Travel Industry in Japan : Inbound Increase + Global OTAs Aggressive
I love to travel.
During the past 27 years, I’ve been visiting to over 20 countries and I still have a long list of must go places.
Going to places I’ve never went before helps me open my eyes and mind, leading me to learn more about other cultures and view points.
I believe many people like to travel. But, how many of them have ever thought about the competition occurring behind their bookings? I really like the contrast between the relaxing image that many travelers have toward this industry and the actual intense competition amongst the players in this market.
For online flight and hotel bookings, price competitiveness is everything. There are other important factors like loyalty programs and payment methods but pricing is what makes companies better than others. It is a very simple game but at the same time, a very tough game.
As I saw many players tackling into this market in SEA, players like Traveloka, Wego, NIDA Rooms etc, I’d like to share some information about the landscape in Japan because it is an interesting market where global players aren’t dominating yet.
Market Comparison Between Japan and SEA
From WTTC’s data, when you compare the total contribution of Travel & Tourism to GDP of Japan and that of SEA, the difference is not that large. If you look at each market size, it is fragmented but since there are sightseeing spots like Bali and Phuket, the overall SEA travel market seems healthy.
Travel Industry Market in Japan
According to Japan Tourism Agency, the travel industry market size was around US$240 Bn in 2015. Nearly 74% is domestic travel and 26% is international travel. In recent years, inbound travelers have increased greatly and last year the number of people visiting to Japan has exceeded 20 Mn. It is expected to grow until the Tokyo olympics. This change will surely bring new trend and business to the market so I am excited to see the transition!
Still, the domestic travel, especially travels that requires accommodation, holds a large share of the market.
Within the domestic travel, most of the travels are for leisure purposes. There are several plans for leisure and currently less than 30% is group travel type, meaning that over 70% is either self serviced or customized tour to fit traveler’s specific schedule.
The below graph is to give you a brief image of what kind of accommodation and means of transportation travelers are using for domestic leisure trips.
Traditional Travel Agencies in Japan
Like in all other countries, there are traditional agencies that have been operating for years. As listed below, most are private companies or subsidiaries. Traditional agencies aren’t operating a high profitable business but they are the ones who still holds the large portion of the market and has the strong network in hotels, airlines, trains, etc.
Online Travel Market in Japan
In 2015, online travel market was over $20Bn and the online penetration was close to 40%. Compared with other markets, the unique thing about Japan is that 2 domestic OTAs are holding close to half of the market.
However when seeing recent growth rates of each players, the domestic players are slightly decreasing their share as global players are starting to invest marketing into Japan. The growth rate won’t probably drop immediately but domestic players will need to find ways to compete since global players have more resources to dedicate to this specific travel industry.
Other than the above players, there are some startups trying to build up a vertical OTA or hack new market such as airbnb related business. This month KDDI, one of the largest teleco in Japan, acquired Loco Partners (service name is Relux) which is offering an online reservation for high-end hotels in Japan. The purchase price wasn’t disclosed but the service has served over 650K users in the past 3 years.
As the market becomes crowded and the winners are identified, I strongly feel that it is essential for startups to secure valuable inventories. Users can switch platforms easily for this space because they tend to be price conscious so unique products or strong negotiation power to specific hotels are the aspects that help startups differentiate themselves from other players.
Lastly, I read a very informative blog written by a Japanese who is working in the travel space and it was sharing some thoughts on the drivers that are contributing to the online travel market growth. I really agree with him so I decided to leave them here to conclude this post. Thanks for reading!
1)Global players starting to become aggressive in Japan
Lots of TV commercials in recent year:
Expedia
Booking
Hotels.com
Trivago
2) Traditional agencies putting effort on online
OTA run by JTB, the biggest travel agency, is growing more than the top 2 domestic players.
3) Increased sales of dynamic packaging products
I wanted to dig more into this dynamic packaging strategy because most domestic players (and even Expedia) are emphasizing on this product. I guess I’ll talk more about it next week.
