US DIGITAL TRAVEL SALESMobile Drives Changes in Mature Marketplace

MAY 2013

Dan Marcec

Contributors: Dan Munns, Monica Peart, Martín Utreras, Jeffrey Vasapolli, Haixia Wang

Read this on eMarketer for iPad

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 2

CONTENTS3 The US Digital Travel Market: An Overview

5 Anatomy of a Maturing Online Marketplace

7 Mobile Drives Digital Travel Growth

12 eMarketer Interviews

12 Related eMarketer Reports

13 Related Links

13 Editorial and Production Contributors

EXECUTIVE SUMMARY

eMarketer estimates that US digital travel sales—

which include leisure and unmanaged business

travel purchased online and via mobile devices—

will slowly but steadily increase between 2013 and

2017, achieving a 5.36% compound annual growth

rate (CAGR).

Despite these gains, travel has been and will continue to lose share as a subset of overall business-to-consumer (B2C) ecommerce because online travel is considerably more mature than other types of online retail. The number of online travel researchers and bookers—on desktop and laptop PCs, that is—will inch upward alongside internet penetration growth. And as the economy improves, travel companies will continue to jockey for finite market share of online bookings.

Mobile travel sales will increase far more rapidly than online sales, fueling growth in the digital travel marketplace. In particular, tablets will be instrumental to the expansion of digital travel sales. Though tablets are categorized as mobile devices, consumers typically use tablets more like PCs when planning trips, and tablets likely will replace some PC researching and booking as penetration increases.

Booking revenues from smartphones will continue to increase alongside penetration as well, but consumer research and booking on smartphones predominantly occurs in a very specific-use case: last-minute, on-the-go situations. Consumers typically associate “last minute” with “discount” when it comes to travel products, and mobile revenues could be protracted on a longer-term basis if smartphone travel booking is pigeonholed for this purpose.

eMarketer’s US digital travel forecast is based on the analysis of estimates from other research firms, historical trends, reported and estimated revenues from major online travel companies, consumer online buying trends, macro-level economic conditions and internet and mobile adoption trends.

KEY QUESTIONS ■ What consumer trends are influencing the growth

of US travel sales, both online and mobile?

■ How many US consumers will research and book

travel on tablets and smartphones through 2017?

■ In what ways do US travelers use smartphones and

tablets differently for travel research and booking?

billions and % changeUS Digital Travel Sales, 2011-2017

2011

$113.9

15.1%

2012

$126.3

10.8%

2013

$136.4

8.0%

2014

$145.2

6.5%

2015

$153.2

5.5%

2016

$160.9

5.0%

2017

$168.1

4.5%

Digital travel sales % change

Note: includes online leisure and unmanaged business travel sales bookedvia any deviceSource: eMarketer, May 2013156340 www.eMarketer.com

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 3

THE US DIGITAL TRAVEL MARKET: AN OVERVIEW

US digital travel sales—which include leisure and

unmanaged business travel purchased online

and via all mobile devices, including tablets and

smartphones—will reach $136.4 billion in 2013, an 8%

increase from 2012.

billions and % changeUS Digital Travel Sales, 2011-2017

2011

$113.9

15.1%

2012

$126.3

10.8%

2013

$136.4

8.0%

2014

$145.2

6.5%

2015

$153.2

5.5%

2016

$160.9

5.0%

2017

$168.1

4.5%

Digital travel sales % change

Note: includes online leisure and unmanaged business travel sales bookedvia any deviceSource: eMarketer, May 2013156340 www.eMarketer.com

The most notable change to eMarketer’s travel sales estimates from previous forecasts is a breakout of mobile travel sales, and thus a change in terminology from “online travel sales” to “digital travel sales.” Another significant update in this year’s digital travel forecast report is a revision to our 2012 digital travel sales figures, which increased from $119.2 billion to $126.3 billion. This change is attributed to faster-than-expected growth of mobile travel sales as well as pricing increases across travel sectors; both of these factors are the chief contributors to higher estimates throughout the forecast period.

DIGITAL TRAVEL SALES: DEFINITIONS AND COMPARATIVE ESTIMATES eMarketer forecasts a slow but steady increase in digital travel sales between 2011 and 2017 at a modest 6.7% CAGR, slowing considerably toward the end of the forecast period. Strong growth in 2011 and 2012 reflects market recovery following the recession in addition to the emergence of travel mcommerce.

Digital travel sales estimates from other research firms and investment banks vary widely in dollar amounts—mainly because of disparate definitions and methodologies—but generally the growth rates follow a similar trajectory: solid, steady growth tapering off to midsingle digits. Travel sales growth estimates for 2012 from PhoCusWright Inc., comScore, RBC Capital Markets and Cantor Fitzgerald all landed within a couple percentage points of eMarketer’s 10.8% projection. Only Barclays Capital had a much lower forecast, at 4%. The latter assumed earlier market maturation and consistent growth, predicting a growth rate similar to the other estimates by the end of the forecast period.

% change

Comparative Estimates: US Digital Travel Sales Growth, 2011-2016

Cantor Fitzgerald, Sep 2012

eMarketer*, May 2013RBC Capital Markets, April 2013

Barclays Capital, Sep 2012

PhoCusWright Inc.**, Nov 2012

comScore Inc.***, Feb 2013

2011

8.0%

15.1%10.0%

4.0%

-

10.6%

2012

12.0%

10.8%8.0%

4.0%

11.0%

9.5%

2013

9.0%

8.0%7.0%

4.0%

-

-

2014

8.0%

6.5%7.0%

5.0%

-

-

2015

-

5.5%-

5.0%

-

-

2016

-

5.0%-

5.0%

-

-

Note: *includes online leisure and unmanaged business travel salesbooked via any device; **includes online leisure and unmanaged businesstravel sales; includes airline, car rental, cruise, hotel, packages and rail;***home and work locationsSource: eMarketer, May 2013; various, as noted, 2012 & 2013156478 www.eMarketer.com

eMarketer’s 2012 digital travel sales estimate of $126.3 billion is closely in line with PhoCusWright’s, whose data has served as a benchmark for many in the industry. In February 2013, PhoCusWright released its “US Mobile Travel Report: Market Sizing and Consumer Trends,” in which it estimated that mobile travel sales totaled $7.9 billion in 2012, or 6% of all digital travel bookings for the year. Those numbers would suggest overall digital travel sales of approximately $130 billion for 2012.

eMarketer and PhoCusWright estimates are based on the same definition: online and mobile sales for leisure and unmanaged business travel. “Unmanaged” business travelers—as opposed to “managed” or “corporate” business travelers who must adhere to strict company policies or book through company-approved suppliers and travel agencies—are included in the estimates because they research and book business trips through the same channels as leisure travelers and exhibit similar consumer behavior. Their transactions are therefore not tracked as “corporate” by travel suppliers and third-party resellers and are counted instead with “leisure” bookings.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 4

comScore’s online travel sales figure for 2012 was approximately $103 billion, considerably lower than the figures from eMarketer and PhoCusWright. Though comScore technically has the same definition of online travel—leisure and unmanaged business travel—its estimates cover travel bookings exclusively from home and work computers and do not include mobile. In addition, comScore’s methodology typically tracks US consumers based on site traffic supplemented by survey data, while eMarketer includes transactions through US-based businesses, which can include international customers booking through US portals as well.

BREAKDOWN: CONSUMERS WHO LOOK AND BOOK The number of US digital travel researchers and bookers is expected to mirror internet penetration and increase only slightly over time. eMarketer estimates that nearly two-thirds of internet users will research travel online or through their mobile devices this year, and more than half will book via digital channels. Because the US internet user base has already eclipsed 75% of the total population and will increase to 80% only by 2017, there will not be a significant influx of new digital travel researchers and bookers.

millions and % of internet usersUS Digital Travel Researchers and Bookers, 2011-2017

2011

114.4 61.0%

93.8 50.0%

2012

119.3 62.0%

98.1 51.0%

2013

123.2 62.5%

101.5 51.5%

2014

126.9 63.0%

104.8 52.0%

2015

130.7 63.5%

108.0 52.5%

2016

133.9 64.0%

110.9 53.0%

2017

136.9 64.5%

113.6 53.5%

Researchers Bookers

Note: ages 18+; digital travel researchers defined as those who researchedtravel information online prior to a trip via any device at least once duringthe calendar year but did not necessarily book; digital travel bookersdefined as those who booked travel online via any device at least onceduring the calendar yearSource: eMarketer, May 2013156371 www.eMarketer.com

At first glance, these figures may suggest there’s more room for growth in the market than there is. But the base consumer for eMarketer’s digital travel estimates is an internet user, and it’s important to note that not all internet users travel, and all travelers don’t necessarily take trips every year.

Data specifically identifying internet users who have traveled in the past year shows higher digital researcher and booker penetration levels across all travel categories. In their May 2012 “Consumer Barometer” survey, Google, Interactive Advertising Bureau (IAB) Europe and TNS Infratest found that 81% of US internet users who had booked travel in the past 12 months had researched their trips online, while 74% of respondents had booked online. Broken down by category, hotel researchers overindexed the average traveler considerably in using digital channels to look for travel (86% vs. 81%), and flight bookers were slightly more likely to purchase online than consumers buying other travel products (76% vs. 74%).

% of respondents in each group

US Travel Buyers* Who Research vs. Purchase TravelProducts Online, May 2012

Hotel stays86%

73%

Package holidays82%

70%

Leisure flights81%

76%

Total travel**81%

74%

Researched online before purchasing Purchased online

Note: responses reflect most recent travel product purchased; *who havepurchased travel products online or offline in the past 12 months;**includes leisure and business travelSource: IAB Europe, TNS Infratest and Google, "Consumer Barometer," Aug 28, 2012155595 www.eMarketer.com

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 5

ANATOMY OF A MATURING ONLINE MARKETPLACE

Travel is losing share as a subset of overall B2C

ecommerce because online travel booking blossomed

earlier than other forms of ecommerce; those other

categories are now seeing faster growth. The online

travel space is mature, and suppliers and third-party

resellers are in an ongoing, heated competition for

finite market share of online bookings.

eMarketer estimates that travel made up approximately 36% of all B2C ecommerce sales last year, but by 2016, that share will drop to less than 30% and continue to fall steadily.

% of total

US B2C Ecommerce Sales Share, by Segment,2011-2017

2011

63%

37%

2012

64%

36%

2013

66%

34%

2014

67%

33%

2015

69%

31%

2016

71%

29%

2017

72%

28%

Retail ecommerce* Digital travel**

Note: *excludes event tickets; benchmarked against the DOC data, forwhich the last full year measured was 2011; **includes online leisure andunmanaged business travel sales booked via any deviceSource: eMarketer, May 2013157052 www.eMarketer.com

DIGITAL AS A SUBSET OF TOTAL TRAVEL Digital travel sales accounted for more than 40% of total travel sales in 2012, according to PhoCusWright figures released in November 2012; the firm noted that total travel sales would increase to $303 billion in 2012.

Digital penetration is even higher when focusing solely on leisure travel. RBC Capital Markets estimated that leisure travel will account for a little more than $200 billion in 2013, and the firm’s estimate of $125.8 billion in online sales for 2013 would represent 63% of all leisure sales.

billions, % change and % of totalUS Online and Total Leisure Travel Sales, 2009-2014

Online travelsales—% change

Total leisuretravel sales—% change

Online as %of total

2009

$89.34

-6%

$160.23

-10%

56%

2010

$99.07

11%

$172.22

7%

58%

2011

$108.54

10%

$183.39

6%

59%

2012

$117.42

8%

$192.56

5%

61%

2013

$125.83

7%

$201.23

4%

63%

2014

$135.23

7%

$211.29

5%

64%

Note: 2012-2014 are RBC Capital Markets estimatesSource: RBC Capital Markets as cited by Advertising Age, "Ad Age DigitalConference 2013," April 16, 2013156148 www.eMarketer.com

These estimates stand in stark contrast with figures for overall commerce. Retail ecommerce accounted for just 6% of all retail sales in 2012, according to the US Department of Commerce.

BREAKDOWN: ONLINE TRAVEL BY CATEGORY Air travel accounted for nearly two-thirds of all US online travel sales in 2012, according to comScore, which breaks down online travel sales by category. Not only did air travel garner by far the highest portion of sales, its growth outpaced hotel reservations and car rentals. Travel packages and “other” travel products—which include cruise and rail—also saw a 10% growth rate, but the increase came from a far smaller base than air travel.

US Online Travel Sales, by Category, 2012

Air travel

Hotel reservationsCar rental

Travel packages

Other

Total

Spending(billions)

$66.53

$19.38$9.70

$5.14

$2.20

$102.95

% share of travelspending

65%

19%9%

5%

2%

100%

% change vs.prior year

10%

7%6%

10%

10%

9%Note: home and work locationsSource: comScore E-Commerce Measurement as cited in press release,Feb 20, 2013152976 www.eMarketer.com

Increasing flight prices have been a driving force for online travel revenue increases. After several airlines launched various airfare hike attempts in 2012, seven were successful and contributed to a 4.5% increase in fares through October, according to Rick Seaney, CEO of FareCompare. Since 65% of online travel sales were flight purchases, according to comScore, any increase in airfare would inevitably lead to an increase in online travel sales.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 6

Similarly, the lodging and hospitality sector has seen hotel room rates recovering steadily after the 2008 market collapse. According to PricewaterhouseCoopers (PwC), the US average daily rate (ADR)—the measure of hotel room prices across the entire industry (not just online)—increased approximately 4% year over year on a quarterly basis in 2012. PwC estimated that ADR would increase another 4.5% to 5% year over year on a quarterly basis in 2013.

ONLINE PRICING WARS ABATE AS ECONOMY STRENGTHENS During the recession, depressed rates, combined with low demand, contributed heavily to the drop-off in online travel sales. Both hotel brands and online travel agencies (OTAs) were apt to offer lower, discounted or special rates through online sales portals in order to win bookings from deal-seeking customers who were not brand loyal.

As demand recovered, consumers continued to seek out last-minute, low-cost travel options that remained readily available online—a behavior that has carried over into the early days of mobile travel booking as well. In many cases, travel suppliers sell last-minute, unused inventory to OTAs, which typically are resold via discounted rates.

As the economy continues to strengthen, travel brands are focusing on reversing this trend and driving more full-price bookings directly from their own websites—a model known as “direct distribution.” According to PhoCusWright, this strategy has been successful, and by 2014, two-thirds of all online bookings for hotels, cruises and airline tickets will be made through suppliers’ websites, rather than through third-party OTAs.

% of total

US Online Travel Booking Revenues, by Segment, 2010 & 2014

2010 2014

Hotel

Cruise

Airline

Total

Supplierwebsites

55%

43%

68%

61%

Online travelagencies

45%

57%

32%

39%

Supplierwebsites

59%

59%

75%

66%

Online travelagencies

41%

41%

25%

34%Note: leisure and unmanaged business travel bookingsSource: PhoCusWright, "US Online Travel Overview Twelfth Edition" as citedby Travel Weekly, Nov 19, 2012150289 www.eMarketer.com

That’s not to say OTAs are hurting. Booking revenues for the top three OTAs in the US—Expedia, Orbitz and Priceline.com—will continue to account for a considerable portion of overall digital travel sales, totaling more than $40 billion by 2017, according to a Barclays Capital estimate. During that time, booking revenues for Expedia will increase slightly ahead of the growth rate for digital travel sales overall, and Priceline’s will track just behind that growth pattern. While Barclays estimates that Orbitz will retain its second-place position in the US OTA market, its revenues will remain essentially flat during the forecast period.

billions and % change

US Gross Travel Booking Revenues for Select OnlineTravel Companies, 2012-2017

2012 2013 2014 2015 2016 2017

Expedia $19.96 $21.92 $23.67 $25.33 $26.85 $28.19% change 13.5% 9.8% 8.0% 7.0% 6.0% 5.0%

Orbitz $8.95 $8.85 $8.84 $8.84 $8.81 $8.80% change -1.6% -1.1% 0.0% 0.0% -0.3% -0.2%

Priceline.com $5.09 $5.48 $5.80 $6.05 $6.26 $6.42% change 7.1% 7.8% 5.8% 4.4% 3.4% 2.6%

Total $33.99 $36.25 $38.31 $40.23 $41.92 $43.41% change 8.1% 6.6% 5.7% 5.0% 4.2% 3.6%

Note: numbers may not add up to total due to rounding; 2013-2017 areBarclays estimatesSource: Barclays Capital based on company reports, "Internet & Media 101:March 2013 Edition," Jan 4, 2013155647 www.eMarketer.com

Hotel data from TravelCLICK confirmed that all online channels are gaining market share in terms of actual reservations as well. (TravelCLICK’s data covers the top 25 markets in North America, all of which are in the US save Toronto.) Hotel websites—the leading reservations channel for all online and offline bookings—gained more than half a percentage point in market share in 2012, growing from 26.1% to 26.7%. During that time, OTAs’ market share rose more sharply from a smaller base, garnering 10.4% of total hotel bookings, up from 9.5% in 2011.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 7

% of total

Transient* Hotel Reservations in North America, by Channel, 2011 & 2012

2011

26.7% 22.5% 22.7% 17.7% 10.4%2012

26.1% 23.3% 22.8% 18.2% 9.5%

Brand websiteDirectGlobal distribution system (GDS)Central reservations system (CRS)Online travel agency (OTA)

Note: reflects bookings from participating brands in top 25 markets inNorth America; numbers may not add up to 100% due to rounding;*individual business and leisure travelersSource: TravelCLICK, April 22, 2013156484 www.eMarketer.com

“All channels are integral for travel booking, and we’re not going to see a huge movement away from offline channels,” said Tim Hart, executive vice president for enterprise research and development at TravelCLICK. “But there’s been a constant shift toward hotel brand websites and OTAs that hasn’t abated.”

In a stronger economy, hotels don’t feel the need to offload unsold rooms because they have healthy occupancy and pricing power. When suppliers gain better control of their inventory, they can set the terms for their own product if they choose to work with online travel agencies, which drives up pricing (and thus revenues) across the board. Fewer discounts and more reservations mean higher rates and revenues through all online channels.

MOBILE DRIVES DIGITAL TRAVEL GROWTH

While digital travel sales overall will experience

slow, steady growth during the next few years, one

component will grow sharply: mobile booking.

eMarketer’s estimate for mobile travel sales—which includes both tablets and smartphones—will nearly double this year, increasing from $7 billion to $13.6 billion. The 2013 estimate will account for 10% of the total digital travel market and through 2017, mobile travel sales will increase far more rapidly than online sales. eMarketer estimates that mobile travel sales will more than triple between 2013 and 2017, totaling nearly $50 billion in 2017, when they will account for almost 30% of all digital travel sales. Online travel sales essentially will remain flat during that time period.

billions, % change and % of digital travel salesUS Mobile Travel Sales, 2011-2017

2011

$3.4

130.2%

3.0%

2012

$7.0

104.8%

5.5%

2013

$13.6

94.8%

10.0%

2014

$23.2

70.4%

16.0%

2015

$32.2

38.5%

21.0%

2016

$40.2

25.0%

25.0%

2017

$48.8

21.2%

29.0%

Mobile travel sales % change % of digital travel sales

Note: includes leisure and unmanaged business travel sales booked viamobile deviceSource: eMarketer, May 2013156341 www.eMarketer.com

According to Internet Retailer’s “Mobile 400” guide—which detailed the combined US mcommerce sales of the 400 largest retail, ticket and travel companies in the US, Latin America and Europe—the top 10 companies on the list accounted for $8.19 billion in US mcommerce sales in 2012, doubling from $4.1 billion in 2011 and comprising 39.3% market share. Six travel companies—Expedia, Orbitz, Marriott International, Hilton Worldwide, InterContinental Hotels Group (IHG) and easyJet—were among those top 10 companies.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 8

Thirty-eight travel companies made Internet Retailer’s Mobile 400 list, and US mobile travel sales among those companies grew 149.5% to $2.57 billion in 2012. Mobile travel sales for these companies made up 23.7% of US sales volume among the Mobile 400, increasing travel’s share from 18.7% in 2011.

billions and % of total

US Mcommerce Sales for the Mobile 400, by Category,2011 & 2012

2011 2012

Retailer $4.36 $7.99

Travel company $1.03 $2.57

Ticket company $0.11 $0.29

Total $5.50

% of total

79.3%

18.7%

1.9%

100.0% $10.85

% of total

73.7%

23.7%

2.7%

100.0%Note: numbers may not add up to 100% due to roundingSource: Internet Retailer, "The Mobile 400," Sep 26, 2012156519 www.eMarketer.com

“In 12 short months, the ongoing shift from desktop to mobile and tablet devices has created a sense of urgency to improve the hotel’s presence on these devices,” wrote Max Starkov, president and CEO of hotel internet marketing firm HeBS Digital, in an April 2013 blog post. “In Q1 2013, compared to Q1 2012, website revenue from mobile devices increased by 58%, while tablet revenue almost doubled (+95%) across HeBS Digital’s hotel client portfolio. During the same period, desktop website revenue dipped by 5.1%.”

Meanwhile, travel mcommerce, like the online travel market before it, is outpacing general mobile commerce in the early days of adoption. In 2012, travel mcommerce comprised 22% of all B2C mcommerce. By 2015, eMarketer estimates, travel’s share will increase to 31% and then begin to even out.

% of total

US B2C Mcommerce Sales Share, by Segment,2011-2017

2011

80%

20%

2012

78%

22%

2013

74%

26%

2014

70%

30%

2015

69%

31%

2016

70%

30%

2017

69%

31%

Retail mcommerce* Mobile travel**

Note: *excludes event tickets; **includes leisure and unmanaged businesstravel sales booked via mobile deviceSource: eMarketer, May 2013157053 www.eMarketer.com

BREAKDOWN: MOBILE RESEARCH AND BOOKING BY DEVICE Increases in mobile travel sales will be due in part to consumer confidence in making larger purchases through mobile devices. But the main growth driver will be tied simply to mobile penetration and usage trends. eMarketer estimates that in 2013, nearly 50 million US consumers will research travel on their smartphones and tablets, accounting for approximately 40% of all digital travel researchers.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 9

millions, % change and % of digital travel researchersUS Mobile Travel Researchers, 2011-2017

2011

27.8

38.3%

24.3%

2012

37.936.3%

31.8%

2013

49.6

30.8%

40.2%

2014

59.5

20.0%

46.8%

2015

70.9

19.3%

54.3%

2016

83.4

17.5%

62.3%

2017

93.0

11.6%

67.9%

Mobile travel researchers% change % of digital travel researchers

Note: ages 18+; mobile device users who researched travel informationprior to a trip via mobile device at least once during the calendar year butdid not necessarily bookSource: eMarketer, May 2013156372 www.eMarketer.com

About half that number—25.5 million consumers—will purchase travel via mobile devices in 2013, representing one-quarter of US digital travel bookers. During the forecast period, growth of mobile bookers will outpace growth of mobile researchers, and by 2017, the number of mobile bookers will more than double to total 56.8 million, making up half of all US digital travel bookers.

millions, % change and % of digital travel bookersUS Mobile Travel Bookers, 2011-2017

2011

11.6

69.1%

12.3%

2012

18.3

58.1%

18.6%

2013

25.5

39.8%

25.2%

2014

32.7

28.1%

31.2%

2015

40.3

23.1%

37.3%

2016

48.7

20.8%

43.9%

2017

56.8

16.7%

50.0%

Mobile travel bookers % change % of digital travel bookers

Note: ages 18+; mobile device users who booked travel via mobile deviceat least once during the calendar yearSource: eMarketer, May 2013156373 www.eMarketer.com

Travel’s online maturity will translate to mobile platforms as well. As more people use their mobile devices, travel providers will improve mobile offerings to serve their customers. This progression will lead to more and better mobile travel information, which will translate to more transactions and higher mobile booking revenues.

Barriers to Revenue Growth via Smartphone BookingsThough mobile has huge potential, there are considerable challenges for smartphone users booking through those devices, including the inconvenience of a small screen and security concerns around mobile transactions. In a May 2012 survey, Google and Ipsos MediaCT found that 36% of US travelers who researched but did not book on mobile devices said that mobile websites were too difficult to navigate, and another 28% said that booking takes too long because the pages load too slowly. Moreover 22% of respondents said they weren’t comfortable with security on mobile devices.

% of respondents

Reasons US Travelers Do Not Book Travel ThroughTheir Mobile Devices, May 2012

The websites are hard to see/read/navigate on a mobile device36%

It takes too long to book on a mobile device/the pages load tooslowly

28%

Too cumbersome25%

Don't trust the security on mobile devices22%

Needed to confirm with someone else before booking19%

The mobile version of the site did not allow me to book15%

Didn't have credit card accessible7%

Other4%

Note: n=502 mobile users who accessed the internet on their mobiledevice while planning travel, but didn't book anything via mobile; in thepast yearSource: Google and Ipsos MediaCT, "The 2012 Traveler," Aug 10, 2012146035 www.eMarketer.com

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 10

Even when travel shoppers use their smartphones to book a trip, they tend to be looking for a last-minute flight, car rental or hotel room, and many expect last-minute purchases to come at a discount. Some OTA models (think Hotwire or Priceline.com’s “Negotiator”) became popular by offering deals to consumers who were willing to wait until the last minute to book, so long as they didn’t care which particular hotel they booked or which car they drove.

In addition to these well-known and widely used online travel services that have migrated their successful strategies to mobile, some new-to-market mobile apps also perpetuate consumers’ propensity to associate last-minute bookings with discounts. Consider Hotel Tonight, a mobile app that trumpets the fact that “hotels give us last-minute deals on their unsold rooms, with discounts up to 70%.” In response to the startup’s early success, many of the major OTAs launched “tonight-only” apps in 2012 to supplement their regular business, “with promises of discounts ranging from 40% to 70%,” according to travel industry news site Skift.com.

Suppliers have gained control of their inventory via online sales channels. But with mobile, that’s still not the case. The situation that suppliers faced online during the recession—selling rooms to third parties at a discount in order to improve transaction volume—is replaying in the mobile space. PhoCusWright estimated that OTAs made up about 64% of gross mobile hotel bookings in 2012, compared with 36% for hotels’ own mobile sites—the opposite of what the firm discovered online and what suppliers have struggled to reverse.

In other words, third-party mobile deals may help usher in more total smartphone bookings more quickly, but if the platform becomes entrenched as primarily a place to find last-minute discounts, smartphone sales will be less lucrative in the longer term. As accomplished online, if travel companies devise better ways to monetize smartphone bookings and control inventory through their own channels, dollar amounts per transaction will likely rise and contribute to more substantial mobile revenue growth.

Tablets to Surpass Smartphones for Travel Activities eMarketer added tablet researchers and bookers to this year’s forecast, which adds a wrinkle to the mobile discussion. Tablet usage in the US is growing significantly, and almost three in five internet users will access a tablet by 2016, eMarketer estimates. Alongside a general usage increase, eMarketer expects tablets to outpace and surpass smartphone usage for travel research and booking, which will have a significant influence on the growth of the mobile travel space.

millions and % of mobile travel researchersUS Mobile Travel Researchers, by Device, 2011-2017

2011

26.2 94.2%

5.8 21.0%

2012

35.4 93.4%

26.8 70.7%

2013

45.9 92.6%

39.0 78.6%

2014

54.5 91.6%

51.0 85.7%

2015

63.7 89.7%

63.7 89.7%

2016

73.4 88.0%

74.9 89.8%

2017

82.0 88.1%

83.6 89.9%

Smartphone Tablet

Note: ages 18+; mobile device users who researched travel informationprior to a trip via mobile device at least once during the calendar year butdid not necessarily book; numbers do not add up to 100% due to overlapamong smartphone, tablet and other mobile device usersSource: eMarketer, May 2013156374 www.eMarketer.com

eMarketer estimates that more than 46 million US internet users will book travel using tablets in 2017, just more than the 42.9 million expected to book via smartphone.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 11

millions and % of mobile travel bookersUS Mobile Travel Bookers, by Device, 2011-2017

2011

11.0 95.1%

2.6 22.7%

2012

15.5 84.8%

12.2 66.7%

2013

20.4 79.9%

19.0 74.2%

2014

25.4 77.7%

25.5 77.9%

2015

30.6 76.0%

31.8 79.0%

2016

36.7 75.4%

39.6 81.3%

2017

42.9 75.5%

46.3 81.5%

Smartphone Tablet

Note: ages 18+; mobile device users who booked travel via mobile deviceat least once during the calendar year; numbers do not add up to 100%due to overlap among smartphone, tablet and other mobile device usersSource: eMarketer, May 2013156375 www.eMarketer.com

These devices are often used in different scenarios, and it’s likely that there will be crossover among consumers who own and use both. That’s why smartphone researchers and bookers, and tablet researchers and bookers, can account for such a large percentage of all mobile researchers and bookers.

Travel Planning via Tablets Is Not Typically ‘Mobile’As tablets proliferate and tablet-specific travel content becomes more sophisticated, traveler usage of tablets and smartphones will divide into clearer distinctions. Though categorized as mobile devices, tablets are typically used more like PCs for seeking travel information. As a result, tablets are likely to replace some PC research and booking over time. In addition to the fact that tablet use spikes in the evenings—when consumers are more likely to be browsing leisurely and shopping for travel—tablets solve several of the main barriers to smartphone travel booking:

■ Most tablets have considerably larger screens than

smartphones, allowing for richer display and more

user-friendly navigation.

■ When accessed at home through a Wi-Fi network,

devices should receive a more reliable connection

than on cellular data networks. Travelers spend

much more time with their tablets connected

via Wi-Fi than through mobile broadband, which

is an advantage for travel research and booking

considering the bandwidth often required for

detailed, media-heavy travel content.

■ Finally, “last-minute” and “discount” are still

conflated in the traveler lexicon, and tablet

research and booking is more likely to take place

at home in a “lean-back” context, in contrast

to the more urgent travel needs of the typical

smartphone booker.

“On a smartphone device, anywhere from 40% to 65% of bookings are same day, but that’s not what happens on a tablet. We’re all including tablet as mobile, but fundamentally, I don’t actually view the tablet as a mobile device,” said Bill Keen, director of mobile solutions for IHG. “We refer to tablets as couch commerce [because] around 70% of our tablet traffic comes from Wi-Fi, not a mobile network—so that tells us that the customer is actually very sedentary, and the context in which it’s used is not truly mobile.”

US travelers who use digital devices to book trips are already using tablets more often than smartphones for that purpose, according to Expedia Media Solutions and comScore. In an August 2012 survey, 34% of travelers said they had purchased travel on a tablet within the past six months, compared with 28% of travelers who used a smartphone. A higher percentage of these mobile-toting travelers booked hotels, air travel, ground transport and attractions/activities on tablets than on smartphones.

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 12

% of respondents

US Travelers Who Use Select Devices to Book Travel,by Category, Aug 2012

PC Tablet Smartphone

Hotel 51% 17% 11%

Air travel 46% 11% 9%

Ground transport 21% 10% 7%

Attractions/activities 14% 10% 10%

Restaurant 10% 9% 10%

Total 77% 34% 28%Note: ages 18+; in the past 6 months; 56% of respondents who used asmartphone/tablet to book a hotel booked through an app; 58% ofrespondents who used a smartphone/tablet to book air travel bookedthrough an appSource: Expedia Media Solutions and comScore, "The Rise of Mobile:Adoption, Sentiment & Opportunity," Nov 14, 2012148344 www.eMarketer.com

In addition, the study found that nearly 60% of mobile bookers purchased hotel and air travel through apps, whether on tablet or smartphone. If that trend continues—app purchasing over mobile web booking—travel marketers will be even more inclined to tailor their product offerings to particular devices.

EMARKETER INTERVIEWS

InterContinental Finds Booking via Tablet Is Part of the Holiday

Bill Keen Director, Mobile Solutions

InterContinental Hotels Group (IHG) Interview conducted on September 5, 2012

Tim Hart Executive Vice President, Enterprise Research and Development

TravelCLICK

Interview conducted on April 23, 2013

RELATED EMARKETER REPORTS

US Online Travel Sales and Booking Forecast: Mobile Offers Opportunities to Shift Share in a Mature Market

Marketing to Mobile Travelers: Device Usage During Travel Offers New Touchpoints

The Cruise Industry: Does Online Engagement Drive Sales?

US DIGITAL TRAVEL SALES: MOBILE DRIVES CHANGES IN MATURE MARKETPLACE ©2013 EMARKETER INC. ALL RIGHTS RESERVED 13

RELATED LINKS

Barclays Capital

Business Travel News

Cantor Fitzgerald

comScore

Consumer Barometer

Expedia Media Solutions

FareCompare

HeBS Digital

Hotel Tonight

Internet Retailer

PhoCusWright

PricewaterhouseCoopers

RBC Capital Markets

Skift.com

The 2012 Traveler

Tnooz

TravelCLICK

US Department of Commerce

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Senior EditorKaitlin Carlin Copy EditorJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Senior Production ArtistDana Hill Director of ProductionNicole Perrin Associate Editorial DirectorHeather Price Copy EditorAllie Smith Director of Charts