Every penny counts: affordability of a family vacation and the role of digital platforms
In a span of three years (2019–2021), travelers keep $158B of hard-earned cash in their pockets — thanks to online travel agencies like Booking.com. This is how.
Can you imagine a world without OTAs (online travel agencies)?
Well, we commissioned Oxford Economics to do just that — to quantify the impact of digital platforms on the travel and tourism sector. Researchers compared two models, a baseline case that captured actual prices between 2019 and 2021 and an imaginary world where OTAs didn’t exist. This independent research project selected individual countries based on data availability, representativeness, and overall size of the tourism market.
Between 2019 and 2021, cumulative consumer savings in the 27 individual countries in Europe, APAC, and North America totaled $158 billion. We calculated total savings by multiplying the number of room nights per country and the savings to the average daily rate, a key industry price metric.
Given the sheer size of the U.S. market, travelers there reaped the most savings from OTAs, $49.8 billion for the period of 2019 to 2021. However, if you were to count the 17 European countries together as one bloc, their three-year total comes out ahead at $69.4 billion.
More Bookings, More Savings
The more rooms booked through OTAs in a given market, the greater the overall savings.
For example, in Europe, during 2019 to 2021, OTAs accounted for 23.7% of room-nights booked, which translated into a $9.94 average reduction per night. In Asia, where only 12.8% of rooms were booked via OTAs, prices fell by $4.00 a night on average.
Macroeconomic Impacts
Consumers weren’t the only beneficiaries of the online-travel-agency effect. In addition to the estimated $158 billion in consumer savings, there was also a significant impact on a country’s GDP. Between 2019 and 2021, $51.4 billion, $23.8 billion, and $41.2 billion accrued to European, Asian, and North American economies.
At the same time, OTAs were responsible for significant job creation, nearly one million in the eight Asian countries included in the analysis during 2019 alone. Oxford Economics estimated those figures by looking at incremental economic activity.
Before the pandemic, decades of progress in democratising travel had helped to bring people closer together by promoting cross-cultural exchange and understanding. In 2019, 65% of Europeans made at least one trip for tourism. Yet “29% of the EU population aged 16 or over could not afford a one-week annual holiday away from home,” according to Eurostat. With the cost of living crisis being felt around the world, the affordability of leisure travel remains a persistent concern.
The Impact of the COVID-19 Pandemic
The elephant in the room here is the COVID-19 pandemic, which hit the travel industry hard as lockdowns and quarantines came down in country after country.
This drop in international travel — which is still one-fifth below 2019 levels — weakened the impact of OTAs. For example, their contribution to North American GDP fell from $19.9 billion in 2019, to $10.2 billion in 2020. Similarly, the number of incremental jobs fell from 187,000 to 99,000.
And the effect carried over into the annual consumer savings. In 2019, global savings added up to $81 billion dollars, but fell to $31 billion in 2020 before recovering somewhat to $45 billion the following year.
Choice, Transparency, and Savings
So what’s driving all this?
Ultimately, OTAs increase choice and transparency, which puts downward pressure on prices as the market for travel accommodations expands and hoteliers gain incremental sales. A more knowledgeable consumer forces greater competition, as lodgings compete to fill their rooms. What a difference a few clicks make?
This article was first published by Visual Capitalist on 7-Sep-2023
