Travel’s investment in tech tipped to surge by 44% this year. Lee Hayhurst reports
UK travel sector spending on technology is forecast to hit record levels in 2022 having bounced back from a slump during the pandemic.
According to latest government data analysed by Travel Weekly sister title Travolution for its annual Innovation Report, the sector will increase IT budgets this year by 44% on 2021.
That would take the industry’s annual spending on technology to £1.98 billion, the most in the 15 years in which the Travolution report has been compiling data.
More: Travolution Innovation Report 2022: IT spend in travel bounces back
Annual IT budgets in travel were slashed by 28% to £1.33 billion in total at the height of the pandemic in 2020 and recovered only marginally by 4% in 2021 to £1.38 billion.
The previous spending highs in the sector were in 2016 and 2019 when the industry’s annual total IT spending hit £1.84 billion.
The Travolution Innovation Report analyses Office for National Statistics (ONS) data for IT spend in five sub‑sectors of travel – travel agents, tour operators, hotels, aviation and water transport.
The ONS data also covers expenditure across five categories of IT spend – hardware, software, telecom services, IT staff, and computer services including outsourcing, consultancy, training and support.
The hotel sector overtook travel agencies as the industry’s second‑largest IT spender in 2021 as hospitality benefited from a domestic travel boom as restrictions were relaxed and recovered earlier from the Covid-19 pandemic.
Hotels’ £349 million outlay on technology in 2021 accounted for a quarter of travel’s total expenditure, while the travel agency sector’s £314 million in spending accounted for 23%.
The 23% uplift in hotel IT spending last year was also by far the largest in travel year on year, although travel agents are forecast to catch up this year with a 70% hike compared with a 35% rise in the hotel sector.
However, aviation (‘air transport’) consolidated its position as travel’s biggest‑spending sector in 2021 with 33% of the total, up from 29% in 2020, despite its £454 million outlay being 6% down year on year.
A comparison of the forecasts for 2022 with pre‑pandemic IT spending in 2019 suggests the hotel sector will see the biggest rebound, with spending up 22% on 2019.
No other sector is tipped to record double figures. A 1% increase in travel agency spending compared with 2019 underlines how the sector is only just regaining lost ground.
Tour operator IT spending this year is forecast to be 7% up on 2019 and the overall aviation IT budget up 8% on the last pre-pandemic year, while the water transport sector remains 5% lower.
The overall 4% growth in travel IT spending in 2021 lagged the national average of 8% for UK businesses, but the 44% growth in spending predicted for travel this year is well ahead of forecast IT growth of 12% for UK business as a whole.
Spending upturn masks low outlay on IT staff
The Travolution Innovation Report has noted consistently for a decade that travel firms commit a smaller proportion of their total technology spend to IT staff than the UK all-businesses average.
IT employees were the sector’s second-largest IT outlay in 2021, at £377 million or 27% of the total. Computer services remained the largest area of spending at £435 million or almost a third (32%) of the total.
By contrast, the amount spent on IT staff among all UK businesses was comfortably the largest category of spending, amounting to £84 billion, with computer services a distant second on £51 billion.
This disparity between travel and UK business as a whole is only likely to widen this year as travel industry spending on IT staff is forecast to grow by the lowest percentage of the five technology categories.
Travel is forecast to spend 27% more on IT staff in 2022 while spending on hardware will rise by 65%, software by 66%, computer services by 50% and telecom services by 31%. However, travel spending on IT staff was the only technology category to see growth during the pandemic, albeit marginal, reflecting the competition for scarce digital skills.
Spending on IT staff across UK industry is forecast to increase by just 14% this year and on computer services by 17%.
Office for National Statistics data confirms the largest UK travel firms account for most of the sector’s annual technology budget, as would be expected. The 35 companies with 1,000-plus employees recorded 50% of the total spending in 2021 or £686 million. Together with firms employing between 100 and 999 staff, they accounted for 80% of the total.
However, the data reveals longer-term trends which suggest that medium-sized firms are striving harder to maintain IT budgets. Data for the five years from 2017 to 2021 show firms with 10-99 employees were the only enterprise-size category to record annual growth in IT spending over the period.
The strongest performance over the five years was by firms employing between 50 and 99 staff, with overall annual growth of 4.2%, and this group is forecast to record the biggest spending growth in 2022 at 46%.
The smallest firms, with under 10 staff, showed the steepest annual decline in IT spending over the five years at -10% overall, while the largest businesses with more than 1,000 employees recorded an overall annual decline in spending of -6.8% for the same period.
Travel agencies with 100-999 employees are forecast to record the sector’s biggest rise in IT spending in 2022, with overall budgets projected to increase by 89% year on year to £229 million.
Medium-sized firms in travel are forecast to be the second-highest spending sector on IT this year, beaten only by aviation businesses with 1,000-plus employees, which are forecast to spend £600 million.
However, while larger firms spend the most, it is not always true that bigger businesses invest more on IT per employee. Travel agencies with 50-99 staff have gone from spending the least on IT per employee in 2016 to the second-most.
The amount spent on IT per employee by UK business as a whole has risen consistently in recent years and is expected to stand at £7,153 this year. That compares with a forecast of £7,369 per employee by travel agencies and £8,017 by tour operators, while the water transport sector comfortably outspends all other travel sectors and the UK average – spending £13,449 on IT per employee in 2021.
However, the aviation sector spent just £6,577 per employee in 2021 and the hotel sector spent only £1,106 per member of staff.
*The analysis was produced for Travolution by Kew Associates. The IT spending forecasts for 2022 were calculated according to: historical spending data in conjunction with growth in the number of employees, based on the strong relationship between total IT spend and employment; employment forecasts for each sector based on historical trends and how the sector’s data relates to the economy as a whole; the historical and projected spending for each sector was then disaggregated and checked against spend per employee and spend as a share of turnover.
Comment: I see a plethora of opportunities for innovation
By Mo Shakarchi, product and innovation officer at report headline sponsor Collinson
I’m a relative newcomer to travel but when I look at the sector as it puts the pandemic behind it, I see huge potential for growth.
We are an industry that is intrinsically linked to people’s wellbeing, facilitating new connections, lifelong memories and business across the globe. Not only should the industry be immensely proud of this, but it should also be at the centre of our thinking when we are innovating new products, services and experiences.
When it comes to innovation, there is always the ‘what’ and the ‘how’. But it is ‘how’ you approach innovation that ultimately dictates the ‘what’. Many of the challenges facing the travel industry can be addressed with an increase in technological investment similar to what we’ve seen in other global industries.
But it is the willingness of organisations across the industry to collaborate and partner that will be key, as Collinson showed during the pandemic when launching our Covid-testing facilities.
The experience of the last three years could be a trigger point, where the shock of the crisis precedes a new era of rapid and fundamental change. When I look at the travel industry, I see a plethora of opportunities, from commercial-model innovation to technological innovation.
Innovation isn’t about any one player; it needs an ecosystem to be creative for the benefit of the traveller.
There is enough of a pie for all, and it’s only going to grow.
More: Travolution Innovation Report 2022: IT spend in travel bounces back
