WTM Travel Innovation Summit Report (November 2016)

March 21, 2017 12:08 pm

TTI once again held its Winter Forum at World Travel Market as the WTM Travel Innovation Summit in Association with TTI.

Bringing innovation to market

Andy Phillipps, chairman of Reevoo, kicked off proceedings on the WTM Global Stage by examining the challenges of bringing innovation to market. Reevoo provide social content solutions to companies in travel and other sectors across 60-odd countries and in 30 languages, ‘normally at the enterprise end’. Phillipps also drew on his experience of launching five businesses, including Active Hotels, evolved into the largest online hotel booking company in Europe and was subsequently merged with Bookings BV to form the behemoth Booking.com.

‘This is a time of massive change, which makes innovation so important,’ he said, highlighting trends such as the gig economy, big data and blockchain payments, but adding: ‘Innovation is hard – if you are starting out on that path, you have to be prepared for failure.’ The statistics back up his point. In both the UK and the US, approximately 50 per cent of innovations deliver an ROI less than the initial investment at exit.

To mitigate the risk of failure, thorough research of the proposition is vital. This requires analysis of the sector, talking to professionals within the industry and customers, but trying to find out whether customers will actually pay for your product is the Holy Grail. It is difficult get such data, but in the Q&A at the end of the session, Andy had a suggestion: ‘This may be unethical, but you could set up a dummy website and see if people click on ‘Buy’ – that will give you better data … Building your proposition on customer behaviour gives you a solid foundation; basing it on what analysts see is slightly more shaky.’

When it comes to launching the product, Phillipps identified two possible approaches. The ‘managerial’ approach, where the focus is on ‘causation principles’ – i.e. identify the target market with the highest potential return, seek a position in that market to differentiate from the competition and do extensive market analysis. Conversely, the ‘entrepeneurial’ approach is rooted in ‘effectuation principles’ such as affordable loss, inducing customers into strategic partnerships and using the unexpected as a source of new opportunities.

‘With start-ups, I’ve found the entrepreneurial approach works much better,’ said Phillipps and offered a four-step guide to launch: identify the premise and the ‘critical success factors’; design the quickest and cheapest way to test that premise; ‘analyse the hell out of the data’; and finally decide whether to ‘kill or build’.

‘In travel, it is very easy to get fantastic quality user generated content,’ said Phillipps and offered an example of how Reevoo helped cottages.com to monetise that. Customer feedback, pictures and videos from their holidays are displayed on the website and you can click through to the cottage they stayed at. This dramatically increased conversions and created content that the company could spread out across the web and drive more business.

Phillipps warned that it is often very difficult to tell in the early stages of introducing an innovation ‘whether someone is being visionary or delusional’.

‘In the first six years of Active Hotels, 75 per cent of projects failed – we were technically insolvent twice and in legal conflict with critical suppliers. But we did sign up 10,000 hotels around Europe, achieve 200 per cent annual growth and a turnover of $250 million in year five. This felt absolutely chaotic at the time. But with innovation, in my opinion, if it doesn’t feel like it’s going wrong, you’re not trying hard enough.’

Phillipps signed off by quoting Winston Churchill: ‘Success is stumbling from failure to failure with no loss of enthusiasm.’

 

Freedom vs. control

Next to the podium was Regis Pezous, senior manager product innovation  at travel management company Carlson Wagonlit Travel (CWT), to discuss innovation in corporate travel. He talked about balancing the business traveller’s desire for convenience and freedom with the travel company’s need for control to keep the customer (and their data) secure and also to group their buying power to get better deals. ‘The more secure you are, the more freedom you remove, so there is a constant search for consensus between security and control,’ he said.

Travel agencies have traditionally looked to offer a ‘bundled service’ giving clients access to any type of supplier but Pezous believes that is unrealistic now: ‘There are so many new entrants in the industry and a Pandora’s Box of choice now. At CWT we try to identify the travel suppliers that will bring enough trust and control.’

To navigate the waves of disruption, CWT tries to ‘industrialise scouting’ and be proactive in identifying the right network of potential partners to address problem areas in their clients’ businesses.

‘Start small in your partnerships,’ advised Pezous, finally. ‘Try to find a minimum viable partnership because there are so many unknowns.’

 

Transformation at a traditional travel company

Summit moderator Paul Richer then introduced Dirk Tietz of travel and tourism company DER Touristik, remarking on Tietz’s relatively novel job title: ‘chief transformation officer’. ‘There are not that many chief transformation officers around,’ agreed Tietz, explaining that the role varies at different companies, but that he is in charge of digital transformation, IT, digital sales, CRM & market research and strategy and corporate development.

‘With changes in customer behaviour, technological advances and increasing competition for market share, transformation becomes mandatory for traditional travel companies,’ he argued.

Any transformation must be looked at in context though. For instance, in Germany, travel retail stores are still a very strong sales channel, accounting for 75-80 per cent of sales. DER is the retail market leader, but it is pushing digital sales too, because although Germans tend to be slower than other countries to adopt new trends they do follow eventually.

The company is working to move from a multi-channel to omni-channel approach, believing it is important to connect online and offline, and connecting to suppliers in real time is also high on the agenda.

This all has to be supported by IT, of course, and Tietz proudly introduced DER’s new reservation system Phoenix Unlimited which can handle even the most complex itineraries and specialist products. ‘The agent only has to type in what the customer wants and the system works it all out – it’s a big new USP for us.’

The new system has been implemented with Kuoni, the luxury tailor-made holiday brand DER acquired last year. Kuoni UK has also benefited for investment in the retail stores, signposting its ambition as a premium service provider. This has boosted both customer satisfaction and revenue. ‘People who come into the store choose a product that is almost 50 per cent more expensive than they choose online,’ he said.

Another key transformation initiative is growing DER’s global network of Destination Management Companies (DMC) and enhancing IT connectivity between those DMCs and tour operators to eliminate duplicated manual work. ‘To be close to the hoteliers and the customer in the destination is more important than ever for a tour operator,’ he said. ‘The trade-off between group-wide synergies versus local needs must be well managed.’

In summing up, Tietz bemoaned the difficulty of transformation at a large, traditional company like DER. ‘‘We are not a start-up, so put a lot of effort into prioritising and becoming more agile … Speed is key, so try out, learn and adapt.’

 

Whither Airbnb? The facts

Airbnb has been one of the major disrupters in the travel business of recent years, but little is known about their business. The final speaker Jeroen Oskam, is the director of Hotelschool The Hague, the only research institute to have conducted analysis of Airbnb in Europe – so far, looking at Amsterdam, Berlin, London and Madrid – and Oskam shared the revealing results.

Airbnb rarely disclose data because: one, it wants to avoid being regulated in cities; two, monopolising traveller data preserves its competitive advantage; and, three, it’s part of the company’s marketing strategy. ‘They have this mantra, “Live like a local” and we tend to believe that,’ said Oskam. ‘They do publish some studies and all have the same message – airbnb benefits cities.”

Hotelschool’s report on Amsterdam revealed exceptional demand growth of 474 per cent in 2015 and a growth forecast of 98-118% in 2016, but further digging into the data undermined some of airbnb’s claims.

For example, Airbnb says it empowers residents in poorer, peripheral neighbourhoods, but in Amsterdam its units are concentrated in the centre of the city. Airbnb’s ‘commerce with a human connection’ tagline conjures up images of staying with local families, but in all four cities studied, the vast majority of accommodation offered is entire homes or apartments and between 37.2% (Amsterdam) and 65.7% (Madrid) of all units are offered by ‘multi-listers’.

Hosts with more than ten listings are usually management companies, and this is particularly prevalent in London where 21.8% of Airbnb units were owned by hosts with more than ten listings.

Hotelschool’s conclusion is that Airbnb sharpens the socio-economic divide in cities. Far from making use of under-utilised assets, it involves reserving assets for visitors, and prices are driven up as people rent rooms to tourists rather than locals.

A big question is whether Airbnb cannibalises the hotel market. In Amsterdam, there doesn’t seem to be any evidence of that because the hotel market is still growing. ‘In London, I start to doubt,’ said Oskam, ‘because we see a decline on hotel performance and Airbnb is growing strongly’. Indeed, London saw 206 per cent demand growth in 2015, with an estimated 1.3 million visitors generating revenue of £228 million revenue.

‘We tend to generalise Airbnb,’ notes Oskam, ‘but it is varies in different cities. Amsterdam and London are alike because high hotel prices mean greater incentives for investors to buy properties and put them on Airbnb, whereas Madrid and Berlin are much cheaper and evolve differently.’ (Berlin has unsuccessfully tried to ban Airbnb, the only effect being to drive up prices as hosts protect themselves against possible fines.)

So does Airbnb offer a genuinely different experience? ‘We believe that it does in general… but the marketing helps us believe that,’ said Oskam, pointing out that Douglas Atkin, author of 2003 book The Culting of Brand is now Airbnb’s global head of community. ‘My message to hoteliers is don’t believe this mantra ‘living like a local’. Look critically at the tangible differences Airbnb offers. Recent research has shown that not everyone uses Airbnb because they want to talk to locals, but rather that they want to be independent. Others go for the cheap rates, idealism or to be surprised.’

During the concluding Q&A session, the owner of two hotels in the south of France aired her grievance about paying 20% VAT in France while Airbnb pays none. ‘The main annoyance for hotels is that they comply with the rules and Airbnb don’t,’ agrees Oskam. ‘Cities don’t have data about Airbnb so they can’t even enforce the rules even if they have them as has been seen in Berlin. In Amsterdam, Airbnb owners pay tourist tax, but if you don’t disclose the number of visitors, it’s more of a donation than a tax. ’

Hotelschool’s new data and ongoing research may help to level the playing field in future.