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Change is in the air

A surge in online travel bookings among Middle Eastern jet-setters is creating a need for greater capacity to process alternative payment methods. Keith Mwanalushi looks at the gradual shift from cash payments to credit card penetration in the region’s travel market
 

The online travel industry in the Middle East grew by nearly a third in 2012. The UAE is spearheading this rise in online bookings, with 60% of all Middle Eastern web-based travel bookings originating from the Emirates, as indicated by new research jointly sponsored by Travelport and market research company PhoCusWright.

 

Online travel bookings in the UAE totalled $4.7 billion in 2011 and are expected to double to $9.4 billion by 2014, according to the report. Saudi Arabia follows the UAE as the second largest country for online travel sales in the Middle East, boasting 16% of all online bookings made, with Qatar coming third with 12%. Collectively, the region is expecting to see total web sales reach $15.8 billion by 2014. This includes air tickets, hotels and other travel-related expenditure.

 

“In recent years, we have seen the online industry grow at an incredible rate and there are a number of factors fuelling this growth,” observes Rabih Saab, president and managing director at Travelport, Middle East and Africa. “One of these is the high level of internet penetration in the region – in the UAE alone, 78% of people are online. This, coupled with the highly diverse and predominantly young population in the Middle East, provides an ideal environment for online travel to flourish.”

 

The research also shows the rapid development of regional Online Travel Agencies (OTAs), which are predicted to grow at a compound annual growth rate of 18% between 2010 and 2014. In 2011, 39% of all online bookings in the Middle East were made through OTAs, and the gross booking value of these agencies is set to nearly double by 2014, from $3.1 billion to $6 billion.

 

The study, titled Assessing the Online Travel Opportunity: The Middle East, was carried out across 10 Middle Eastern countries including the UAE, Saudi Arabia, Egypt, Jordan, Lebanon, Syria, Kuwait, Bahrain, Qatar and Oman, and looks at online travel trends in the region between 2010 and 2014. Over 50 in-depth executive interviews were carried out with intermediaries (travel agencies and global distribution systems [GDS]), travel suppliers (air, car, and hotel), technology providers and media sites.

 

While the use of commercial or corporate cards by the travel sector is yet to find a foothold here, there are signs of change. Comparably few travel agents in the region have an active travel management function that can influence the payment process. In addition, legislation relating to liability for credit card debt makes it more difficult for companies to enforce corporate card usage among their employees. With many corporations relying on paper-based approval processes, there are reservations attached to implementing credit cards, since the card is charged instantly.

 

In response to the general reluctance to adopt credit cards, some argue that there is a need to be proactive and prepare for the new realities in business. An industry observer commented in a report by Arabian Travel News that the market has traditionally demanded this, with a lot of clients expecting travel agents to give credit over extended periods of time. However, some clients are unwilling to adopt alternative payment solutions, so agencies will agree to extending credit in order to retain them.

 

‘Obviously this impacts the profitability of agents, even more so when credit periods exceed BSP cycles by weeks or even a month. It also means a lot of resources on both the client and agency side are invested in the payment process with paper-based documentation, as well as lengthy follow ups on invoices and payment. This is a hugely underestimated problem – all this resource could be invested in actively improving travel processes and benefiting the client’s overall programme,’ says the report.

 

Some agents have had to close down due to bankruptcy caused by poor credit management. Furthermore, some say there is a possibility that agents levy higher service fees from customers in order to cover the interest fees charged by banks, negatively impacting the customer in return.


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