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Justification of the research

The «new tourism»

The level of disruption caused by the COVID-19 pandemic has been much more severe than that of previous crises (e.g. SARS or the 2008-2009 financial crisis) and has led to fundamental changes in the travel industry worldwide. COVID-19 has undoubtedly been a game-changer in all sectors of the economy, but its effect on the tourism sector has been truly significant (Koch et al., 2020). The global health crisis has caused governments across Europe to face a public health emergency, struggling to sustain their economies, and has taken a heavy toll on the tourism sector. International travel worldwide is expected to decline by more than 50% by 2020, with 2019 levels not reached until 2023 (Tourism Economics, 2020). The fundamental nature of tourism has changed, and the recovery of the sector is expected to be as gradual as the reopening of the various economies.

The expectation that pre-crisis levels of tourism demand will not recover before 2023 also offers tourism destinations the opportunity to reconfigure the industry towards one that is more sustainable, more innovative,and benefits travelers, local communities, the environment, and local economies alike. The COVID-19 crisis emerged as a universal challenge like no other, and therefore global support, collaboration, and understanding are required to mitigate the social and economic impact of the pandemic. This new situation has created challenges among the components of the tourism sector, but also new implications, forms of management, protocols, and values that will transform the tourism sector (Sharma and Nicolau, 2020).

Tourism companies have had to work against the clock to ensure the safety of their employees, customers, brand image, and cash flow. To start over, tourism companies are redesigning experiences (e.g., winery experiences, museum visits, excursions, sporting events, in-room meals, and entertainment instead of hotel facilities) to be able to offer smaller groups of tourists, outdoor activities, and/or private experiences that meet distance and social gathering restrictions as well as traveler expectations. In parallel, tourism companies have improved their cleaning procedures by adopting new standards and restricting staff. Many of them promote their hygiene certifications accredited by health expert associations. Also, tourism professionals are being trained to become «contact trackers» and obtain relevant certifications that confirm their ability to identify cases, establish a relationship and community with cases, identify their contact and stop transmission to the community.

The role of technology in the tourism industry: The arrival of smart technologies

Within this transformation, technology has played an important role in the provision of tourism services. Restaurants, hotels, airports, or public spaces are redesigning their operations to avoid contact. Mobile applications (for check-in and check-out, room keys, mobile payments, reservations, and purchases), self-service kiosks, in-room technologies, and electronic purchases at destinations (e.g., virtual reality for virtual tours of museums, attractions, and destinations), robots (for reception and concierge services), museum guides for food delivery), websites enabled with artificial intelligence, and chatbot for communication and customer services or digital payments (e.g. digital purses, PayPal, credit cards) are some examples of the incorporation of smart technologies in the tourism field. Besides, the new operating environment imposed by COVID-19 measures requires companies to adopt new technologies and applications to ensure the management of crowds and the number of people gathered in public spaces (e.g., airports, shopping centers, museums, restaurants, hotels), human disinfectants and hand disinfection equipment, applications that identify and manage people’s identity and health profiles (Sigala, 2020).

This incorporation of technology in the tourism sector had already become latent some years ago, appreciating the changes that technology brought about in the organizational management and service provision by companies and tourism destinations, as well as in the way people planned and made travel decisions (Heichelberger et al, 2020; Huang et al., 2017). The rapid spread of Internet technology has dramatically transformed the tourism industry and the customer experience. One notable application is the introduction of smart technologies by many leading retailers and service providers around the world (Inman and Nikolova, 2017; Zhang et al., 2019).

A set of technologies such as websites, personal blogs, review sites, artificial intelligence, virtual reality, big data, Internet of Things (IoT), 5G technology, robotization or blockchain, among others, have emerged as smart tourism technologies (STTs) and their effects have been perceived by all participants in the field of travel and tourism, from travel agents to other tourism providers or even tourists themselves.

In the tourism sector, smart technologies have played a fundamental role not only for the competitiveness of tourism organizations but also for the tourists’ experience. Today, the vast majority of travel and booking information and payments during the preparation phase of a trip are made through the Internet. Even during the travel period, the Internet, smartphones, and other technologies provide tourists with rich, diverse, and useful information due to easy accessibility and connection. Thus, the term smart tourism, along with the technologies associated with it, has become a common term to describe such interconnection, synchronization, and concerted use of different technologies for travel (Gretzel et al., 2015). Technological innovations bring together the full range of stakeholders in tourism service ecosystems to improve competitiveness (Huang et al., 2017).

Smart has become a word linked to the description of technological, economic, and social advances driven by technologies that rely on sensors, large data, open data, new forms of connection and information exchange (e.g., Internet of Things, RFID, and NFC), as well as the ability to infer and reason (Gretzel et al., 2015). Harrison et al. (2010) conceptualize smart as the exploitation of operational data, almost in real-time, from the real world, the integration and exchange of data, and the use of complex analysis, models, optimization, and visualization to make better operational decisions. The term has been added to smart cities to describe efforts to use technologies in innovative ways to achieve resource optimization, effective and fair governance, sustainability, and quality of life. Regarding physical infrastructure (e.g., smart home, smart factory), the aim is to blur the lines between the physical and the digital and to encourage the integration of technology. In addition to technologies (smartphones, smart cards, smart television, etc.), it describes the multifunctionality and high levels of connectivity. In the context of markets/economies (smart economy), it refers to technologies that support new forms of collaboration and value creation that lead to innovation, entrepreneurship, and competitiveness.

In the context of tourism, smart is used to describe a complex amalgamation of all of the above. There is incredible institutional support and, in some cases, even pressure to make tourism smart. In Europe, many of the smart tourism initiatives were born out of smart city projects, and as a result, smart tourism destinations are increasingly appearing on the European tourism scene. However, the focus in Europe is more on innovation and competitiveness and on the development of smart end-user applications that support enriched tourism experiences using existing data combined and processed in new ways (Lamsfus et al. 2015; Boes et al. 2015a, b). In Australia, the emphasis is on smart governance and in particular open data. What governments universally recognize is the transformative power of smart technologies, not only in terms of economic potential but also in the social and experiential dimensions.

Smart tourism: smart destinations, tourism experience and smart business

Smart tourism involves multiple components and layers of intelligence that rely on ICT. On the one hand, it refers to smart destinations, which are special cases of smart cities: they apply the principles of the smart city to urban or rural areas and take into account not only residents but also tourists in their efforts to support mobility, resource availability and allocation, sustainability and quality of life/visits. López de Ávila (2015.) defines the smart tourist destination as an innovative tourist destination, built on state-of-the-art infrastructure that guarantees the sustainable development of tourist areas, accessible to all, that facilitates the interaction of the visitor with and integration into his or her environment, increases the quality of the experience in the destination, and demonstrates the quality of life of the residents. The key aspect of smart destinations is the integration of ICTs into the physical infrastructure.

In addition to including a destination component, smart tourism is a social phenomenon that arises from the convergence of ICTs with the tourism experience (Hunter et al., 2015). The smart experience component focuses specifically on tourism experiences mediated by technology and their enhancement through personalization, context knowledge, and real-time monitoring (Buhalis and Amaranggana 2015). Neuhofer et al. (2015) identify information aggregation, ubiquitous need, and real-time synchronization as the main drivers of such smart tourism experiences. The smart tourism experience is efficient and rich in meaning. Tourists actively participate in its creation. They not only consume but also create, record, or otherwise improve the data that forms the basis of the experience. Smart tourists and their digital selves (or data bodies) use smartphones to leverage the information infrastructures provided at the destination or virtually to add value to their experiences.

Technology-enhanced tourism experiences increasingly support travelers in creating joint value at all stages of the journey. For example, ambient smart tourism is driven by several disruptive technologies. Inevitably, smart environments transform industry structures, processes, and practices, which have an impact on service innovation, strategy, management, marketing, and competitiveness of all involved (Buhalis, 2019).

Another important component of the smart tourism is the smart business, which is referred as the complex business ecosystem that creates and supports the exchange of tourism resources and the co-creation of the tourism experience. Buhalis and Amaranggana (2014) describe the business component of smart tourism as characterized by the dynamic interconnection of stakeholders, the digitization of basic business processes, and organizational agility. A distinctive aspect of this smart business component is that it includes public-private collaboration to an unusual extent and is the result of governments becoming more open and technology-focused as providers of infrastructure and data. Also, smart tourism recognizes that consumers can also create and deliver value, as well as monitor and therefore take on business or government functions.

It is important to note that smart tourism encompasses three layers through these three components: a smart information layer that aims at data collection; a smart exchange layer that supports interconnection; and a smart processing layer that deals with the analysis, visualization, integration, and smart use of data (Tu and Liu 2014).

Based on these considerations, Gretzel et al. (2015) define smart tourism as tourism supported by integrated efforts in a destination to collect and aggregate/channel data derived from the physical infrastructure, social connections, government/organizational sources, and human bodies/minds in combination with the use of advanced technologies to transform that data into on-site experiences and commercial value propositions with a clear focus on efficiency, sustainability, and experience enrichment .

The rise of direct bookings over OTAs

Hotel distribution trends in EMEA and APAC
from 2017 to 2020Published on November 17 2020

The company D-EDGE has published a new report in which it analyzes the evolution of the main marketing channels of hotels in recent years. This company has gathered information from over 3,400 hotels in Europe and 450 hotels in the Asia-Pacific region* to understand how the hotel distribution landscape is evolving. The study focuses on the last three complete years (2017 to 2019) and considering the sea change that our industry has suffered – it includes 2020 broken into three sections (see methodology section for more details).

Key findings

1- The share of Website direct revenue has seen consistent growth in both Europe and Asia-Pacific since 2017 and has accelerated in 2020 gaining a total of 10 percentage points.

2- OTAs have lost, on average, 10 percentage points of market share in Europe and Asia-Pacific from 2017 to 2020.

3- The loss in OTA market share is due to Booking.com group losing market share between 2017 and 2019, and in 2020 with Expedia losing a 60% market share loss- to the benefit of direct bookings and Booking.com group.

4- The close similarities between Europe and Asia-Pacific indicate that these trends are not isolated to European hotels or a small segment but indicate global hotel distribution tendencies.

Additional Findings

Since the lockdowns, Booking.com Group has grown to over 53% market share in Europe.
During the June to September 2020 period, the Asia-Pacific* area has shifted to 45% direct distribution making it the most important channel in the region.
In general, Asia-Pacific* hotels have a more balanced distribution mix than Europe.
Due to the pandemic, cancellation rates in 2020 have grown by 10 points on average compared to 2019.
Website direct remains the channel with the lowest cancellation rate.

Methodology

For this study, the company picked a consistent sample of D-EDGE hotel customers from 2017 to 2020 that had a consistent spread of distribution channels over the selected period.

For 2020, the company broke the year down into three phases:

Phase 1 covers January and February before the pandemic started
Phase 2 runs from March to May, which corresponds to the first wave of global lockdown
Finally, Phase 3 runs from June to September, the phase of uncertain reopenings and cautious recovery.

Distribution channel trends got upended in 2020

Although it is not statistically possible to compare market share changes from previous years to 2020, when reviewing the two periods together, and comparing the Asia Pacific* and Europe regions, indicates interesting trends that arise from the 2020 pandemic and how the findings relate to past averages.

In Phase 3 of 2020, Europe saw a surge in market share by Booking.com group – mostly at the expense of Expedia while Website Direct gained traction and became the leading channel in Asia*.

D-EDGE believes that it may be linked to the relaxed cancellation policies of Booking.com and their market position for “free Cancellations” that give them a strong position on the current market conditions. Regarding Expedia, one assumption is that their strength in Europe was very focused on bundling flights with hotels and negotiating deals. Post-lockdown, this has become a much harder sell.

Hotels in the Asia-Pacific* region have seen a similar evolution during 2020, with Website Direct becoming the primary source of online revenue, and Booking.com group remaining in a similar range. Similar to Europe, Expedia has lost the most in market share compared to previous levels.

It is important to note that as shown in the Methodology section, volumes of booking in 2020 are much lower and represent a very different demographic than previous averages. However, the average trends are of a strong interest in understanding how the recovery will play out.

OTAs dominate but grow negatively

While OTAs are experiencing a loss in market share in both Europe and Asia-Pacific*, they remain, in both markets, the dominant source of online revenue. With 63% of market share in Europe and 61% in Asia-Pacific, the similarities in both regions show a trend that is likely global.

Both regions have seen online distribution growth over the last three years. In 2019 Asia-Pacific* region saw a 35% growth in online distribution (all online channels combined) compared to 2017 (across the same hotels and distribution channels). European growth over the same period was not as fast with 17% growth from 2017 to 2019.

Looking further into the various channels, it becomes evident that website direct has been taking market share from the OTAs. This trend accelerated in 2020, which is possibly explained by the reduction in advertising by OTAs while Website Direct kept a level of online advertising. When OTAs reduce their advertising budgets, organic results for hotels rank higher in search engines resulting in sales on hotels websites.

An increase in customers desiring a direct relationship with hotels. Especially during times of uncertainty in restrictions and fast-changing regulations, guests prefer to be in direct contact with their hotels.

Website Direct: a rising second

Both Europe and Asia-Pacific have Website Direct revenue as the second-largest online revenue stream (in the Asia-Pacific region it is the largest if Booking.com group revenue is segmented) and has recorded a steady growth for several years. However, the Asia-Pacific area leads with 8 points more than Europe in 2020.

The significant growth during 2020 in Website Direct for this study can be explained in part to the fact that the study only counts D-EDGE customers for which we have continued to advertise despite the pandemic.

As also covered in our previous study of hotel advertising trends, increased advertising and optimisation of ad spendings on a larger number of channels contribute to the multiplication of revenue from Website Direct.

Website Direct revenue in Europe is quite evenly distributed across the hotel category. However, the high-end and luxury segments have a slightly higher share of Website Direct (four-star at 21% and five-star at 24%) compared to the mid-range and budget hotels (3-star at 19% and 2-star at 15%). In Asia-Pacific, the 3-star category dominates the Website Direct revenue, with 32% of their distribution.

Booking behaviour evolution

In addition to market share shifts, we looked into the booking behaviour from 2018 to 2020. For 2020 we separated the year into three phases, as explained in the Methodology section.

Hotels in Europe have a relatively stable rate and booking value, whereas Asia has seen the value drop quite substantially in 2020. This is attributed to a steep drop in the length of stay in the Asia-Pacific area, much steeper than in Europe, and probably a rate policy of lowering rates in an attempt to stimulate demand.

Lead time, on the other hand, saw a sizable shift in Europe. Moving from an average of 32 days in 2019, down to 27 in the post-lockdown phase. This pattern was observed across all booking channels. Asia-Pacific shows a very different curve and no sudden peak during the lockdown period.

Length of Stay has changed more dramatically in Asia-Pacific than in Europe. This is likely due to the nature of travel in 2020, which shifted away from tourism to necessary travel, hence the shorter time. We believe these trends are quite temporary and will change again when more certainty exists in travel.

Cancellation rates: an endless issue

Growing cancellation rates have been plaguing hotels internationally; however, the Asia-Pacific area has a much lower cancellation rate than European hotels. Due to the pandemic, we are not comparing the cancellation rates for 2020. We’re analysing the cancellation rates for 2019.

In Europe, during 2019, 25% of reservations were cancelled before arrival and that 25% of reservations represented 38% of on-the-books revenue. However, in Asia-Pacific (excluding Mainland China), a much smaller percentage is observed: 14% of reservations were cancelled over the same time period. The 14% reservations represented 25% of on-the-books revenue.

D-EDGE believes that part of the reason for the difference in cancellation rates is the travel distances in Asia-Pacific being much larger than Europe which makes travel booking and planning more important. It is also due to different cancellations practices by the OTAs in APAC. Agoda, for example had, until the COVID context, a very restrictive cancellation policy (thus a low cancellation rate), but now offers flexibility to adapt to current demand.

Distribution of cancellation rates is quite similar in both regions, with Booking.com group having the highest rate. In 2019, Booking.com Group made 100% more cancellations than Expedia or Direct in Asia-Pacific (excluding Mainland China). Despite that, it is worth noting that Booking.com group generates the most revenue for those markets. The gross reservations from the Booking.com group are so much higher than any other channel that it is intriguing to speculate how much market share they would own if their cancellation rate would be on par with the rest of the channels.

Conclusion

2020 has changed the hotel distribution market – not just the volumes which experienced record lows – but more significantly, the trends. Surprisingly, several of those shifts were already in motion before the pandemic. They were just accelerated.

OTAs losing market share in a market that has seen steady growth until 2020, shows that strategies hotels have been implementing to balance their distribution channel weights have been paying off. Even though we are entering a phase where distribution profitability will be less important than distribution volume, hotel distribution managers should remain conscious of how long it has taken them to successfully shift channels from being dominated by OTAs.

While similar in many ways, European and Asia-Pacific online distribution for hotels is evolving a little differently in the face of the 2020 pandemic. Easy cancellations have been the largest winning category in Europe while more direct relationships are becoming the biggest category in Asia-Pacific. The importance of having a strong direct channel is not to be under-estimated for the future of hotel bookings, as travellers seek clear communications and reassurance for their bookings.

Working out the balance between direct and reassuring channels, where guests know they can communicate with and manage their bookings without surprises while maintaining a fair cancellation policy and re-booking for guests, will be essential to retain as much business as possible in the foreseeable future.

Due to the current uncertain conditions around booking travel and hotels, it is more important than ever to have reassuring communications with the guests before they book and to understand their needs, preferences, and habits. We recommend hotels to invest in CRM technology and ensure they have a connected technology stack to ensure bookings, emails, past emails etc. are managed smartly.

Source: D-EDGE (2020)

Technological trends in the tourism industry

Technologies play a key role for companies and their customers in the tourism sector. These new smart technologies have the ability to increase the efficiency of business operations and improve the customer experience. To this end, it is essential that tourism-related businesses keep abreast of new travel technology trends so that they do not fall behind their competitors. Some of the most important technological trends are presented below.

Virtual Reality (VR)

One of the most promising technological trends for tourism-related businesses is the virtual recreation of a specific location. This allows them to digitally transport customers to a virtual recreation of a specific location. Thus, it offers hotels the opportunity to display their rooms, reception areas and even local tourist attractions on their website, in order to encourage reservations. Other examples could be interactive virtual maps or virtual reality hotel tours/ 360° tours to present your hotel.

Example: The world’s first Virtual Reality travel search and booking experience

Internet of Thing (IoT)

One of the most exciting emerging technology trends in travel is the Internet of Things (IoT), which involves the interconnection of everyday devices via the Internet, allowing them to transmit and receive data.

For example, IoT technology can be used in hotel rooms to provide guests with a device that connects to everything from lights, heater and air conditioning, allowing everything to be controlled from one place.

Example: Smart technology smarter airports

Augmented Reality (AR)

Augmented reality is similar to virtual reality, but involves augmenting a person’s real environment, rather than replacing it. One of the main positive points of this technological trend is that it is cheaper than virtual reality, since users only need a smartphone or a tablet device that has Internet access.

Through graphic overlays, travel service providers can greatly enhance the customer experience, providing valuable information or even pure entertainment. For example, applications can allow you to enhance photos using filters and effects. Details about local destinations can also be displayed when a customer points their smartphone to them, providing information at the exact moment it is most relevant.

Example: Augmented reality within the travel industry

Recognition Technology

Recognition technology is especially interesting because of its potential to eliminate friction from purchases and make interactions seamless. The technology itself includes fingerprint recognition, facial recognition, retinal scanning and several other biometric identifiers.

This technology is already being used in some hotels to enable fingerprint access to rooms, or to enable contactless check-in. However, it is expected that in the future this technology will allow customers to pay for meals at the hotel restaurant simply by passing through the check-out.

Example: Facial Recognition Check-in in Marriott China

Artificial Intelligence (AI)

Artificial intelligence is being used in the field of travel and tourism to facilitate and improve customer service, with chatbots that have the ability to provide quick response times to problems or queries. It is also capable of continuous learning from customer interactions.

In addition, hotels and other companies operating in the tourism industry can make use of artificial intelligence to classify data accurately and continuously. This technology allows them to draw conclusions about business performance or trends associated with customer satisfaction.

Example: Create Your Bot Booking Travel

Big Data

In tourism management, almost all successful companies employ their own data collection techniques. One of the major uses of this data is to improve personalization by using the information they collect to make specific adjustments to their offerings.

Another valuable use of the data is to analyze current business performance. In particular, hotel owners can use large amounts of data for revenue management purposes, using historical occupancy rates and past trends to better anticipate demand levels. When demand is predictable, pricing and promotion strategies can also be optimized.

Example: Big Data and predictive analysis

Robotics

Robots are used for a variety of reasons. For example, at airports, they can be used to detect hidden weapons, while some manufacturers are also using robotics to create suitcases that follow you intelligently. In addition, travel agents are using robots for pre-screening, making waiting times more productive for customers.

Example: Autonomous Security Robots

Source: REVFINE (2020)

COVID-19: Video-discussion on the current situation of the online distribution

The crisis caused by COVID-19 has mainly affected the tourism sector. The various agents involved in online distribution have been particularly affected. Below is a video in which Smart Travel News, Pablo Delgado, CEO of Mirai, Luis Hurtado de Mendoza, Senior Director, Strategic Accounts EMEA-LATAM, Expedia; and Javier Delgado, Leading Sales, marketing. distribution, data & IT, Iberostar discuss the current context of tourism distribution. In the recovery of the tourism sector, technology is of particular importance. This video is in Spanish.

Source: Smart Travel News

What is digital transformation?

The development of the Internet has revolutionized the diverse industries, emerging the concept of digital revolution. The goal of digital transformation is to increase the speed of applications and services deployment, simplify and enhance the customer experience, and provide access to more information more quickly.

There are several definitions of digital transformation stated by researchers and organizations:

Exploiting digital technologies and supporting capabilities to create a robust new digital business model (Gartner Consulting, 2019).
A radical rethinking of how an organization uses technology, people, and processes to fundamentally change business performance (Westerman, MIT 2019).
The process of using digital technologies to create new (or modify existing) business processes, culture, and customer experiences to meet changing business and market requirements (Salesforce, 2019).

Digital transformation implies new efficiencies, better customer experience, doing business differently, continual innovation and dynamic process (no end goal). An organisation should have the willingness to change. Thinking differently, strategy and customer centric are key elements to tackle digital transformation.