OTA’s Business Model and its Impact on the Travel Industry in South Korea

OTA’s Business Model and its Impact on the Travel Industry in South Korea

by Jungho Suh, Project Director, KMI

While COVID-19 has devastated global travel demand, many tourism and travel industry leaders predict that international tourism will rebound by the end of 2021. The consensus is supported by the signs of growing interests in travel-related keyword searches and advanced online travel bookings reported by Mckinsey, Skift, and the United Nations World Tourism Organization (UNWTO). Moreover, despite the fact that many online travel platforms have shown a historic downturn in growth rates, Airbnb did an IPO in December 2020 amid the COVID-19 pandemic. This leads us to the outlook that the online travel agency (OTA) business could turn around as international travel restarts.

To discuss the dynamics between global hotel chains and OTA and the crucial role of big data analytics and experimentation in OTA business settings, the Korean Management Institute (KMI) invited Ms. JiHyun Hong, a specialist in OTA strategy, to KMI March Webinar. What is an OTA? In JiHyun’s keynote speech, she opened up the discussion of the OTA supply landscape. The OTA business model mainly consists of two components: i) travel booking site and ii) online travel review community. An online travel booking site is an e-commerce platform that enables consumers to purchase their travel products and services such as flight tickets, hotel room bookings, and restaurant reservations. For example, travelers can book their hotel rooms directly via Hyatt.com or an online travel agency (OTA) such as Expedia. An online travel review community (e.g., TripAdvisor) allows consumers to review and rate their travel experiences (e.g., hotel stays, restaurants, tourist attractions, local events) on its online platform. Online travel review features on OTAs’ websites often increase website traffic and the unique monthly active users, generating profits via advertisements on their website.

According to ResaerchAndMarkets.com’s report[1], the global market value of OTA business reached approximately $744.7 billion in 2019. Although the global market value was declined to $595.8 billion in 2020 due to the global pandemic, a compound annual growth rate (CAGR) has been increased by 7.9% between 2015-2019, and the global travel market has been shifting online during the same period. In addition, COVID-19 has strongly driven this transformation from brick-and-mortar businesses into online platforms for the past year.

OTA business in South Korea is no exception to this trend. The OTA market in South Korea was estimated at $20 billion in 2020 and growing fast[2]. Another great benchmark of the OTA business in South Korea is the case of Yanolja, the largest online travel platform in the country. The South Korean travel startup unicorn raised nearly $240 million from investors, including Singapore sovereign wealth fund GIC and Booking Holdings. The recent Series D round brought the South Korean OTA’s valuation to more than $1 billion. 

At the end of her keynote, JiHyun emphasized that decision-makers at OTAs in South Korea should think about how to keep the balance between big data analytics and causality test through experimentation when utilizing data for strategy building. She also shared her views on the future trends in the travel industry, which could be an encouraging message to South Korean entrepreneurs in the OTA business.

Readers can find more details about this webinar on the following website: https://kmigwsb.org/event/online-travel-agencies-business-model-and-its-impact-on-the-travel-industry-in-south-korea/


[2] mk.co.kr

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