Cornelius Kaestner, senior vice president of Mastercard-owned software firm APT, sets out how travel firms are adapting to face today’s market challenges

To boost bottom lines in the coming year, travel and hospitality companies are trying new customer engagement strategies like direct booking offers, premium services, and new technology.

Based on APT’s work with several leading hotels, airlines, and travel agencies, we expect the following five trends to impact the travel industry in 2017:

1. Driving direct bookings in the face of new players

While the direct booking battles are not new, travel companies – especially hotels – continue to craft new strategies to compete with Online Travel Agencies (OTAs) and emerging booking players like TripAdvisor, Google, and even Facebook.

For example, IHG and Marriott have introduced members-only rates for customers who book directly.

Others are fine-tuning their OTA listings by restricting inventory to certain locations and times.

In turn, OTAs are strengthening their own offerings. Expedia, for instance, has introduced a new way to promote add-on services and is even offering auto-enrollment during booking for some hotel loyalty programmes.

Beyond avoiding third party fees, hotels and airlines are finding that “owning” the customer relationship provides powerful insight into traveller preferences.

While the merits of direct bookings are valid, travel companies should be cautious about which strategies they use.

Some discounts may eat away at profits by subsidising bookings that would have occurred through that channel anyway.

Testing offers and discounts with a subset of travellers can help companies avoid unprofitable promotions by identifying the ones that truly drive incremental revenue.

Additionally, experimenting with more targeted OTA listings can help ensure that bookings via third parties were unlikely to have been made otherwise.

2. Refreshing offerings to meet evolving preferences

Travel companies are feeling pressure to differentiate their offerings to meet consumer demands, particularly amidst the rise of the sharing economy.

Hotel companies are shaking things up, adding apartments and improving technology to provide unique experiences.

Others are strengthening their appeal to business travellers, among whom Airbnb is less prevalent.

Travelodge, for instance, has introduced an exclusive business service, and both Hyatt and Starwood are piloting new technologies that enable on-demand booking of meeting spaces.

In response to Uber, Avis Budget Group is expanding its Zipcar car share brand.

Airlines, which are less directly threatened by sharing economy players, are taking advantage of the trend by initiating partnerships: Delta, Virgin, and Qantas all allow loyalty members to earn award miles on Airbnb stays.

While it is important to keep pace with travellers’ evolving preferences, companies must ensure these initiatives do not deviate too far from their core offerings.

For instance, allowing loyalty customers to redeem points for home rentals could lead them to opt for competitors like Airbnb down the line.

Similarly, hotels must consider the tradeoff of booking business meetings rather than traditional stays, as such offerings may disrupt higher-value bookings.

Refined targeting of such programs can ensure that they are only introduced with hotels or customers for which they will drive value.

3. Wooing the high-value customer

Airlines and hotels are introducing premium services and elite loyalty tiers to capture even more of their high-value customers’ business.

For example, several hotels are changing their loyalty programs to better cater to big spenders.

Hyatt’s new World of Hyatt is specifically oriented around the high-end traveler, and the Four Seasons just introduced an invitation-only elite guest program.

Travel companies are also striving to win back and retain high-value customers. For example, United recently launched a promotion geared toward winning back formerly loyal customers and Delta started offering complimentary upgrades on award tickets for Silver members.

Celebrity Cruises has even introduced its new Edge Class, an ultra-luxe class of ships for high-end travelers. Similarly, United Airlines introduced its Polaris business class, which includes upgrades to in-flight business class cabins and business lounges at several airports.

These high-value customer initiatives can be costly to implement, making it all the more crucial to quantify ROI.

However, given the acquisition and retention focus of these programs, a long-term view must be taken to truly measure their full revenue impact, as their effects are often not immediately clear.

Analysing the response of the customers that are initially affected by these programs, or ideally, testing these programs with a subset of customers through a designed experiment, can reduce costs while providing accurate insights on each program’s performance.

4. Going beyond targeted marketing to targeted offerings

The travel industry has long been focused on segmenting marketing messaging and promotions by customer.

Travel companies are taking this a step further by segmenting their product offerings for a wider range of preferences.

In addition to the new vacation and business offerings in the hotel industry, this trend manifests among airlines with the introduction of both more basic and more premium seat classes.

United adding or expanding their Basic Economy fares, and Delta has introduced and is expanding Basic Economy.

At the same time, many airlines, including Singapore Airlines, are introducing Premium Economy cabins that cater to cost-conscious travelers seeking more amenities than coach.

In order to maximise the value of these investments, it is important to determine which elements truly drive value and how the initiative’s success varies based on different characteristics.

For instance, introducing Premium Economy may be more successful on longer flights with a higher percentage of business travellers.

Identifying these drivers of performance allows travel companies to prioritise rollout of programs where they will drive the greatest value.

Pricing of these new targeted offerings is also a critical consideration, as price will either exacerbate or improve cannibalisation effects, such as the potential for a new Premium Economy offering to cause shifts down from Business Class.

5. Simplifying bookings with new technologies

Travel companies are leveraging new technology to simplify the purchasing process and drive both booking and ancillary revenue.

On the booking side, Lufthansa released a chatbot that helps travelers search for the cheapest flights and Icelandair is developing the first Facebook Messenger booking bot.

Hyatt has also tested using Facebook as a customer service channel. Likewise, airlines are innovating with developing new methods of payments for ancillary services, such as letting passengers use Apple Pay to buy in-flight food and drinks, and order meals from their seat-back entertainment system.

As travel companies add new customer interaction channels, and in turn collect more data throughout the path to booking, it is essential to have a complete omnichannel view of the customer.

This full view of the customer journey enables organisations to attribute bookings to the marketing or booking mechanism that helps convert customers into purchasing a good or service.

While introducing these new technologies, travel companies should also consider how to balance them with labour and customer service investments.

In some cases, a chatbot may decrease call center staffing needs, while in others it could have a negative impact on customers who would prefer specialised service from a live representative.

As travel companies continue to innovate aggressively, they must thoroughly vet each new idea to truly understand the impact it will have on overall financial performance.

With so many initiatives in-market at any one time, teasing out the impact of each can be difficult.

However, with the right tools, travel companies can prioritise the initiatives with the highest returns and drive profit through better innovations in 2017 and beyond.