Inside the Machine: The Phocuswright Conference 2023 Focuses on What Could Be: Phocuswright

There was a lightness in the air at The Phocuswright Conference 2023 in Hollywood, FL, Nov. 13-16. As travel companies continue to ride the wave of strong demand, there were few complaints about lack of business. Even the wind and rain didn’t dampen the high spirits for the 1200+ attendees at the iconic Diplomat Beach Resort. As for the economy going forward, everyone was hoping for a “soft landing in 2024” instead of a dreaded recession. To maintain momentum, it will take collaboration -- as the theme expressed -- among “You, Me, and The Machine”.

The travel industry has never been one to rest on its laurels and this year was no exception. While the current travel environment remains positive, if not tenuous considering ongoing conflicts around the world, there is still much work to be done. Any company that isn’t focused on major advancements will struggle in the second half of the decade. There has been constant talk about personalization and creating a seamless journey, but improvement comes in increments. So, what has changed?

“Like other disruptive technologies you will see an incredible hype cycle early but underestimate the long-term impact.”
- Matt Goldberg, CEO, Tripadvisor
Matt Goldberg, CEO, Tripadvisor

Gen AI: From Practical to Magical

What is different now than even one year ago is the big promise of generative AI (e.g., ChatGPT, Bard) and how it can transform the end-to-end travel experience. Because AI can make personal recommendations, build trips, and create itineraries, the travel implications are endless. But everyone agreed it is early days, and too soon to tell what impact AI will have on how we discover and experience trips going forward.

Susie Vowinkel, managing director, travel, Google with Pete Comeau, managing director, Phocuswright

Susie Vowinkel, managing director, travel, Google with Pete Comeau, managing director, Phocuswright

At present, AI is used mostly in customer service (e.g., chatbots) and at the backend, doing the work of programmers, call center personnel, and increasing productivity (too soon to tell the impact on staffing but coders beware), and of course trip planning (e.g., lots of ChatGPT plug-ins and curated content). Susie Vowinkel, managing director, Travel, at Google explained how Bard’s Open AI extensions connect into Gmail, YouTube, flight, and hotel search to create itineraries. For partners, the machine can play a role in where marketers should invest. And Tripadvisor’s CEO Matt Goldberg said there is huge opportunity for AI to dissect Trip’s 1 billion+ reviews to provide better detail for travelers for hotels, experiences, and restaurants. Tripadvisor has seen great results from its Gen AI planning tool so far, but they’re just getting started. “Like other disruptive technologies you will see an incredible hype cycle early but underestimate the long-term impact.”

John Mangelaars, CEO, Skyscanner and Johannes Thomas, CEO, trivago with moderator Linda Fox, senior reporter, PhocusWire

John Mangelaars, CEO, Skyscanner and Johannes Thomas, CEO, trivago with moderator Linda Fox, senior reporter, PhocusWire

John Mangelaars, CEO of Skyscanner, found that AI does convert better after several months of testing, but most early applications are practical in nature. Johannes Thomas, CEO of Trivago, uses AI to localize TV spots in multiple languages across the globe, lowering costs by 10X. Johannes Reck, co-Founder & CEO, GetYourGuide, mentioned the “nuts and bolts” – enabling supply to upload in multiple languages, while Ben Drew, president of Viator, referred to other “pragmatic” uses such as saving seconds of time at the call center.

A Waiting Game for Investors

The promise of Gen AI to transform travel has not yet had a great impact on start-up valuations, despite the proliferation of so-called “AI-based” companies. According to Phocuswright data, investments could use a jolt, as estimates put the level of money raised for 2023 back below where it was 8 years ago in, said Mike Coletta, Manager, Research and Innovation, Phocuswright Inc.

Activity has been dampened by high interest rates, and investors admitted that money is on the sidelines as they wait for valuations to normalize and the “big winner” to emerge in generative AI tech. “We haven’t really found the right use case,” said Amy Burr, president of JetBlue Ventures, though they are keen on finding companies using AI for operational efficiency. Investors expect more action in 2024-25 as valuations normalize, but companies need to show a path toward profitability. “Growing with little burn or relative burn but a higher growth rate,” is critical in the valuation, said Naved Khan, managing director, B. Riley Securities, during the Street Talk panel.

Mike Coletta, manager, research and innovation, Phocuswright

Amy Burr, President, JetBlue Ventures

Winners and Losers

Another debated topic is the impact of Gen AI on the travel ecosystem – will there be benefits for companies of all sizes to stand out or will it simply allow the larger companies to get even bigger? While there is certainly room for an upstart (like OpenAI), OTAs have had a 20-year head start and accumulated the vast amounts of data needed to make AI work, according to Jake Fuller, managing director, BTIG, LLC.

Kayak’s CEO Steve Hafner also agrees that their accumulated data helps AI make better decisions. “I think it's going to help big brands get better, take market share.” But Kayak co-founder and serial entrepreneur Paul English disagrees. “[AI] is making us way more productive…it doesn't matter how many engineers you have.” For English, there is now a more level playing field to write code and build new businesses.

Jake Fuller, managing director, BTIG

Paul English, founder, Deets.com, Steve Hafner, CEO & co-founder, KAYAK with interviewer Lorraine Sileo, founder, Phocuswright Research and senior analyst, Phocuswright

Turning the Corner

Profitability was also a hot topic. Not only is it harder to raise capital if you’re leaking money these days, but it is time for some of the more recent upstarts to improve the bottom line. After nearly nine years from launching and building the app, Hopper is ready for positive returns. “Fundamentally we have to get to profitability” by 2024, said its founder and CEO Fred LaLonde, adding that the B2B business is already in the black. Two of the leaders in the tours and activities space, Viator and GetYourGuide, also vouched for full year profitability in 2024 as they focus on retention and repeat business. “We’re on a journey towards long-term sustainable OTA-like profit margins,” said Viator’s Drew.

Other sessions focused on sustainability and disruption; NDC and the state of business travel; experiences; tours and activities; digital identify; cruise; and globalization. As summed up by Charuta Fadnis, Phocuswright’s SVP, Research and Product Strategy, “It’s the opportunity of a lifetime – the opportunity to reimagine the industry from the ground up and to build travel into an experience that encompasses You, Me, and The Machine.” It should be an interesting year.