Low Cost Evolution in Travel and Tourism, 2022 Update – Thematic Research

The pandemic has bolstered the importance of the low-cost evolution, with many travelers becoming increasingly concerned regarding their personal finances due to the economic impact of COVID-19. Low-cost options will continue to be in high demand as price sensitivity grows due to a range of technology, macroeconomic, regulatory, and industry trends that are outlined in this report.

Travel apps have been heavily adopted by tourism-related companies operating in the low-cost market. Low-cost companies that are not developing and investing in app technology stand to become laggards within their respective sectors. Apps shape travelers’ spending habits by sending push-notifications regarding last-minute deals while allowing for personalization and the boosting of ancillary revenue by providing a convenient one-stop-shop for customers, where they can also house all their travel-related documents for a stress-free experience.

What are the key trends that will shape the low-cost evolution theme in the coming months?

The key trends that will shape the low-cost evolution theme over the next 12 to 24 months can be divided into four categories: technology trends, macroeconomic trends, regulatory trends, and industry trends.

Technology trends

The main technology trends that will shape the low-cost evolution theme are constant growth in internet users, AI in online travel, and big data & dynamic pricing.

Macroeconomic trends

The main macroeconomic trends that will shape the low-cost evolution theme are COVID-19, M&A, ESG – environment, ESG – social, and millennials & gen Z.

Regulatory trends

The main regulatory trends that will shape the low-cost evolution theme are the liberalization of specific LCC markets and tourist taxes.

Industry trends

The main industry trends that will shape the low-cost evolution theme are psychocentric tourists, VFR and domestic, low-cost long-haul, travel apps, and off-peak travel.

What are the key low-cost evolution value chains?

The low-cost evolution value chain can be segmented into lodging, transportation, and intermediaries.

Lodging

In the low-cost evolution, the three main types of lodging providers are hotels, motels, and cruise ships. Many major and independent hotels have realized the benefits associated with setting up a budget-focused brand or establishment, especially now with many travelers becoming even more price-sensitive due to the pandemic. Motels often meet the needs of travelers needing the lowest cost possible for accommodation.

Transportation

Airline, road, rail, and rental transportation methods create low-cost alternatives for travelers. LCCs enabled mass tourism to be created across the globe, as well as offering the chance for many travelers to undertake multiple trips in one year due to the ultra-low fees they can provide. Road transportation does not just stop at cheap coach journeys, innovative app-based options have disrupted this sub-sector. Rail remains an important low-cost method of transportation for the likes of backpackers, especially across large countries or regions. Additionally, car rental can be a low-cost alternative if a traveler knows they will be nomadic in their activities, and the cost can be split between other passengers.

Intermediaries

The main low-cost sub-sectors in the intermediaries sector offer different benefits to travelers. Price comparison sites often ensure the best price possible for components in a trip within a desired set of dates. Tour operators specialize in creating all-inclusive packages that offer value for money and take the planning aspect of the trip out of the traveler’s hands while online booking platforms allow budget travelers to package their trips to create a personalized but low-cost trip that is specific to their requirements.

Which are the leading public sector companies associated with the low-cost evolution theme?

The leading public sector companies associated with the low-cost evolution theme are Accor, Airbnb, Booking Holdings, Carnival Corporation, EasyJet, Expedia Group, IHG Hotels & Resorts, Lyft, Ryanair, Trip.com Group, TUI Group, Uber, Wizz Air, Wyndham Hotels & Resorts, and Southwest Airlines.

Which are the leading private sector companies associated with the low-cost evolution theme?

The leading private sector companies associated with the low-cost evolution theme are Best Western, BlaBlaCar, Citymax Hotels, Flixbus, Motel 6, The Motel One Group, and OYO Rooms.

For more insights on the low-cost evolution theme in the travel & tourism industry, download a free report sample

Market report scope

 Scope

• This report provides an overview of the low-cost evolution in travel and tourism.
• This report explains why the low-cost evolution will continue to grow in importance.
• This report outlines how the need for low-cost options from travelers is met by a range of companies.
• This report provides examples of what companies and organizations in the travel and tourism industry are doing in reaction to this theme, and how they create differentiation.
• We highlight travel and tourism companies that are leading in this theme, such as Wyndham Hotels & Resorts, Accor, The Motel One Group, Southwest Airlines, BlaBlaCar, Ryanair, Airbnb, and Expedia Group, and Carnival Corporation.

Key Highlights

The increase in the global proportion of internet users from 2011 to 2021 has been substantial, spurring the growth of the low-cost evolution. According to GlobalData’s Macroeconomic Database, the global proportion of internet users in 2011 stood at (xx), by 2021 this figure increased to (xx). With the internet constantly becoming more accessible across the globe, more travelers can utilize cheap and direct booking channels when self-packaging a low-cost trip, as well as price comparison sites to ensure the all-inclusive package they are purchasing from a tour operator is the lowest it possibly can be.

When looking at the LCC market, through dynamic pricing, rates change in real time based on a constant stream of data. Pricing can be informed by customer booking patterns, competitor prices, and even macroeconomic and geopolitical factors. To maximize revenue, airlines need to sell as many seats as possible for the highest price. To ensure that that prices are not so high that it deters budget travelers, LCCs need to understand current market demand and the spending behaviors of their customers. Dynamic pricing helps to achieve this. In the LCC market, this pricing model allows for increased competition, which can result in low prices if demand for a particular route is low, and airlines react by dropping their prices to stimulate demand.

With it seeming that Millennials and Gen Z have taken the brunt of the pandemic across the globe, travelers in these cohorts that are still able to go on domestic and international trips will be looking for low cost options. It is imperative for low cost brands to be active on social media to drive engagement with younger audiences, and to convince them to part with their savings that could be in short supply. According to GlobalData’s Q1 2021 Consumer Survey, (xx) of global respondents consider the ability to engage directly with a brand as an ‘essential’ or ‘key driver’ of purchase. Direct engagement with a brand acting as a key driver rises to (xx) for Gen Z and (xx) for Millennials. Ryanair is a leader in this space. The airline currently has 1.6 million followers on TikTok, which allows the company to already be in the minds of its next generation of customers. It has gained a mass following on various platforms because it capitalizes on viral content, such as memes that are entertaining and relatable.

Reasons to Buy

• To understand the low-cost evolution and its current and future impact on the industry.
• To assess the strategies that leading companies are adopting to attract budget travelers.
• To identify the leading and challenging companies in this theme.
• To understand how this theme is being shaped by a range of different technology, macroeconomic, regulatory, and industry trends.
• GlobalData’s thematic research ecosystem is a single, integrated global research platform that provides an easy-to-use framework for tracking all themes across all companies in all sectors. It has a proven track record of identifying the important themes early, enabling companies to make the right investments ahead of the competition, and secure that all-important competitive advantage.