Online travel agencies steering the future of Saudi travel industry

Sameer Bagul

By Sameer Bagul*

OVER the past few years, Saudi Arabia has emerged as a hotspot for travellers. The Kingdom has been witnessing a tremendous increase in visitor arrivals thanks to its ongoing social and economic reforms and enormous investments in tourism and infrastructure projects. Given the fast pace of growth and development, one can rightly hope that the country will be at the heart of the global travel industry during the next two decades. While the Saudi Vision 2030, which has a particular emphasis on travel and tourism, is providing the roadmap for the industry’s future, the fast-evolving online travel sector is leading the charge.

One of the fastest-growing sectors in Saudi Arabia, travel and tourism expanded at four times the rate of the wider economy in 2017. It accounted for 9.4% of GDP last year, with a total contribution of $64.2 billion. With bookings worth over $25 billion made each year, the Kingdom has the largest share of total travel bookings in the Middle East and North Africa. Notably, more than 25% of all travel bookings in the country are made online.

The Kingdom’s established religious tourism sector has been the foremost driver of growth for inbound travel. With massive public spending on new commercial, tourism and entertainment projects such as $500 billion Red Sea coastline project, NEOM mega-city project, Al Qiddiya Entertainment City, Farasan Islands initiative, as well as the 3,000 square kilometre luxury destination project, Amaala, the country is gearing up for an influx of international tourists in the future.

Recent visa regulations reforms, which are aimed at issuing tourist visas and enable foreign visitors to attend sporting and entertainment events for the first time, have been widely hailed as a major step towards the country’s ambitious future. Similarly, with massive investments in infrastructure development and buoyant domestic business activity, the Kingdom is also emerging as a magnet for corporate travellers.

A thriving aviation sector is an important catalyst for the travel market’s growth. Of all travel bookings made in the Kingdom, approximately 40% account for airline reservations, which continue to grow at more than 12% year-over-year. This growth is largely driven by burgeoning demand for domestic air travel, which has led new airlines such as Flyadeal, Saudi Gulf and Flynas to significantly increase capacity, particularly in the low-cost segment, to address the supply gap in the market. With increased capacity, the domestic air travel sector is headed for a major leap in the near future.

The country, which boasts an annual GDP per capita by purchasing power parity of $53,844, has also seen a surge in the outbound travel in recent years. The summer months of 2018 alone recorded 9.4 million outbound tourist trips from the Kingdom, together with an outbound tourist spend of $8.1 billion. In this enormous market, where 70% of the population is under 30 and is well-versed with technology, changing consumer behaviour and a booming online travel landscape are driving growth in the outbound and domestic travel sectors.

Markets around the world have seen marked changes in consumer needs and preferences in line with new advancements in technology. The shifts are even more pronounced in Saudi Arabia, which boasts high rates of internet penetration, adoption of smartphones and social media use. Rapidly evolving from being a mere ‘tourist,’ whose trips were booked and managed by traditional travel agents, to an ‘individual traveller’ and ‘experience seeker,’ who has particular travel and accommodation choices, the consumer has become an inevitable part of the entire process of ‘travel booking’ in the Kingdom’s travel sector.

Similarly, the country has experienced swift growth in the online travel sector that accounts over 30% year-over-year. Being the fastest growing segment of the travel industry in the Kingdom, OTAs have increased their share of travel bookings to more than 14% in 2018. On the back of constant efforts by airlines and continued investments by online travel agencies (OTAs), the online market penetration is projected to rise sharply from its current rate of 25% to 39% by 2021. Thanks to its prospects, the sector has also seen the emergence of new players and industry partnerships, such as the coming together of Cleartrip and Flyin earlier this year to form the biggest OTA in the market.

Saudi Arabia is undergoing a transformation unprecedented in the Kingdom’s history, with different industries and sectors bracing themselves for a wave of change. Meanwhile, the travel industry already stands at the forefront of these changes, ready to unlock the full potential of the country’s huge youth population, who have a strong appetite for new experiences.

*Executive Vice President and Managing Director of Cleartrip Middle East