Business Post Contributor
By Adam Aziz
In 2019, tourism was a global powerhouse, accounting for 10% of GDP, or roughly $9 trillion. After weathering the pandemic storm, we expect 2023 figures to show a full recovery to pre-COVID levels, in line with data from leading travel platforms and the World Bank. But the story doesn’t end there.
A transformative shift is underway, fuelled by evolving consumer preferences and habits, which could push tourism spending even higher to $13 trillion by 2030. Amidst this dynamic landscape, the travel tech sector is witnessing noteworthy developments. Online Travel Agencies (OTAs) are still capitalising on the shift from traditional to digital platforms, gaining a greater share of the travel and tourism market.
In more developed markets, OTAs are increasingly focusing on improving the user experience by leveraging generative AI. Companies such as Wego, MakeMyTrip, and Trip.com compete and dominate in the Middle East and Asian markets.
At the forefront, Expedia and Booking.com, major industry players, collectively command 60% of all travel bookings in the United States and Europe. This emphasis on technology underscores the industry’s commitment to innovation and adaptation in the evolving realm of travel.
While major travel companies recognise the growth potential in emerging markets like Latin America in their annual reports, the African tourism sector remains relatively underdeveloped and is seldom acknowledged. Nevertheless, Africa presents a considerable opportunity for local online travel agencies (OTAs) to establish extensive inventories on the continent, a feat challenging for non-African entities like Booking and Expedia.
Additionally, there are substantial prospects for businesses that serve as facilitators or catalysts, aiding hotels, restaurants, and leisure operators in establishing an online presence.
Curated trips and Gen AI disruption
Leading travel platforms like Booking.com are transforming into comprehensive trip-planning hubs, covering flights, accommodations, dining, car rentals, and activities. This shift towards “connected trips” is aimed at enhancing customer service and boosting retention and conversion rates, a trend also pursued by Expedia and Trip.com on a global scale. Trip.com emphasises AI’s role in curated trips as a key strategy in its annual report.
Generative AI, particularly AI-powered chatbots, plays a pivotal role in this concept. These chatbots, considering factors like budget and preferences, streamline the process of creating personalised itineraries. Currently, 20% of Google Bard users utilise AI chatbots for travel planning, with this number expected to rise as technology matures.
Why we see Africa as a significant opportunity
The case for online travel in Africa aligns with many global themes driving the online travel industry, such as increased efficiency and greater choice. However, Africa also holds unique advantages that make it an exceptionally promising market for tech companies operating in this space.
In the past three decades, Africa has experienced a remarkable surge in its middle-class population, which has now surpassed 300 million people – a threefold increase. This burgeoning middle class has the means and desire to explore their continent and the wider world and is poised to drive significant growth in the demand for travel services.
The continent’s growing and increasingly globally-minded young population will further strengthen this demand. Many countries boast a median age below 20, and populations are skyrocketing. The 2020s will see the arrival of 450 million new Africans, and by the 2040s, this number is projected to reach 550 million, constituting 40% of all global births.
The transition from offline to online is another pivotal accelerator worth noting. While online travel booking has made substantial headway worldwide, Africa still trails behind. Only 30% of travel bookings in the Middle East and Africa occur online, falling short of the global average of 50%. This gap presents a significant opportunity.
While Internet penetration in Africa stands at 36%, programmes like the World Bank’s Digital Economy Initiative for Africa will enhance Internet accessibility in the coming decade. At the same time, an ever-younger and more tech-savvy population will drive demand for online travel services. Companies facilitating the transition from offline to online travel are well-positioned to harness this immense growth potential.
Enabling travel in Africa
The opportunities in Africa’s travel industry are partly due to its unique landscape characterised by its nascent and fragmented travel market. Within this dynamic environment, two primary categories of technology companies have emerged: companies focused on aggregating inventory (OTAs) and a newer cohort dedicated to providing the digital infrastructure required to bring travel and tourism businesses online.
One common thread connecting these categories is payment processing, a pivotal component for enterprise software providers as they facilitate the transition to online operations. OTAs are venturing into the payments arena, aiming to capture transaction revenue while enhancing the user experience through a more seamless booking process. This trend extends beyond Africa and is evident globally, as the Booking.com annual report highlights.
What’s coming next in travel tech?
The global travel industry has recovered to pre-COVID levels and offers intriguing prospects for 2024 and beyond. Globally, there’s a growing consumer trend of prioritising experiences over material possessions, which could see travel’s share of GDP grow even further, especially considering rising incomes in emerging markets.
In the African market, tech companies are addressing what we refer to as “first-layer challenges.” These encompass optimising intracontinental travel, facilitating the online expansion of businesses, and broadening inventory to strengthen the network. In developed markets, these foundational issues have largely been resolved.
Nevertheless, given the rapid progress in overcoming these challenges in Africa, the increasing tech proficiency among a burgeoning younger demographic, and the trends observed in other emerging markets, we anticipate the preferences of African travellers will swiftly converge with the global trend toward curated, end-to-end travel experiences.
Africa’s next generation of travel technology companies will reap the benefits from an ever-expanding data pool as the offline-to-online transition gains momentum. Their primary focus will be to create refined digital travel products powered by artificial intelligence, all with the singular aim of enhancing the user experience to new heights.
Adam Aziz is an Analyst at DAI Magister
