6 ways consumers and fintech are changing the travel industry

January 22, 2021 10:58 AM

COVID-19’s impact on travel has been dramatic, and it has forced both consumers and travel executives to re-imagine what travel will look like going forward.

Despite the emergence of COVID-19 vaccines and aggressive vaccination rollouts, travel still remains at depressed levels, albeit not at the all-time lows of 2020.

The importance of the travel industry as an economic engine driving the global economy cannot be overstated. In the U.S. alone, the travel industry accounted for $1.6 trillion in economic output in 2017, based on data from the U.S. Department of Commerce’s National Travel and Tourism Office.

During the Winter holidays, U.S. traveler levels reached about 50% of 2019 levels, according to the Transportation Security Administration (TSA); and so far in 2021, those levels are running at about 35% of 2019 levels — a far cry from the 95%+ drop experienced in April 2020.

Since emergency use authorization of two vaccines (Pfizer/BioNTech and Moderna) by the FDA in December, along with others approved in countries such as the U.K., Germany and China, governments have rapidly moved to inoculate consumers against the COVID-19 virus that has infected almost 100 million and killed over 2 million, based on Johns Hopkins data.

The hope is that speedy vaccinations will not only eliminate the virus, but also allow economies to rebound and industries, including travel, to recover.

Consumer optimism in resuming travel in 2021 is high, as reflected in the U.S. Sentiment Study jointly produced by Longwoods International and Miles Partnership (fielded in December 16-20, 2020), which revealed that almost half (47%) of Americans would be willing to take their first trip between March and August of 2021. Only 2% of U.S. travelers reported that they had no plans to travel in 2021.

There remains a sizable minority (26%) of consumers who are undecided as to the timing of their first trip in 2021, meaning they will likely wait until the last minute to book travel plans. For companies that have variable capacity levels, such as airlines, this could work to their advantage. For organizations with fixed capacity levels, such as hotels, cruise lines and major car rental agencies, 2021 could spell a continuation of giving out consumer deals and flexible cancellation policies just to secure last minute travelers’ business.

Unlike past recessions, where travel companies could assuage consumer concerns about a depressed economy with flash sales and free companion tickets, the weight of COVID-19 fears hanging over the travel industry is much greater.

The Wave 28 Travel Sentiment Study, fielded January 6, 2021 and produced by Longwoods International and Miles Partnership, found that 46% of consumers said that COVID-19 would greatly impact their decision to travel in the next six months, compared to just 18% holding the same sentiment about the economy. The consumer sentiment about the economy greatly impacting their travel plans is down slightly from the 2020 high of 25%, which was recorded in April. In comparison, the impact of COVID-19 greatly impacting future travel plans peaked at 66% on April 8, 2020.

The Wave 28 study also found that when consumers were feeling pressured by COVID-19 to amend plans, 45% who changed their plans reduced the scope of their travel, while another 35% cancelled the trip completely. The higher level of reduction in travel plans vs. outright cancellation among travelers represents a market shift that has held steady since October 7, 2020. In the early months of the pandemic, consumers were more likely to cancel a trip outright than reduce the scope of their travel.

After months of lockdowns, self-quarantines and Zoom meetings, the first trip planned by a majority of U.S. consumers will be taken by car, at 63%, based on data from the Wave 28 Travel Sentiment Study fielded January 6, 2021 and produced by Longwoods International and Miles Partnership.

About 26% plan to drive less than 200 miles to see friends and relatives, while 15% expect to drive more than 200 miles to visit friends and relatives. Another 22% expect to take a vacation getaway as their first trip in 2021, with 12% driving less than 200 miles and 10% driving more than 200 miles.

Approximately 19% plan to take to the skies in 2021, split almost evenly between visiting friends and relatives (10%) and enjoying a vacation getaway (9%). For those daring to visit foreign lands, about 6%, one third plan to travel to Canada or Mexico while the other two thirds will visit other international destinations.

While these factors may appear to favor road trips, Airbnb has reported that consumers are also viewing travel to include relocating for remote work that may include a staycation. Airbnb also noted that while U.S. consumers often rented individual rooms or apartments pre-COVID-19, it expects in 2021 that consumers will want to book entire homes. It also expects more off-the-beaten-path stays such as cabins and cottages for 2021 trips, replacing villas and townhouses from 2020.

Not only have hotels suffered from the loss of travelers, they’ve also been impacted in how they operate as travelers return to the market due to capacity restrictions on the hotel itself, its amenities and restaurants. This is in addition to the increased expense of cleaning and deploying new technologies to both increase safety and assuage guests’ fears of contracting the virus at their properties.

The three biggest changes hotel executives made during the pandemic was to increase the frequency of cleaning their establishments at 63%, followed by retraining staff (for cleaning and guest interactions) at 57% and contactless payment options at 43%, as reflected in the Skift and Oracle Hospitality study titled “A Data Driven Look at Hospitality’s Recovery.”

Going forward in 2021, the biggest changes hotel executives are considering in response to COVID-19 is the adoption of contactless technologies, including adding contactless payments (38%), adding new digital messaging services to handle guest requests (44%), self-service check-in (42%) and enabling room locks and keys to be activated by smartphones (42%).

In 2021, half of all travel executives see a digital and touchless travel approach as the top payment-related practice to encourage travel in a post-COVID-19 environment based on data from a joint Visa, Nuvei and Edgar, Dunn & Company (EDC) study called “Redefining Travel Payments in the Post-COVID-19 Era.”

The second best choice, at 22%, was the implementation of new payment models, followed by leveraging payment analytics (12%) and then developing payment retry solutions (8%). The last issue, payment retries, may seem to be a minor irritation for consumers when a payment card fails to be processed, yet it can cost airlines and hotels significant losses as well as disruption of travel.

Over 100 airline and online travel agency executives were interviewed as part of the Visa, Nuvei and EDC report, which asked how long it would take for the travel industry to rebound post-COVID-19. Forty-one percent of executives said it would happen within two years. Another 55% said the rebound would take longer, between three and four years. Only a minority (4%) said it would take five years or more for a travel recovery to take place.

Executives in the joint Visa, Nuvei and Edgar, Dunn & Company (EDC) study listed three options that could lead to the biggest turnaround in travel – installment payments, escrow and longer reservation holds.

Installment payments, where a booking is divided into smaller payments over a fixed period of time resonated well with travel executives. However, it should be noted that in the case of a buy now/pay later, merchants typically get paid upfront (less a transactional fee) and the risk for repayment is borne by the installment loan provider. While these solutions are common for items such as Casper mattresses, Peloton exercise bikes and clothing, it’s not very common in the travel industry.

The second-most popular option executives viewed as a solution to kick-start 2021 travel was charging the customer immediately and holding the funds in escrow (28%). The escrow option is meant to assuage fears that a provider or the funds may no longer be available in case of a bankruptcy.

The third-most popular option (23%) was to provide longer reservation holds for free or a small fee. This changes the typical dynamic that forces a consumer to pay immediately to secure a seat on a plane or a room in a hotel by giving more time to finalize travel.