Views on Travel Innovation, Part 2

As I described in Part 1, broad innovations in technology have paved the way for many travel innovations.  But surely there are important non-technology factors that are shaping the future of the travel industry.   Let’s take a look at five such factors and their implications.

An Aging Population.  Demographics are like glaciers – they change slowly but are incredibly powerful.  This chart shows where we’re headed age-wise.  In about 20 years there will be more old folks than young folks out there.  Travel marketers know that these segments have very different wants and needs, but I wonder if those marketers are gearing up enough for this important trend.

Health Trumps Travel.  By itself, an aging population could be good news for the travel industry.  More people in retirement, wanting to visit the grandkids and see the world…sounds good, yes?

No.  With aging comes health issues.  Health care crowds out travel and most every other form of discretionary spending.  Consider that the health care industry in the U.S. is about four times larger than the travel industry, and that health care costs are increasing much faster than travel costs.  It’s easy to see some dire consequences for consumer travel.  Think shrinkage – in terms of  both revenues and margins.

What about business travel – will it also be affected by this crowding out effect?  Unfortunately, yes.  If  companies continue to absorb double-digit increases in health care costs, they can’t hire as many people.  Fewer employees = fewer travelers in the big picture.  And higher labor costs will put downward pressure on all other areas of corporate spend, including, and perhaps especially, travel.

Greenhouse Gases.  Like health care costs, this issue has a  negative relationship with travel spend.  The main questions are how many and how much.

How many people will come to believe that they should not travel in order to limit the amount of CO2 production, and how much will a carbon cap-and-trade policy add to the cost of an airline ticket?

Hard to guess how many people will skip trips, as so much depends on social/cultural trends and pressures.  I saw estimates three years ago about the cost impact of a cap-and-trade policy.  If memory serves, it was in the $40-220 range per U.S. domestic round trip ticket.

If that’s right, it’s alarming.  Just ask the airlines what happens to their ticket sales if they hike fares by that much (roughly 10-40%). Tickets go down, as does overall revenue. And in the case of a carbon tax,  none of those incremental “revenues” will go to the airlines.

A Techno-Centric Culture.  The younger generation swims effortlessly in today’s technology-filled waters. Just watch any group of teenagers.  They can be standing shoulder to shoulder, texting back and forth, maybe a chuckle here and there – but otherwise they are silent.

Are they learning to prefer electronic socialization?  More importantly, what are the implications for discretionary travel?  We talk about how tele- and video conferences are substitutes for travel.  Could this generation set the norm for a who-needs-travel attitude?

(In)Security.  Our industry relies on traveler confidence.  Replace confidence with fear, to any material degree, and the entire travel industry stands to suffer significantly.

Ensuring the safety of passengers is a huge task, and one that is getting more difficult by the day. Long lines and annoying procedures suppress demand for travel.  How do you balance the critical need for safety against the desire for quick and convenient security procedures?

Overall, these five factors strike me as likely to suppress demand for travel.  The challenge for our industry is to find ways to stimulate demand.  How do you do that in an industry as mature and complex as travel?  That’s where innovation comes in.  I’ll offer my views on where some opportunities are in my next post.

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One Response to Views on Travel Innovation, Part 2

  1. Pingback: Views on Travel Innovation, Part 3: What’s Needed | Gillespie's Guide to Travel+Procurement

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