The shift to digital technology is gaining momentum in the tours and activities sector

Barring major disruptions, the tours, activities and attractions (TAA) sector will surpass pre-pandemic levels by 2024, with global revenues reaching $260 billion.

But the recovery will be uneven, with certain regions, channels and segments recovering faster than others.

Online travel agencies will continue to accelerate the shift to digital technology. And with niche OTAs entering the tour and activity market, consolidation is likely on the horizon.

These predictions come from The Travel Experience Outlook 2019-2025part of a joint research project of Phocuswright and Arrivala company that provides events, research and community for the ‘destination industry’.

The findings are based on Arival’s desk research, online data collection, dozens of executive interviews and industry surveys. The last survey was conducted in September 2022.

The TAA sector accounted for $253 billion in global revenue in 2019, making it the third largest tourism sector after transportation and accommodation, according to Phocuswright and Arival.

TAA is possibly the most diverse and fragmented sector in the global tourism industry, and also the least researched, the report found. The majority of TAA businesses are small and micro businesses that generate less than $250,000 in annual gross sales.

TAA revenue fell 78% in 2020, compared to 69% for airline passenger revenue and 46% for hotel revenue, due to the sector’s reliance on cross-border tourism and large gatherings. Although government aid in North America and Europe appears to have prevented mass closures during the pandemic, it is unclear how many businesses survived.

But the bumpy road to the industry’s comeback is underway, the survey reveals.

Activities will surpass 2019 revenues in 2023, while tours and attractions will not fully recover until 2024 and 2025, respectively.

North America and Europe will account for nearly 80% of global TAA demand by 2022, before the market rebalances with the return of Asia next year. However, Phocuswright and Arival warn that high inflation and ongoing conflict in Europe are likely to be a drag on global economic growth – especially in Europe – until 2023.

Since the start of the pandemic, tech startups and online marketplaces in tours and activities have raised $900 million. The best fundraisers involve OTAs Gossip, GetYourGuide and KKday; market of local events and activities Fever; and reservation technology provider take a peek. Arival and Phocuswright expect similar levels of investment to continue – if not accelerate – as the industry recovers.

Increase in online bookings

Online bookings at TAA have traditionally lagged behind other travel and tourism sectors because people simply go to the ticket office. However, online bookings have seen a jump from just 17% of global TAA bookings in 2019 to almost 30% by 2021, the Phocuswright and Arival report revealed.

Many software startups have entered the sector to make online booking, ticketing and distribution accessible and affordable for small and medium enterprises.

Google launched a tours and attractions initiative – Things to Do – in 2021 and has since expanded it; this will likely lead to more online discoveries and bookings.

More than seven in 10 operators reported using the pandemic’s downtime to make significant investments in their websites, digital marketing and software, the survey shows. Operator websites — especially attractions — benefited from pandemic-related changes in traveler behavior and will continue to grow through 2025, according to the report.

However, tour and attraction operators may lose ground in their online market share to OTAs, whose gross bookings are expected to grow from less than $8 billion in 2019 to nearly $20 billion by 2025.

Brands equipped to capture the shift to digital channels – especially mobile – will be in the best position to win in this rapidly changing market, say Phocuswright and Arival.

The growing influence of OTAs

Although OTAs represent less than 5% of the global TAA market, they continue to have a major impact on how travelers discover and book experiences, as well as overall marketing and distribution trends. OTAs are particularly well-positioned to take advantage of the rapid shift to online and mobile bookings, the study shows.

The rapid growth of OTAs has led operators to improve their technology and digital marketing. Many operators have recognized the potential digital threat from OTAs and have increased investment in their own direct marketing capabilities, Phocuswright and Arival conclude.

As in the hospitality industry in the mid-2000s, operators are increasingly concerned about the control that OTAs have over supplier relationships. Rising commissions, added fees and changes to terms and conditions have led to strained relations between OTAs and some operators, Phocuswright and Arival found.

Startups are stepping in to fill distribution gaps in key market segments or geographies that are underserved by global brands, the report reveals. Phocuswright and Arival predict that OTA consolidation is likely over the next few years as the travel industry recovers.

Earlier this month, Booking Holdings-owned OTA Priceline expanded into the tours and activities market with the launch of Priceline Experiences.

Earlier this year, Merlin Entertainments, operator of Legoland theme parks, Sea Life aquariums and other attractions, partnered with Oracle to deploy its point of sale and hospitality technology to enhance the guest experience at Merlin’s 130 attractions in 25 countries.