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Will AI Plan Your Next Vacation?

by Staff

Travelers booking a vacation in Paris, a business trip to Tokyo or a family reunion in Rome will increasingly use a new tool for planning: AI-powered chatbots that churn out customized agendas and price comparisons by quickly synthesizing reviews, rates and other information across the internet.

 

As this innovation begins to change how people plan, book and navigate their trips, the travel industry could experience a significant generative AI-fueled expansion. Some online travel agencies are already using AI to improve efficiencies, manage customer reviews, personalize trip planning and offer voice-assisted booking.

 

“We picture the future of travel planning—recommendations, bookings and customer service— becoming more efficient and personalized, thanks to generative AI that streamlines the entire process,” says Alex Poon, who covers Asia internet stocks for Morgan Stanley Research.

 

In emerging markets, particularly India and China, AI capabilities should create opportunities for online travel agencies to expand the range of services they offer in a consolidated, more efficient “one stop shop.” Meanwhile, in the U.S. and Europe, competition is likely to heat up among search engines, online travel agencies and travel providers such as airlines and hotel chains.

 

Buckle Up for Turbulence

The biggest opportunities for generative AI to disrupt the travel industry should be in regions where demand for travel services is growing but travel information remains fragmented—particularly in China and India.

 

China’s travel industry grew faster than its economy, at 14% per year on average from 2009 to 2019, when it reached $1 trillion. A number of factors suggest that it can continue growing at a yearly average of 8% through 2030: These include a shift in consumer purchases from physical goods to services like travel; government support for the tourism industry; and a robust domestic travel market supporting higher prices for airfare and lodging.

 

India, meanwhile, is about 13 years behind its regional peer in domestic tourism activity, and trails in consumers’ use of online travel services by about seven years. Analysts expect India’s travel market to notch 10% growth per year on average through 2030, coinciding with a projected surge in the country’s economic growth.

 

“This backdrop suggests even more room for online travel agencies in India to accelerate growth,” says Poon. “Investments in AI should help them take a greater share of online bookings, compared with suppliers’ direct channels, pushing their market penetration to 45% over the next three years versus 37% currently.”

 

By comparison, in the U.S. and Europe, travel search is dominated by big tech companies, which are more likely to incorporate AI options into existing search functions. Morgan Stanley Research found that 37% of U.S. consumers use popular search engines to begin their travel research online, compared with 19% for the leading online travel agency. As a result, online travel agencies in these regions are more dependent on search engines to steer traffic to them.

 

In these markets, AI’s growth may trigger greater competition and overlap among search engines, online travel agencies and travel suppliers such as airlines and hotel companies. In response, travel suppliers are developing their own AI strategies to protect their most lucrative markets, as well to improve internal processes, such as revenue management and customer service. Meanwhile, hotels, lodging companies and airlines could adapt AI to enhance loyalty programs and leverage customer data to tailor offerings and encourage uptake of more services.

 

Room to Grow

Early data shows that customers who experiment with AI-powered online travel agencies are more likely to follow through with booking a trip. And the ability for AI to fine tune targeted recommendations could drive users to spend more money on those trips.

 

However, the rate of adoption of AI tools among travel suppliers and online travel agenices remains low. For instance, only about 8% of accommodation providers have used AI-powered tools, such as chatbots or dynamic pricing algorithms, and two-thirds of those surveyed said they have no plans to use AI in running their businesses, according to an industry study. 1

 

“Integrating AI into product offerings requires a significant investment, and it will need to pay off in scale and greater efficiencies,” says Poon. “This should give an advantage to leading search engine providers in developed markets and online travel agencies in emerging markets that have head starts in technology investments and infrastructure.”

 

For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full note, “Generating Your AI Itinerary,” (Jan. 30, 2024). 

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