The African transport sector may lag Europe by several years but not having a presence there could be dangerous, writes Pamela Whitby

When Stephan Ekbergh settled in South Africa in 2006 his plan was to retire. He’d founded Travelstart in Sweden in 1999, after launching that country’s first online travel agency (OTA), Mr Jet, in 1995.

But sometimes you need to know when to leap at a business opportunity and in 2010 he sold off the Scandinavian arm of the business and opened headquarters in Cape Town. It seems it was the right decision. Estimates are that travel and tourism in Africa is currently worth $54bn, but has a potential yearly value of $254bn. Moreover, in 2013, UN statistics show that there were 56 million arrivals in Africa, making it the fastest growing travel market in the world.  

Today Travelstart is the biggest and fastest growing OTA in Africa with a physical presence in six markets including South Africa, Kenya, Nigeria, Tanzania, Egypt and Namibia. In addition, the broader website drives traffic from other market is run out of South Africa.

“South Africa,” says Maija de Rijk-Uys, Travelstart’s Head of International Markets, “is the mother ship in Africa but we has a strong emerging market strategy including into the Middle East.”

In emerging markets, which are at varying stages of maturity, Travelstart takes a pragmatic and flexible approach to distribution and marketing. Right now the firm gets its travel inventory from the global distribution system, Amadeus, but de Rijk-Uys says they are considering a dual-GDS approach. The firm also directly integrates inventory from smaller local airlines, or low cost carriers – such as in Turkey – which are not yet on one of the GDSs.

Drivers of traffic

In any business, customer understanding is essential. And in Africa the majority of customers are price conscious, so cheapest is always displayed first. However, like most other OTAs, Travelstart also lets customers sort by route, loyalty aspects and so on. And like other OTAs Travelstart is also dependent on Google. In all its markets, Google pay-per-click is the company’s biggest driver of traffic, but that doesn’t mean it ignores other options. “We drive most of our traffic through paid search but we’re also very much focused on search engine optimisation (SEO) and on pumping out content onto the internet to ensure Google algorithms see us as good enough to rank organically,” says de Rijk-Uys. This is achieved through travel blogs, videos, adverts on YouTube, press releases, and by actively building links with other websites.

While meta-search is “still not big in South Africa and it will be a while before it catches up,” de Rijk-Uys says their approach to distribution partners depends very much on the market. “In Turkey metas do drive our traffic so we have agreements with Momondo, Skyscanner and Wego.” Of course, direct bookings are the ideal but if meta-search is the only way then TravelStart prefers a cost-per-acquisition model.

Mobile – transactions still limited

In Africa eight in ten people today have a mobile phone. While smart phone penetration is just 20% that is growing rapidly too. According to a recent telecoms market report data revenue for telecoms has grown 67% in South Africa, Kenya, and Nigeria in the past few years. Travelstart knows it needs to play in the mobile space; hence the recent launch of a mobile friendly website to test uptake. “In terms of the data coming out of Africa, we know that the future is in mobile but so far transactions have been limited and it’s too early to say where this is going,” admits de Rijk-Uys.

While Travelstart believes in the future of Africa, it’s cognisant of the need to be adaptable, flexible and sensitive to local issues. Whereas 80% of Africans may have mobile phones, it’s estimated that around the same number don’t have bank accounts. One of big hurdles is addressing local payment methods. Credit cards may be commonplace in South Africa but in Kenya, MPESA, a mobile payment method is used and in Nigeria it’s QuickTeller. TravelStart also facilitates bank and cash payments.

Another area for differentiation is having a person behind every transaction; you can always pick up the phone. In South Africa, TravelStart offers hotels, cars as well as flights but elsewhere the focus is mainly on flights and is currently talking to a major hotel supplier.

Hotels heading south

Speaking of hotels, the push of big and smaller chains into Africa is quickening. W Hospitality Group, a founding member of HPA, forecasts that 320,000 new jobs would be created in the hotel industry over the next three years on the continent. Of these, over 80% will be employed by just ten global brands - Hilton, Carlson Rezidor, Accor, Marriott, Starwood, Louvre, IHG, Kempinski, Mövenpick and Rotana. 

Marriott, for example, recently finalised its $186m acquisition for the brands and hotel-management business of Protea Hospitality Holdings, which operates 116 hotels in eight African countries. That’s nearly doubled the US-based chain’s footprint in Africa, making it the leader on the continent.

The move speaks volumes of Africa’s rising room revenues. In South Africa, for example, PricewaterhouseCoopers estimates that hotel and other lodging revenue will rise by 42% from a recent low in 2009.

According to Stephen Banks, director for sales and marketing, Africa at Mövenpick, Africa is a top priority for the brand. “We’re really concentrating our development plans in sub-Saharan Africa and particularly on the business travel market. Africa is the final frontier for hoteliers,” he says. To date it has opened two high occupancy hotels in Accra, but is also looking at Ivory Coast, Kenya and Lagos in Nigeria “where everyone wants to be”.  Like Travelstart, Mövenpick points to challenges of understanding the local conditions. In Africa, build time is around is around seven years. “That’s a really long time and adds costs,” says Banks.

There are, of course, risks in entering Africa. But to paraphrase the words of the chief executive of a large chain, not having a presence there could be more dangerous.