APAC’s sweet spot: forget the rich here come the value conscious travel pack

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With the younger generation earning more and intra-Asian travel on the rise in 2014, online travel companies better be in fighting form in 2015. Pamela Whitby reports

It may well be true that since 1995 booming emerging market economies have brought millions out of abject poverty. But for anybody living in the West, a definition of ‘middle class’ as having an income of $2 a day seems at best far-fetched and, unsurprisingly, contentious.

Yes, admittedly, the World Bank puts its middle class into two brackets – those earning $2-$9 and the rest $9-$13. But delve a bit further and you’ll find that in 2013, more people entered that lower bracket. You’ll also find that only a quarter of the world’s population earned $10-$100 a day and 60% of those were in the developed world.

So are the headlines screaming ‘huge’ ‘emerging’ potential for online travel brands in India, China and elsewhere in the region for real? The short answer is yes – if you buy the research.

A wide number of reputable sources point to the fact that this richer, global middle class (those earning $10-$100) will begin to grow rapidly over the next 20 years and many of them will be Chinese or Indian. The numbers vary slightly but by 2030 it is predicted that between 800 million and a billion Chinese will enter the middle class. And in India – where today just 5% of India’s population fit the global middle class bill - that’s expected to reach 475 million people.

The bigger question, however, is where and what exactly are the biggest opportunities?

Budget’s the word

It’s still a pretty short answer for two fast growing online Asian travel start ups, which have three words for it: ‘value’, ‘budget’ and ‘price’ conscious.

One of the many rolling descriptions on the website of Stayzilla, an online managed market place for zero to three-star accommodation - from homestays to hotels, guesthouses, resorts and jungle camps - is: ‘Not just for the rich. Or the bloody rich!’

'budget and value’ will become India’s fastest growing sub segment in online travel in 2015

Vedanarayanan Vedantham, Head of Marketing, Stayzilla

Vedanarayanan Vedantham, the company’s head of marketing says being called ‘cheap’ is a compliment. Importantly he also thinks that ‘budget and value’ will become India’s fastest growing sub segment in online travel in 2015.

He may have a point. In the value category, 50,000 room nights are booked online and offline daily in India, according to public records. Yet, Stayzilla and the other top three online travel players in the market currently represent just 0.5% of those bookings. When you start to consider online penetration in other parts of India’s travel ecosystem, a stronger story starts to emerge. Take flight bookings - 70% are made online, for trains it’s 60%, four to five star hotels 60% and bus bookings 90%!

It quickly becomes clear that in the value and budget segment there is a huge and untapped market and one Stayzilla believes it can stand out in. Aside from of already having an exclusive inventory of 20,000 stays, the firm has a concierge service that hand holds its customers – the host and the guest - through all stages of the booking process.

“We don’t just leave the customer high and dry when the online booking is done. Yes it’s about price and budget, but it’s also about delivering value,” Vedantham says.  

Because of the immaturity of the market, Stayzilla currently charges substantially higher commissions than even booking.com, for example, something it justifies on the basis of the value it delivers – well for the moment at least!

Into Asia, intra Asia

Another player in this fast-growing value-segment is Travelmob, one of the biggest suppliers of vacation rentals in Asia after Airbnb. Acquired by HomeAway in 2013, the toddler’s founder, Turochas Fuad, says 80% of their customers are Asian.

This intra-Asian travel - IATA forecasts that almost half of global air travel will touch the Asia Pacific region by 2034 – unsurprisingly Travelmob sees this as a “sweet spot”.

But the budget piece also hasn’t passed Fuad by. He knows that those Asian travellers are looking for a looking for value for money accommodation, and in many cases so they can spend more on the experience – be that shopping for designer goods, experiencing local cuisine or white-water rafting on the Ganges. Unsurprisingly then, research from EyeforTravel finds that over 40% of people from BRIC nations would welcome information on things to do while on holiday – specifically on mobile devices which for many here is the device of choice.

One of big reasons for the success of the ‘sexier sharing’ economy in Asia is not just that it’s a cheaper- it also allows people to travel in a pack. The package tour has always been big in the region where people like to travel in groups, and a holiday home fits that bill much better than a hotel.

But that’s not to say that hotel groups haven’t clocked the growth the opportunities for low-cost travel in the region, specifically in two to three tier cities. According to data from AT Kearney, Marriott, Starwood, InterContinental, and Accor have a combined pipeline of about 400 new hotels in China.

IHG, on the other hand, which has established markets in Australia, the Middle East and Japan, is now looking southwest to countries including India, Nepal, Sri Lanka and Indonesia.

IHG’s eye is on those travellers who may previously have stayed in a guesthouse but now, with a bit more dosh in their pockets, may be willing to try more structured accommodation. Average daily rates may not be high in dollar terms, but they still contribute around 30% to the group, says Tarandeep Singh, Intercontinental Hotel Group’s director of revenue analytics for Asia Middle East and Africa.

Moreover, those new rooms in developing markets provide a strong incremental feed for IHG; “it’s where expansion is happening and where there is biggest churn”.

Plenty of challenges remain for both newcomers and established players in Asian hospitality – the diversity of cultures and language, the range of currencies, payment mechanisms and processes, the necessary ‘drug’ of the search engines (dare we mention Google) and budgets to name just a few.

But whichever corner they are fighting, they better be fit. Because their target audience is young, aspirational, internet savvy and on the move.

EyeforTravel is running two upcoming events in Asia: Online Marketing, Social Media & Mobile in Travel Asia 2015 (Feb 3-4) and TDS Asia 2015 (May 20 – 21)

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