Tours and activities is one of the most difficult sectors of the travel industry to define and analyze. For example, just gauging the size of the sector isn’t easy. A report released this month said, “Consumers spend somewhere between $100 billion to $200 billion annually on tours and activities according to some estimates.” When estimates vary by 100% (could be $100billion, or could be $200 billion), it’s hard to view them as little more than educated guesses. However, even these rough figures make it clear the sector is huge.
These widely divergent size estimates also make it clear the tour operator and activity supplier sector must be fundamentally different from other areas of the travel industry. They tell us basic information about the sector must be ambiguous and doesn’t lend itself to easy measurement.
Compare the sector’s dollar volume estimations with global airline revenues - estimated at slightly more than $US700B for 2015. No one expects other analysts to counter that number with a differing estimate of $US1400B. The same holds true for the hotel industry. No one expects industry revenue estimates to vary by 100% as they do for the tour and activities domain. In fact, the phenomena of unreliable data and inconsistent measurement point directly to why challenges in this sector are so unique.
Why Tour & Activity Sector Challenges are Unique
Tour companies and activities suppliers (often operating as one integrated business) have a common trait which acts as a unique differentiator, separating this sector from the rest of the travel industry: they are service companies with relatively low asset requirements.
Granted, the man on the street might regard $US750K+ for a tour bus to be a rather high asset requirement, but compared to an Airbus 340, a 400 room hotel or a rental car fleet it’s quite low. This lack of significant asset requirements leads to several unique sector characteristics and challenges:
Product Variations: there’s an actual Expedia post-trip survey that asks the customer to rate the comfort of their airplane seat. What’s Expedia saying? That the economy seats on a Delta 757 are different than a United 757? The planes and their seats are commodities – expensive assets, to be sure – but indistinguishable from one another. Instead, Delta differentiates itself from United by price and flight options.
Tours & Activities suppliers aren’t tied to such expensive assets and differentiation is accomplished by essentially subjective features and service. Does the tour from London to Stonehenge include a delightful lunch, is the tour guide witty, and is the bus immaculate?
While non-commoditized travel products and services give highly focused, innovative start-ups a chance to shine and grow, it also means these products and services are unique to the vendor and non-standardized. Such wide product personalization by suppliers is a tremendous challenge to building coherent online inventories, marketing effectively to comparison-minded consumers and integrating products into travel industry distribution channels.
In contrast, the airline and accommodation sectors in the travel industry have far fewer variations in their hotel rooms and flights. This makes it much easier for them to manage inventories, market and sell online.
Face-to-face Interaction: having a highly non-standardized range of travel products and services wasn’t a challenge for the sector until recently. Until the arrival of online sales – and particularly mobile apps - the vast majority of customers waited until they arrived at their destination before making tour and activity decisions.
This meant they could talk directly to a concierge about what was important to them and get a personalized match with a tour company. Or, they could speak directly with tour & activities businesses to make the best purchase decision.
Limited Online Presence: these three sector characteristics – low asset requirements, product personalization and face-to-face transactions – combined bring out limited online presence as another unique sector challenge.
Remarkably – almost unbelievably for this point in time - industry research indicates 20% of tour operators have yet to launch a website and, of those who have, up to 40% have no online transaction capabilities. This limited online presence has two significant consequences.
Divergence from industry growth rates: offline tour operators and activities suppliers are like freshwater sailors suffering from thirst. What they require is in their midst but beyond reach. Their travel sector is large and growing. Yet, these offline companies may as well not even exist for the many travelers who seek online services.
Imagine millennials – a growing force as travel consumers – glued to their phone, tablets and laptops. How will they ever know an offline tour operator is open for business – and become customers? Until a tour company can attract online travelers and conduct online transactions, its growth rate will farther and farther behind competitors and the industry as a whole.
Sales delinked from inventory: a limited number of tour and activity businesses have the capability to create and manage an online product inventory. Of course, this inventory isn’t fluctuating physical inventory such as is seen in manufacturing companies. Its service capacity: available seats on a tour bus, open places in a guided walking tour, etc.
When face-to-face transactions were the norm, the queue at the concierge or people answering operator phones placed a practical cap on how quickly demand for available capacity – inventory – could grow. It was practical to manage capacity with simple tools.
Online volumes have no such cap, meaning that accurate tour or activity capacity can no longer be controlled by simple tools like spreadsheets. Without a dynamically managed inventory, two groups of twelve could independently book online and instantly eliminate an availability of fifteen bus seats – leaving nine unfortunate people to discover inadequate inventory management allowed the bus to become oversold.
Without the ability to keep real-time tour and service inventories, online transactions can’t be conducted with any confidence that actual capacity is being sold. Maintaining online inventories is not difficult, but it requires a real investment in technology.