Nishank Gopalkrishnan, Chief Business Officer of TUI Musement – the Tours & Activities division of TUI Group – looks at the current state of the Tours & Activities market
Rapid digitisation, strong growth, significant venture investment, strategic partnerships, market consolidation and a highly competitive landscape – I would argue that Tours & Activities (T&A) is the most exciting part of the travel sector right now.
The potential of the T&A market has long been recognised, with it being the third largest travel industry vertical after flights and hotels, but the disruptive force of the pandemic has been a real catalyst to accelerate digitalisation.
With 28% of transactions taking place online, T&A still lags behind its travel sector peers – airlines are at 99% and hotels at 78%.
However, the influence of technology on the market cannot be understated, even more so in the last eighteen months, with reservation tech companies and channel managers increasingly becoming the way forward as T&A operators manage their business amid the chaos of lockdowns and travel restrictions.
The pandemic meant reduced tour capacities and a greater focus on managing time slots, with travellers that want to spend less time in queues or at crowded booking desks – all of which prompted operators to move online and implement technology to manage their availability, demand, and to streamline operations.
Furthermore, according to a McKinsey report, in 2020 approximately 58% of customer interactions worldwide were digital – three years ahead of previous estimates.
This report looked across all industries, not just travel, but the message is very clear; there has been a major digital shift and we now have very different expectations for how we interact and consume in almost all areas of our lives, including travel.
The pandemic also saw businesses tap into a less explored part of the T&A market, as domestic experiences became a key revenue generator during 2020 and 2021.
Companies pivoted their offering; operators targeted more local customers, while T&A OTAs sourced, packaged, and marketed experiences specifically for domestic audiences in key markets, such as the UK, Germany, and US.
Demand data from two of our platforms, gotui.com and musement.com, shows the impact of the change, with the usual suspects topping destination searches in 2019 – namely France, Greece, Spain and Italy – while in 2020 every market was looking inward, driving stronger demand for local experiences.
In 2021, there has been a healthy mix of domestic and international travel, especially within Europe, likely a result of the uncertainty surrounding travel restrictions, but our view is that for some markets, demand for domestic experiences is here to stay.
In addition to how to buy and where to enjoy T&A, customers are making more conscious decisions on the types of experiences they want.
Demand for outdoor activities increased significantly during 2020 and into 2021, reflecting the desire for more outbound experiences following the lockdowns, and the perceived additional safety compared to indoor venues.
The growing responsibility that people feel for protecting the environment has also meant customers expect a more sustainable approach, and operators are proactively supporting the decentralisation of tourism through building more small-group walking tours that visit off-the-beaten-track locations and engage the local community.
Another interesting trend is how the booking windows have evolved. Experiences have always had a shorter booking window compared to other travel purchases, but we are now often seeing purchases in the last 48hrs. Delivering instant confirmation, e-vouchers and managing capacity in real time is becoming expected – often necessary.
Major OTAs and travel companies are exploring how to participate in the T&A market, either directly or via strategic partnerships with T&A specialists.
As some of the biggest travel companies in the world look to capitalise on the popularity of experiences and enhance customer loyalty, T&A continues to be an incredibly competitive marketplace, which will ultimately most benefit the traveller.
Why so much interest in Tours & Activities? Growth and a fragmented market.
Based on different analyst predictions, and taking into account varying parameters, the T&A market was said to be worth €200-€250bn in 2019, and by 2025 is set to be worth €300-€350bn, growing by around 7% year on year from 2023 onwards – this is already considering the impact of the pandemic.
The market is also heavily fragmented, which makes it attractive for technology-led players to consolidate and drive digital growth.
The fact is people want experiences, and even prior to the pandemic there was a gentle shift in how holidays were being planned, with T&A options having greater influence over the destination decision.
So, while flights and hotels will always be very important, experiences – excursions, activities and attractions – are becoming a defining element of a holiday, and a key driver of customer satisfaction and loyalty.
Want to hear more about the Tours & Activities market? Nishank is one of our keynote speakers at the upcoming Travolution European Summit, taking place on September 30th, 2021. For more information and to register click here.