krassi simonski, market analyst, eastern europe, phocuswright at online travel 3.0 2013

A Sleeping Giant Awakens: Eastern Europe’s Online Travel Market

September 25, 2012 ATO, Moscow, Russia

Krasimir SimonskiMarket Analyst, Eastern Europe


Project Sponsors

Agent.ruAmadeus IT Group SAAmargoAnywayanyday.comAvis Budget GroupCalifornia Travel and Tourism CommissionHotel Reservation Service (HRS)Marriott International, Inc.Nabortu.ruOktogo.ruOpenJaw TechnologiesOstrovokOzon.TravelPoezdka.ruPososhok.ruTravelport Inc.TravolverV.I.P. Service


Methodology

• 100+ Executive Interviews•Travel suppliers• Intermediaries•Technology providers•Media websites

• 300+ Public Sources


Conclusions

Russia

Intermediaries

Size of the Market

Key Findings: Travel Technology

Russia and Eastern Europe: A Snapshot

AgendaMethodology

Russia and Eastern Europe Travel Market: A Snapshot and Key Findings


GDP: Western Europe has GDP almost 5x higher than Eastern Europe

Land Size: Eastern Europe is 6x size of Western Europe

Population: 40% of European citizens reside in Eastern Europe

Source: PhoCusWright’s Eastern European Online Travel Overview

A Region of Contrasts

Rural vs. urban areas: on opposite ends of technology scale

Tourism plays different roles in terms of overall economy

Variation in travel market size and stages of development

Monopoly vs. market economy: intensive redistribution in progress

Economic crisis vs. strong economic growth



PEST Analysis


• Political isolation has created intrinsic desire for travel and tourism• Political instability

makes long-term strategies for growth for travel industry hard to implement

Political

• Privatization of state industries continues to extend to tourism•Most markets now

in recovery following 2009 downturn•Growing middle

class

Economic

• Emigration of young, upwardly mobile, who lead technology adoption• Rural migration

leads to social divide – most travelers live in urban areas

Social

• Internet penetration growing rapidly, though still behind Western Europe •High-speed

Internet offered in big cities but abandoned in rural zones

Technology


Crossing the Chasm

Support for pragmatic mainstream market is under development

References to early majority market are not appealing yet

Online booking becoming popular



Inno

vato

rs

Early

Ado

pter

s

EarlyMajority

LateMajority

Lagg

ards

Tipp

ing

Poin

t

Crossing the Chasm: Online Travel Market Trends


East Europe

West Europe


Online travel is still in very early stages of development, but is growing at a substantially higher rate than both

the total travel industry and the economy!

Key Findings: Travel Technology


SoLoMo: Social, Local, Mobile!Technology is changing the travel paradigm and

landscape in Eastern Europe


Search and Metasearch: Challenges for Google

Note: *Liverinternet.ru (http://www.liveinternet.ru/stat/ru/searches.html?slice=ru) March 21, 2012Source: PhoCusWright’s Eastern European Online Travel Overview

Google is incorporating hotel content from the region

Skyscanner and Momondo are among most popular metasearch solutions

Yandex is most popular search engine in Russia, with 60% market share*

Google lacks good local content, as Eastern Europe is not a priority

http://www.liveinternet.ru/stat/ru/searches.html?slice=ru


Fragmentation Sparks Metasearch in Russia

Source: PhoCusWright Inc.

• Favorable conditions to thrive:• Low trust in e-commerce• Uncertainty in making decisions online• Price-sensitive market• Strong presence of OTAs

• Driver of growth in online bookings• Competition is high; plenty of room for redistribution• Metasearch converting users to online booking by offering trusted

solutions and helping with decision making following OTAs enabling early and mainstream technology adopters to build trust in online commerce

• Increasing use of mobile for travel related activities further metasearch’s potential


Quarterly Gross Revenue (US$M) of Leading Metasearch Sites in Russia

Source: Alexa Internet and PhoCusWright Inc.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42011 2012

0

10

20

30

40

50

60

aviasales.ruskyscanner.rumomondo.ruburuki.rujizo.ru


Social Media: Difficult to Monetize

Lack of practice to assess return of investment

Almost no working direct revenue models

VKontakte, Moi Mir, Odnoklassniki: popular social media brands

Focus on PR and brand image

Good communications tool to maintain relations with customers

Source: TNS-Aug. 2011; PhoCusWright’s Eastern European Online Travel Overview


Mobile Solutions


Mobile is used mostly pre-trip for research/planning

Smartphones generate most of mobile Internet traffic

Almost every OTA offers mobile interface or plans one soon

Last-minute travel deals are not that popular in the region

Not as typical to search for local content as in Europe or U.S.

Technology: Flash Sales/Daily Deals


Well accepted by customers of this highly price-sensitive market

Average of 30+ players in each market

Impulse buying syndrome for travel is same as Western Europe

Not well accepted by suppliers: cheapens product in consumers’ eyes

Size of the Eastern Europe Market


- 50 100 150 200 250 300

Total Travel Market Gross Bookings (US$B) by Region, 2009 & 2012

Source: PhoCusWright Inc.

Europe 2012Europe 2009

U.S. 2012U.S. 2009

East Eur 2012East Eur 2009

LATAM 2012LATAM 2009

APAC 2012APAC 2009


Eastern European Online Leisure/Unmanaged Business Travel (US$B), Online Penetration and Total Market Growth, 2011-2013

Note: 2011-2013 projectedSource: PhoCusWright’s Eastern European Online Travel Overview

2013

2012

2011

20,941.4

16,653.1

13,079.2

92.5

86.2

81.5

Online Total Market

16%

19%

23%

Onl

ine

Pen

etra

tion

(%)+11%

+6%

+7%

+33%

+27%

+26%


Online Leisure/Unmanaged Business Travel by Region, Penetration of Total Travel Markets, 2010-2014

Note: 2012-2014 projectedSource: PhoCusWright’s Middle East Online Travel Overview


Eastern European Online Leisure/Unmanaged Business Travel Market (US$M), 2009-2013


2009 2010 2011 2012 20130

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

OTA

Airline Website

Hotel Website

Rail Website

Car Rental Website

Tour Operator Website


Eastern European Leisure/Unmanaged Business Travel Share Per Market – Online vs. Total Market, 2011

Note: 2011 projected. Totals may not add to 100% due to rounding.Source: PhoCusWright’s Eastern European Online Travel Overview

Russia38%

Other East-ern Eu-ro-

pean Countries62%

Online Market

Russia60%

Other Eastern European Coun-

tries40%

Total Market

Eastern European Intermediaries


Eastern European Online Travel Agencies Gross Bookings (US$B) and Growth, 2009-2013


2013

2012

2011

2010

2009

0.0 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0

+40%

+33%

+27%

+26%


Top 15 Eastern European Online Travel Agencies, 2011

Note: “Others” include estimates for remaining online travel agencies.Source: PhoCusWright’s Eastern European Online Travel Overview

Booking.com (Total)

Expedia (Total)

AnyWayAnyDay.com (Russia)

Ozon.Travel (Russia)eSky (Total)

Student Agency (Czech Republic)

Airticket (Greece)Agent.ru (Russia)

V.I.P. Service/Biletix.ru (Russia)Lidot (Baltics)Pilot (Ukraine)

Altisaero (Ukraine)Oktogo (Russia)Pososhok (Russia)Amargo (Russia)

Others (Total)


Online Travel Agencies by Segment


• Local OTAs sell predominantly air – 90% • OTAs overshadow supplier websites in Ukraine and Bulgaria• Supplier websites gain momentum, surpassing OTAs in Russia and Greece

• OTAs have small online share• Rail companies do not offer deals

• OTAs have small share of this fragmented business

• OTAs seek redistribution, but this late majority market is slow to automate • Dynamic packaging is not popular so far

• Outbound hotel is dominated by Booking.com and Expedia • OTAs are often intermediaries between TAs and travelers

Russia: The Travel Revolution


From Peripheral to Powerful

Who is Traveling?


Growing middle class to reach 27% of the population in the next 2-3 years

19% or 25M people in Russia are defined as middle class

15M families have an annual income of US$20,000 and higher


Volume of Credit Card Transactions in Russia, US$M

Source: National Bank

2009: $6,052

2013: $15,799



2013

2012

2011

57.9

53.0

48.6

#REF! Online Gross Bookings

10%

14%

18%

+69%

+51%

+39%

Russian Travel Market (US$B) and Online Growth Rates, 2011-2013

Onl

ine

Pen

etra

tion

(%)



2009 2010 2011 2012 20130

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500OTAAirline WebsiteHotel WebsiteCar Rental WebsiteRail WebsiteTour Operator Website

Russian Online Travel Market (US$M), 2009-2013


Nearly 2/3 of Online Bookings are Through Suppliers


Suppliers

OTAs


Challenges for Growth


Tour operators just beginning to see advantages of going online

Travelers prefer the comfort of packages in comparison with risk of doing it themselves

Legacy players in tour operators, airlines, rail market entrenched for now

Online package booking tools in advanced stages of development


Russia: Social Media

Believed to be impossible to monetize

Viewed as source of information without same convincing power

Not trusted as others do

Used mostly for PR and customer relationships


Facebook is #4 social media site


Russia: Search and Metasearch – to be revised as per the article

Note: *Liverinternet.ru (http://www.liveinternet.ru/stat/ru/searches.html?slice=ru) March 21, 2012Source: PhoCusWright’s Eastern European Online Travel Overview

Momondo• Russia is the third-largest market for Momondo after

Scandinavia and the U.S.

Skyscanner• 25% of Skyscanner traffic from Russia comes from

mobile devices

Yandex• Dominant in Russia and Ukraine• Works closely with OTAs but yet to launch own travel

service• Yandex.travel is registered• 60% of Russian search occurs on Yandex (Google

carries 26%

http://www.liveinternet.ru/stat/ru/searches.html?slice=ru

Investors* assume risks associated with Russian online travel market and support innovators

Note: *such as Accel (which invested in Facebook, Groupon, Kayak, and Hotel Tonight), General Catalyst Partners (backer of ITA Software and Kayak) and Mangrove (Skype) Source: PhoCusWright’s Eastern European Online Travel Overview

Conclusions


The New Savvy Shoppers


Are not the most loyal consumer; more driven by price or reputation

Prefer not to risk their credit card information to an unknown agent

Arrange their own travel, and research widely using the web

Are vertically oriented

Like to see more competition


The Barriers to Overcome


Credit card penetration – bank deals

Trust in online transactions – e-Commerce

Travel content – structured and easy to find

Thank You!

Krasimir SimonskiMarket Analyst, Eastern EuropePhoCusWright [email protected]

Dr. Krassi Simonski is PhoCusWright's market analyst, Eastern Europe and managing director of eCommerceAcademy.net. Krassi is the lead analyst for PhoCusWright's Russia and Eastern Europe: Navigating the Emerging Online Travel Marketplace research initiative. The Special Project measures travel size and trends and forecasts online travel penetration for Russia, Ukraine, Poland and other Eastern European travel markets.

Prior to establishing the eCommerceAcademy.net, Krassi was head of business development for TravelStoreMaker.com, managing the spin-off of innovative business lines into different companies. He is also executive officer of Skal International's Sofia club, assisting in expanding the international relations in the region.

Krassi's background also includes chair of the Bulgarian Research and Education Network. Prior to that, he served a political mandate as deputy chair of the State Agency for ICT of Bulgaria in charge of the national IT development. He was the Bulgarian representative to several EC high level groups including Internet and information society. Krassi implemented multiple ICT projects of EU and national funding in the area of digital inclusion, broadband penetration, research networking and e-learning. He was the first chair of the Telecentres.Europe organization to support the network of telecenters across Europe

His university background as adjunct professor in computer sciences and 12 years as director of communications and computing at the first American University in Central and Eastern Europe (AUBG) as well as being one of the first Internet missioners in the region, brought to him thousands of contacts at the national, European and international levels.

krassi simonski, market analyst, eastern europe, phocuswright at online travel 3.0 2013

Marketing

eastern europe travel

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