Move to digital gains momentum in tours and activities sector

Barring no major disruptions, the tours, activities and attractions (TAA) sector will exceed pre-pandemic levels by 2024, with global revenue reaching $260 billion.

But the recovery will be uneven, with certain regions, channels and segments recovering faster than others.

Online travel agencies will continue to accelerate the move to digital. And with niche OTAs entering the tours and activities market, consolidation is likely on the horizon.

These predictions come from The Outlook for Travel Experiences 2019-2025, part of a joint research project by Phocuswright and Arival, a company that provides events, research and community for the “in-destination industry.”

The findings are based on desk research, online data capture, dozens of executive interviews and Arival’s industry surveys. The most recent survey was conducted in September 2022.

The TAA sector represented $253 billion in global revenue in 2019, making it the third-largest tourism sector after transportation and accommodation, according to Phocuswright and Arival.

TAA is possibly the most diverse and fragmented sector in the global tourism industry and also the least studied, the report finds. The vast majority of TAA businesses are small and micro-businesses that generate less than $250,000 a year in gross sales.

TAA’s revenue fell 78% in 2020, compared to 69% for airline passenger revenue and 46% for hotel revenue, due to the sector’s dependence on cross-border tourism and large gatherings. Although government aid in North America and Europe appeared to stave off mass closures during the pandemic, it’s unclear how many businesses survived.

But the industry’s bumpy road to comeback is underway, the study reveals.

Activities will surpass 2019 revenue in 2023, while tours and attractions will only fully recover by 2024 and 2025, respectively.

North America and Europe will account for nearly 80% of global TAA demand through 2022, before the market rebalances itself with Asia’s return next year. However, Phocuswright and Arival caution that high inflation and the ongoing conflict in Europe will likely be a drag on global economic growth - especially in Europe - well into 2023.

Since the start of the pandemic, technology and online marketplace startups in tours and activities have raised $900 million. Top fundraisers include OTAs Klook, GetYourGuide and KKday; local events and activities marketplace Fever; and booking technology provider Peek. Arival and Phocuswright anticipate that similar levels of investment will continue - if not accelerate - as the industry recovers.

Online booking surge

Online booking in TAA has traditionally lagged other sectors of travel and tourism because people simply walked up to a ticket office. However, online bookings saw a spike from just 17% of global TAA bookings in 2019 to nearly 30% by 2021, the Phocuswright and Arival report reveals.

Many software startups entered the sector to make online booking, ticketing and distribution affordable and accessible for small- and medium-size businesses.

Google launched a tours and attractions initiative - Things to Do - in 2021 and has since expanded it; this will likely drive more online discovery and bookings.

More than seven in 10 operators reported using the downtime of the pandemic to make significant investments in their websites, digital marketing and software, the study shows. Operator websites - especially attractions - benefited from pandemic-related shifts in traveler behavior and will continue to grow through 2025, according to the report.

However, tour and attraction operators may lose ground in online market share to OTAs, whose gross bookings are forecast to rise from less than $8 billion in 2019 to nearly $20 billion by 2025.

Brands equipped to capture the move to digital channels - especially mobile - will be best positioned to win in this rapidly changing marketplace, Phocuswright and Arival say.

OTAs’ growing impact

Although OTAs account for less than 5% of the global TAA market, they continue to have a major impact on how travelers discover and book experiences, and on general marketing and distribution trends. OTAs are especially well positioned to capitalize on the rapid move to online and mobile booking, the study shows.

The rapid growth of OTAs has driven operators to improve their technology and digital marketing. Many operators have recognized the potential digital threat from OTAs and have increased investment in their own direct marketing capabilities, Phocuswright and Arival conclude.

As with the hotel industry in the mid-2000s, operators are increasingly concerned about the control OTAs have over the supplier relationship. Rising commissions, added fees and changes in terms have led to strained relationships between OTAs and some operators, Phocuswright and Arival find.

Startups are stepping in to fill gaps in distribution in key market segments or geographies that are underserved by global brands, the report reveals. Phocuswright and Arival predict that the consolidation of OTAs is likely in the next few years as the travel industry rebounds.

Earlier this month, Booking Holdings-owned OTA Priceline expanded into the tours and activities market with the launch of Priceline Experiences.

Earlier this year, Merlin Entertainments, operator of Legoland theme parks, Sea Life aquariums and other attractions, partnered with Oracle to deploy its point-of-sale and hospitality technology to improve the guest experience throughout Merlin's 130 attractions in 25 countries.