The industry’s ability to continue generating growth, creating jobs and enabling national development and regional integration is dependent on whether it recognizes and adapts to key trends and transformational issues that will affect the industry in the short, medium and long term.
This section provides an overview of key trends shaping the future of the industry:
1. Yesterday’s Tourists aren’t Tomorrow’s
While, historically, travel was a luxury good, the lowering of travel barriers and falling costs has put travel within reach of millions. These factors, combined with the growth of disposable income, the rise of the middle class in many emerging markets and changing attitudes of people towards travel, have enabled the industry to flourish. While travel is still not accessible to everyone, more people than ever before are travelling today—with 1.24 billion international arrivals in 2016, compared to 25 million in the 1950s.
In previous decades, North America and Europe have dominated the travel markets, but this may not be the case for much longer. By 2030, most of the growth in international travel will come from Africa, Asia and the Middle East, which will enable further growth and job opportunities in these regions (see Figure 12). While markets in Europe and the Americas will continue to grow, the rate is incomparable to other regions.
Emerging markets will not only become larger source markets but also they will become more attractive destinations. Between 2016 and 2026, the top 10 fastest growing destinations for leisure travel spending are expected to be India, followed by Angola, Uganda, Brunei, Thailand, China, Myanmar, Oman, Mozambique and Vietnam. 13
The global middle class is forecasted to grow by another three billion people between 2011 and 2031, the majority of which will come from emerging markets, with China and India leading the way. 14 This newfound buying power will give the middle class greater access to travel. While travel is already booming in China, it is estimated that, at present, only 5% of Chinese nationals have passports. Similar trends are apparent in other emerging markets. What is clear, is that new consumers like the millennials, as well as older baby boomers are not only demanding, but looking for experiences, albeit very distinct ones.
Studies show that millennials are more tech-savvy and connected than any previous generation and are changing the way travel is consumed. In effect, millennials might take low-cost flights and go all out on activities and restaurants. Travellers today often look for experiences, whether it be an authentic local experience, an adventure or even and the opportunity to make a difference at the destination. In the next five to 10 years, this group will become the industry’s core customer base. Millennials’ spending on business flights is expected to account for 50% of global travel by 2020 and to maintain that share for the subsequent 15 years. 15 While millennials are on the rise, baby boomers are the most travelled generation to date and have more disposable income to be able to travel. Creating a strong value proposition for this group will be key to attracting them in the next decade. For more about demographic shifts, see “Boomers to the Rescue”.
2. New Travellers, Old System
The 21st century traveller has high expectations for efficiency and a low tolerance for barriers to global mobility. Unfortunately, the infrastructure and bureaucracy that travellers must navigate are decidedly 20th century. Barriers to mobility and inefficiencies are particularly notable when obtaining visas and at the airport. These obstacles, for the most part, aren’t making us safer, but they are hindering growth, job creation and tolerance between cultures.
In 2015, tourist destinations worldwide required 61% of the world’s population to obtain a visa prior to departure.16 This is a significant improvement from 2008, when 77% of the world’s population was made to apply for a traditional visa.
Travel barriers operate just like any other trade barriers, impeding growth and depressing job creation. Removing travel visas at the bilateral level would more than triple travel flows between countries.17 A number of solutions, ranging from bilateral to regional agreements, have been implemented that support the reduction of travel barriers and enable economic growth and job creation. These include the Schengen agreement, the US Global Access Programme and even the APEC Business Travel card. Different regional agreements are also in the process of being negotiated for the Association of Southeast Asian Nations (ASEAN) community, the Pacific Alliance and the idea of an African passport has also been proposed by the African Union.
A comprehensive model for Smart Travel, one that includes Smart Visas, Smart Borders, Smart Security processes and Smart Infrastructure, will revolutionize the travel and tourism sector the way the smartphone has transformed the telecommunications and media industries, bringing job creation and growth along with it.
To achieve a Smart Travel approach, the travel industry must increasingly rely on technology and digitization to create a safe and seamless experience for passengers.18 Effectively, innovations over the past decade have led to a significant increase in automated technology to facilitate travel and make it more secure. With the available technology, passengers today are able to book their flights and check in online, have their boarding passes on their smartphones, go through automated clearance gates and even validate their boarding passes electronically to board planes. Such technologies should be applied to continue to enhance border security and travel facilitation.
The private sector is taking a proactive role in engaging with national governments to highlight the economic case of travel facilitation and the security benefits of the implementation of technologically enabled solutions, while at the same time urging collaborative efforts among all relevant public and private stakeholders to achieve a fully integrated model to facilitate Smart Travel. See the “Disrupting Travel for 2030: Building Bridges Not Walls” chapter for an exploration of this issue.
3. Geopolitical Insecurity is the New Normal
Technology has, and will, continue to revolutionize the way we live, work and connect with one another as new technologies blur the lines between the physical and digital spheres. At the same time, however, we are faced with a complex geopolitical landscape marked by a rise in physical and e-terrorism and a surge in populism and xenophobia. Together, they have the potential to reverse the growing freedoms acquired in previous decades by citizens to travel the world.
This new global landscape has significant implications for the movement of people across borders, and, specifically, the travel and tourism industry, which takes responsibility for safe travel through the skies of over 8 million people daily.
Despite air travel being one of the safest modes of transportation, with incredibly stringent security standards, measures following security shocks have often been implemented to soothe the public rather than to contribute to a more effective and secure environment. Airports around the world faced additional layers of security regulations following 9/11 that have cost the industry $7.4 billion between 2001 and 2010.19 Clear opportunities to enhance safety and security of the entire travel value chain exist through data-sharing technologies and better collaboration between governments, international institutions and the private sector. A survey undertaken by Google in 2015 shows that contrary to traditional thinking, most travellers accept that their personal data will be shared in exchange for enhanced security and efficiency.
To support the expected growth in international travel in the next 14 years, there is a need to fundamentally rethink the policy framework and innovate the way people move across international borders. And while enabling more people to discover the world, it is imperative to ensure the safety of national borders and citizens. The importance of designing an inclusive new global framework is highlighted by the fact that the top 10 fastest growing destinations for leisure travel spending are all emerging markets.
The World Economic Forum’s 2017 Digital Borders Report presents a vision for the future of travel, where eligibility to travel is based on the individual rather than on the legacy system of country of origin. In this digital age, technological solutions can and should be created and implemented to move the global system from one of physical to digital borders. In effect, “digital” needs to be integrated across the travel journey, from digital identification and authentication through biometrics to a frictionless airport transfer courtesy of digitally enabled security devices, and the creation of a digital interface and individual profiles to increase accuracy, efficiency and security.
To move from bilateral programmes to a global one, a number of areas need to be addressed, namely, the harmonization of intelligence and data-sharing, the global implementation of common standards set by the International Civil Aviation Organization (ICAO) and the shift to a secure digital process. In parallel, countries should expand their multilateral agreements and move towards a single application system for visas. These policy shifts require additional cooperation and collaboration among various government agencies, international organizations and travellers. Moreover, national administrations should reconsider the role of the traveller in the process and create an opportunity for travellers to be part of the solution.
The Digital Borders Report proposes a prototype that would combine and enable the customer’s sharing of data and verified identity through a platform which, in turn, creates an effortless experience by connecting systems, facilitating passage and improving security. The prototype proposal entails the development of a data platform or virtual hub to be populated by multiple sources and allow customers to share data with other entities that require the information. By bringing together all necessary stakeholders to design, agree, test and implement a new framework and prototype, the goal is for the global community to not only understand but also witness the benefits of such an approach. See “A Security Gap: It’s Time for Change” and “Tourism is a Tool for Tolerance, And We Need More of That” for two experts’ thoughts on this issue.
4. The Fourth Industrial Revolution is Here to Stay
The aviation, travel and tourism industry has been at the forefront of digital disruption, changing the way people travel. But the revolution is not over. The industry needs to be ready for the new technological transformation ahead.
The way people experience, consume and share information has changed drastically from previous decades. Shifts in customer expectations, new technologies and industry trends are compelling the industry to adapt their business and operating models in their quest for enhanced customer preferences and operational performance.20
Service delivery has and will continue to evolve, largely resulting from new technologies as well as social and digital media, as mobile tools and digital infrastructure increasingly become central to the business. Indeed, there are 4.9 billion unique mobile (cell) phone users worldwide and an estimated 2.7 billion people on social media.21 New entrants, especially digital natives including online travel aggregators (OTAs), are transforming the value chain. At the same time, the sharing economy is on the rise; Airbnb reported over one million hosts in 2015.
To remain competitive, the industry must complement its high-touch approach with high-tech applications. Today, consumers want to feel special and expect personalization of service and experience. While data analytics enable the sector to tailor its offerings to traveller preferences, it is important to ensure that increased automation does not lead to a disconnect between online and in-person exchanges.
According to our research,22 over the next decade (2016 to 2025), digitalization in aviation, travel and tourism is expected to create up to $305 billion of value for the industry through increased profitability, migrate $100 billion of value from traditional players to new competitors, and generate benefits valued at $700 billion for customers and the wider society through reduced environmental footprint, improved safety and security, and cost and time savings for consumers. In addition, the research forecasts a net displacement of current jobs in the industry, partially offset by the creation of next-generation skilled jobs inside and outside the travel ecosystem.
It is essential to address the potential implications of digitalization on the industry workforce, as intelligent automation is forecasted to change the nature of some travel jobs and eradicate others altogether. The industry hopes that new employment opportunities could outpace eradication should industry growth forecasts be met. Platforms may also enable “liquid”, flexible workforce models, which will redefine the employer-employee relationship and present regulatory challenges. A concerted effort across industry, government, educational institutions and civil society will be required to mitigate any negative impacts. For more discussion about digitalization and new technologies, see “The Perfect Trip” and “Do More with Less: The Power of Innovation & Technology.”
5. Jobs, Jobs, Jobs—But Where is the Talent?
The travel & tourism sector accounts for one in 10 jobs on the planet,23 and as one of the largest employers in the world, the industry has huge potential for job creation. In employment growth terms, the Travel & Tourism industry already outperforms a number of other industries, including the education, financial services and health care sectors.24 Forecasts indicate T&T growth is expected to continue increasing over the next decade.
Research shows that for every 30 new tourists to a destination one new job is created. Today, the travel and tourism industry has almost twice as many women employers as other sectors. The travel and tourism industry offers employment opportunities for persons entering the labour market for the first time or without many options in other sectors. In addition to creating opportunities for high-skilled workers, the industry plays a key role in creating opportunities for low-skilled workers, minorities, migrants, youth, the long-term unemployed, and women who prefer part-time work due to family responsibilities.25
Accounting for 30% of world services exports, and the largest export category in many developing countries, the industry is a tremendous employment generator. Yet the industry has difficulties in attracting top talent, for both technical and managerial positions. Different explanations have been provided for this, including lack of career attractiveness and advancement pathways, competition from other sectors and inadequate education supply, practice and training . Research has estimated that talent gaps and deficiencies in the industry could cost the global economy nearly 14 million jobs and $610 billion in GDP, with China, France, Italy, the Russian Federation and the United States projected to suffer the greatest GDP loss between 2014 and 2024.26
Given the importance of the sector globally, the cost of inaction will have striking consequences for the world economy both in terms of employment and GDP. To address these challenges, the private sector needs to collaborate closely with the public sector to update university and training programmes to ensure they keep up with market needs and technological advancements. See “A Generation at Stake” and “Tourism and Job Creation- Advancing the 2030 Development Agenda” to read what some experts think about the power of the industry to create employment opportunities,
6. Sustainability is a Must
Increasing numbers of globetrotters and the consequent growth of the travel and tourism industry have significant implications on passenger air transport traffic. Since the 1980s, air traffic has doubled every 15 years, a trend which is expected to continue. Nearly 4 billion people travelled by plane in 2016, a number which is expected to reach 7.2 billion by 2035.
While the economic benefits are clear, it is important to understand the repercussions on the environment and on local communities. Despite difficulties in measuring the net impact of tourism on the environment, growth in the number of global tourists does impact local environments and local communities. This must be mitigated to ensure the industry’s long-term sustainability and contribute the fight against climate change.
Areas that need to be addressed include water usage, waste generation, energy consumption and the deterioration of natural and cultural world heritage sites. Research suggests that tourists tend to consume around three to four times more water per day than permanent residents.27 The industry has made significant progress over the past decade in monitoring the impact of the industry and has developed solutions to counteract the negative environmental effects of the industry.
Given widespread targets to decrease carbon emissions, the industry is working to find solutions to reduce oil dependency. These include improving aircraft and airport operations, as well as aircraft design and material use, and considering alternative sources of energy. While implementation of global climate agreements are still a work in progress, the travel and tourism industry has taken active steps to reduce its impact on the environment, and plans to continue to do so while implementing better measurement tools.
In addition to bringing leaders from across the sector together to advance the dialogue on these issues, the aviation industry, through the International Air Transport Association (IATA), has set clear targets to reduce carbon emissions 50% (of 2005 levels) by 2050. In addition, the Air Transport Action Group, an independent coalition of industry organizations and companies, aims to reach a 1.5% average improvement in annual fuel efficiency between 2009 and 2020, while stabilizing net aviation emissions at 2020 levels through carbon neutral growth. While there are no common targets for the hospitality industry to date, individual companies are implementing measurement mechanisms to monitor and reduce energy, waste and water usage. See “Flying towards a Sustainable Future” for a more detailed look at sustainability from the aviation industry’s perspective.
7. Infrastructure is becoming a Bottleneck
The travel and tourism industry contributed 10.2% to global GDP in 2016, an increase for the sixth consecutive year. However, private and public infrastructure investments—airport development, accommodation room stock, road and rail, and communication technologies–have lagged behind, leading to significant bottlenecks. Such infrastructure is not only critical for the continued development of the travel and tourism industry, but also key in providing employment opportunities and regional development.
Tourists want to move quickly and seamlessly, and will choose alternative destinations when access is difficult. For passengers, airports are a means to an end and not a destination. Therefore, airports and borders need to become smarter and travel infrastructure leaner. Given changing consumer preferences and changing market demand characteristics, travel and tourism investments should continue to evolve to ensure they meet market needs.
This Report emphasizes the importance of infrastructure to a nation’s travel and tourism competitiveness. As such, there is a need for dialogue between the public and private sectors, including airlines and airports, to ensure an integrated infrastructure strategy as well as alignment on issues such as investment, regulation, sustainability, security, safety and corruption. See “India’s Incredible Take-Off” for one perspective on airport infrastructure.
8. Let’s Aspire to the 21st Century Regulatory Framework
Travel and tourism is vital to the globalized economy. If the industry meets its projections for annual employment growth of 4% over the coming decade, it will only be because of positive contributions from the dominant mode of international transport: aviation.
Yet, despite the importance of international aviation to the globalized economy, the industry has, historically, been segregated from broader international trade talks, allowing antiquated and protectionist sectoral restrictions to persist relatively unnoticed and unchallenged. While the industry has undergone a wave of liberalization with regard to market access, frequency, pricing and related services that have greatly benefited international travellers over the past two decades, restrictions on foreign investment in airlines remain largely unchanged from the strict regulatory regime installed in the middle of the previous century.
Under the nationality rule, most of the world’s airlines are severely restricted in their ability to sell equity shares, seek investors, or to merge with other airlines. These restrictions, in turn, increase the cost of capital for airlines and deny them efficiencies of size and scope—leading to higher prices for travellers and reduced demand for travel services. Still, over the past 70 years, the aviation industry has evolved from a national transportation system to a complex global network, becoming a driver for economic growth and international trade. This has been fuelled by technological advances, globalization and the liberalization of the industry, notably in the US and EU, which has led to open skies agreements.
When air service agreements were first established in 1944, each state had its national flag carrier and international traffic rights. Yet today there are three large global airlines alliances and, according to the 2014 World Airline Ranking, the top five airline groups account for 28% of the global market share. Geographical location has also been used as a competitive advantage in creating global hubs—such as in the United Arab Emirates—to connect the East and West.
While business models, technology and markets have evolved over the past 40 years, the governance of traffic rights and ownership models have remained without clear global oversight and jurisdiction, leading to international tensions. The industry and global community need to ensure that aviation remains a driver of economic growth. To do so, new international routes must follow a global governance framework respected by all players without jeopardizing national security considerations. “It’s Your Right to Travel”, offers another look at these issues.