity. How it is distributed, packaged, and sold gives the distinction as much as the product itself - perhaps more so. An OTA might reveal a low price or package deal, while a chain website allots points. A direct airline booking might offer ancillaries unavailable through a retailer, while a corporate air booking comes with lounge access. Each product is unique not just based on its obvious attributes but the process and merchandising surrounding it. For this reason, travelers need access not just to products but to the various channels that distribute them to get true value and choice.

Obvious issues come into play when we visualize a perfected marketplace for travel. How do you gather enough data on the traveler, connect their loyalty status, point of origin, and other profile information when such records are stored on multiple sites, perhaps with different email addresses, names, or passwords? A multi-channel approach is problematic here. But an omnichannel approach is not. This is where the travel industry has fallen short. There have been many attempts, but no one has created that distinct marketplace that offers a variety of content and channels with a choice of payment solutions in a single platform. A place where the customer can see what they've purchased over time, track costs, points and plan future trips. It's not here yet because it's very hard to do - remember how convoluted the travel distribution landscape is - but certain technologies have brought us a bit closer to this ultimate solution.

We've all heard that Distribution Capability (NDC) will transform the way air travel is merchandised and sold. NDC-enabled direct connects allow carriers to basically create their own storefront to display all their seats and ancillaries for sale. It sounds simple enough, but the NDC standard has had slow uptake because it disrupts old business models. The pandemic slowed momentum too. Despite the rocky start, most major airlines now have NDC capability. Travel retailers, intermediaries, and IT providers can use NDC APIs to create new, one-stop-shop marketplaces for selling and cross-selling a variety of products and services, often bypassing the GDS. Now airlines can offer direct communications and services to travelers in a real-time, multi-channel environment.

Personalization continues to be an elusive challenge, and AI/ML technology relies on quality data to do its job well. The technology that exists to track consumer shopping and buying behavior is heavily fragmented and not always inclusive of direct sales. A true marketplace at scale can collect enough history in terms of searches, transactions, and changes and make the connections needed for better decision-making. Why do people look and not book? What attracts business travelers vs. leisure travelers and soon. In an omnichannel environment, the AI layer now has the entire ecosystem to work with – direct and indirect, leisure and business, private and public. Finally, there can be personalized offers and services based on a greater set of data where travelers are in control and can choose options based on value and price.


Now three things can happen when we build a new platform that offers access to all channels under one account and user display:

• The traveler has more confidence in their choices because they see fares/rates from all possible channels.

• Travel managers gain full reporting visibility for all purchases to make more informed policy decisions.

• Suppliers capture demand for their direct connect solutions and merchandising capabilities and maintain their customer relationships.


Building this new marketplace will require effort from all parts of the travel ecosystem. Many events must align: Suppliers adopting NDC, third parties building APIs, travel managers and other corporate stakeholders loosening policies and of course, travelers embracing a new and better user interface.



Lorraine Sileo is a travel industry specialist and Founder of Phocuswright's Research practice. She has tracked the 20+ year rise in digital disruption in travel and other industries, providing insights, forecasts, opinions, and fact-based research. As a writer, speaker, and independent analyst, Lorraine continues to probe industry trends and consumer behavior as the market evolves. Find out more on her LinkedIn page here.