When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe

PhoCusWright s When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe Written by Cathy Schetzina Researched by Julien Beresford, Deepak Jain, Bing Liu, Douglas Quinby and Cathy Schetzina Page i

When They Get There (and Why They Go) February 2014 PhoCusWright Inc. 116 West 32nd Street, 14th Floor New York, NY 101 PO Box 760 Sherman, CT 06784-1430 USA +1 860 350-4084 +1 860 354-3112 fax www.phocuswright.com When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe Written by Cathy Schetzina Edited by Colie Hoffman and Douglas Quinby Researched by Julien Beresford, Deepak Jain, Bing Liu, Douglas Quinby and Cathy Schetzina When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe is published by PhoCusWright Inc. The information contained herein is derived from a variety of sources. While every effort has been made to verify the information, the publisher assumes neither responsibility for inconsistencies or inaccuracies in the data nor liability for any damages of any type arising from errors or omissions. All PhoCusWright Inc. publications are protected by copyright. It is illegal under U.S. federal law (USC101 et seq.) to copy, fax or electronically distribute copyrighted material beyond the parameters of the license or outside of your organization without explicit permission. Page ii

PhoCusWright thanks its sponsors for PhoCusWright s When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe Without their active support, this research would not have been possible. SPONSORS Activities, Transfers & Experiences City Discovery Excursiopedia Expedia Local Expert GetYourGuide Gray Line Norwegian Centres of Expertise, NCE Fjord Norway Rezgo StubHub The Leisure Pass Group Viator Page iii

About PhoCusWright PhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, PhoCusWright fosters smart strategic planning, tactical decision-making and organizational effectiveness. PhoCusWright delivers qualitative and quantitative research on the evolving dynamics that influence travel, tourism and hospitality distribution. Our marketplace intelligence is the industry standard for segmentation, sizing, forecasting, trends, analysis and consumer travel planning behavior. Every day around the world, senior executives, marketers, strategists and research professionals from all segments of the industry value chain use PhoCusWright research for competitive advantage. To complement its primary research in North and Latin America, Europe and Asia, PhoCusWright produces several high-profile conferences in the United States and Europe, and partners with conferences in Canada, China and Singapore. Industry leaders and company analysts bring this intelligence to life by debating issues, sharing ideas and defining the ever-evolving reality of travel commerce. The company is headquartered in the United States with Asia Pacific operations based in India and local analysts on five continents. PhoCusWright is a wholly owned subsidiary of Northstar Travel Media, LLC. Page iv

When They Get There (and Why They Go) February 2014 Contents Areas marked with this symbol ( q) are interactive and clickable in the pdf version of this report. Table of Contents q Section One Overview 1 Six Key Questions 3 Key Findings 7 Methodology 9 Key Terms and Definitions 10 Section Two Market Structure and Size 12 The Long Tail of Travel Activities 12 Size of Market 14 The Online Activities Market 17 Travel Activities Market Forecast 19 Section Three The European Active Traveler 23 Active Traveler Profile 23 Travel Activity Behavior 25 The Advance Purchase Opportunity 28 Section Four Marketing and Distribution 31 Influencing Travel Activity Decisions 31 Educate to Influence 34 Booking Decisions 35 Mobile 37 The Activity Provider View 39 Sponsors 42 Table of Charts q Figure 1 12 Activity Providers Annual Gross Sales Revenue, 2012 Figure 2 13 Activity Groups, Types and Segments Figure 3 14 Total U.S. and European Travel Activities Market Gross Bookings, 2012 Figure 4 15 European Travel Market by Segment, 2012 Figure 5 15 European Travel Activities Market Gross Bookings and Share by Country, 2012 Figure 6 16 European Five Travel Activities, Revenue by Activity Type, 2012 Figure 7 17 Top Travel Activities by Gross Bookings by Market Figure 8 18 Channel Share of Travel Activities for European Five by Market, 2012 Figure 9 19 Total and Online Travel Activities Gross Bookings and Online Penetration by Country, 2012 Figure 10 20 European Five Total and Online Travel Activities Gross Bookings Share by Activity, 2012 Figure 11 20 European Total and Online Travel Activities Markets Gross Bookings and Annual Change, 2012-2015 Figure 12 21 European Online Travel Activities Market and Intermediary Share, 2012-2015 Figure 13 23 Population Profile for the European Five Figure 14 24 Active Tour Traveler and Non-Active Traveler Use of Computers and Mobile Devices When Shopping for Travel, 2013 Figure 15 25 Mean Number of Trips to a Destination, by Market Figure 16 26 Activity Priority Profiles and Attributes Figure 17 27 Activity Priority Profiles for All Activities Figure 18 27 Importance and Booking Window by Activity Figure 19 29 Incidence of Advance vs. In- Destination Activity Purchase Figure 20 30 The Advance Purchase Opportunity: Museums and Water-Based Adventures Figure 21a 31 Information Sources Used by Active Travelers to Research Activities Figure 21b 32 Information Sources Used by Active Travelers to Research Activities (Cont.) Figure 22 33 Websites Used by Active Travelers to Research Activities Figure 23 34 Features Influencing Activity Selection/Participation Figure 24 35 Reasons for Not Booking Activity Online Figure 25 36 Reasons for Booking Activity Online Figure 26 37 Smartphone/Tablet Ownership Among Active Travelers Figure 27 38 Use of Data Plans on Mobile Devices During International Travel Figure 28 38 Smartphone/Tablet Capabilities, Use and Intentions Figure 29 39 Methods of Managing Inventory Allocations with Distributors Figure 30 40 Methods of Handling Reservations With Distributors Figure 31 41 Technology Use, Incidence and Intentions Among Activity Providers Figure 32 41 Distribution Channel Performance, Expected Change, 2013 Page v

Section One Overview The European travel activities opportunity is much larger than that in the U.S., and variations among the region s individual markets make Europe a distinctly different field of play. Leisure travelers planning a trip to Paris might envision themselves strolling beneath the Eiffel Tower, taking in great works of art at the Louvre, or cruising down the Seine at dusk. One person may crave a tour of the city s catacombs, while another cannot wait to explore lesser-known neighborhoods by bicycle. Very few, however, dream of the flight or train ride that will get them to Paris in the first place. For many, even their lodging will be little more than a home base for exploring all Paris has to offer. Despite the paramount role in-destination activities play during the leisure travel experience sometimes even inspiring the trip itself the activities travelers engage in when they get to their destination have been largely excluded from the broader travel distribution ecosystem. The travel activities landscape is comprised of dozens of different types of activities, events, tours and attractions. Among activity providers, mom and pops abound three in five providers generate less than US$1 million per year in gross sales. This long tail of small providers often lacks both the expertise and resources to invest in modern distribution technology. Over the past decade, however, commercial and technological innovations have given activity providers unprecedented access to key online distribution channels and created fresh opportunities for travel suppliers and distributors to monetize activities products. Technology such as the delivery of central reservations systems (CRSs) via a software-as-a-service model has put electronic distribution within reach for a growing share of activities providers. 1) Online in this sense when used with mobile refers to distribution online via desktop and laptop only. At the same time, a handful of travel companies specializing in activities (i.e., online activity specialists) have worked painstakingly to aggregate activities content and build a distribution network that enables even small providers to distribute online. These changes, paired with the growing adoption of mobile devices, have set the stage for significant growth in online 1 and mobile distribution of travel activities. PhoCusWright s landmark 2010 study of the U.S. travel activities market uncovered an extremely fragmented segment that was both ripe with opportunity and laden with impediments. When They Get There (and Why They Go): Page 1

Activities, Attractions, Events and Tours in Europe takes a comprehensive look at the travel activities market across five key countries in Europe France, Germany, Spain, Italy and the U.K. (in this report, we refer to this group as the European Five). This report provides insight into progress made in the broader travel activities ecosystem in the past several years and examines lingering barriers to online and mobile activities growth. The European travel activities opportunity is much larger than that in the U.S., and variations among the region s individual markets make Europe a distinctly different field of play. European travelers spent an impressive 37.2 billion on travel activities in 2012 a notable portion of overall leisure travel spend. By comparison, the U.S. travel activities market was projected to total 23.9 billion in 2012. Positive indicators for online and mobile travel activities growth abound in the European travel activities market, yet they are counterbalanced by significant inhibitors. European travelers frequently use the Internet throughout the activities planning process, but less than a quarter of travel activity gross bookings across the European Five happen online. Although more and more activities providers are building booking-enabled websites, manual methods for handling inventory and reservations with distribution partners still prevail. Smartphone and tablet adoption is soaring among active European travelers, but mobile travel activity offerings are sparse. Mobile bookings comprised just 3% of the total European travel activities market in 2012. Due in part to its complexity, the pace of change in the travel activities segment has proven sluggish. A decade ago, in-destination activities were largely ignored by travel distributors, despite the success of early movers such as Viator. But in the past several years, the rise of mobile and lowercost, web-based services have fostered new excitement about the activities opportunity, and many of the pieces are now in place for innovative travel activity players to transform the way European travelers identify, shop for and purchase in-destination activities. The discussion below addresses six key questions about the European travel activities market and related online and mobile opportunities. Page 2

Six Key Questions 1. Just how real is the activities opportunity for travel distribution? 2) PhoCusWright s Travel Innovation: The State of Startups 25-2012 (April 2013). With their focus on a large, fragmented marketplace in need a technology overhaul and on the rapid online and mobile growth in other travel sectors, such as hotels and accommodation scores of travel activities startups have emerged in recent years. Nearly 70 startups focused on events and activities have received funding between 27 and 2013, with the total funding exceeding $130M in capital. 2 Enthusiasm over the activities opportunity is not without justification the pie is enormous. The segment s challenges, however, are substantial, and both startups and established online travel players have underestimated them. Although the tools and technologies needed to transform the activities marketplace exist, deploying them across a highly fragmented and entrenched marketplace is slow and difficult work. On top of that, the way travelers plan and book activities what they look for, how they choose is quite different from the process they use with flights and hotels. Despite the capital infusion, much of the promise it has gone unfulfilled. Many a startup has come and gone; many online travel agencies (OTAs) either do not participate or have done so only tepidly; travel media and search behemoths TripAdvisor and Google continue to accumulate local activities content and reach; and some established intermediaries notably Priceline and Kayak have merely shrugged and turned their attention elsewhere. Fragmentation, lack of technological sophistication among providers, challenging economics, and ineffective merchandising strategies continue to hamper online and mobile activities growth. Each of these hurdles represents an opportunity for innovation but even for the ultimate victors, the spoils will be hard-won. 2. How much of the 37.2 billion European activities market can online travel actually address? The market is large, but to plug into it successfully, potential entrants must figure out how to handle the following three challenges: 1. One major segment events poses special difficulty. A substantial share of sporting events and performing arts tickets are not readily accessible through established distribution methods (e.g., Live Nation Entertainment, sporting associations). Page 3

2. For many activities, most travelers do not purchase in advance; common practice is to purchase in person on the same day. And many providers have limited or no capability for same-day or last-minute advance purchasing. Creating a compelling proposition for consumers to consider and book activities in advance and for providers to sell in advance will be critical. 3. Economics: Even if selling activities online in advance is possible and consumers are willing to buy the products, how would a company make money? Average transaction values for activities are low, and their margins and scalability are worse than hotels. Still, a significant portion of the activities market is addressable and this share will grow as mobile adoption increases. New entrants will have to pick their target activity markets and approaches carefully and consider using advertising or referral models to drive traveler engagement where real-time booking is not practical. 3. What kinds of companies are currently the key players in the online travel activities market? Online activity specialists (OASs): Several primary specialist players aggregate activities content online. OASs contract directly with activity providers and often play both B2C and B2B roles, providing content to other intermediaries. Aggregators include segment pioneer Viator (founded in 1995), GetYourGuide, Isango and City Discovery. GetYourGuide, founded in 28, has raised more than $20 million over the past two years. Isango raised $8 million prior to its acquisition by TUI in 2013. These investments, although relatively small compared to the hundreds of millions raised by companies like Kayak or ITA Software, are among the largest in the tours and activities category. Additional startups (e.g., Azurever, Excursiopedia, Peek, Kijubi) have entered the U.S. and European markets in the past several years, and more companies are emerging in Asia, including BeMyGuest in Singapore, Tourlandish in India and Yikuaiqu in China, among others. Online travel agencies (OTAs): Expedia has made perhaps the biggest bet among the major OTAs. In a few destinations, Expedia has an in-destination concierge service called Local Expert. Last minute in the U.K. also has a uniquely strong focus on activities (though this emphasis has long been true). Beyond these two, however, OTA interest in activities is decidedly mixed. Many partner with an OAS such as Viator or GetYourGuide, but notable accommodation-focused OTAs such as Booking.com and Agoda do not offer activities at all. Priceline recently stopped offering activities. Many OTAs are too focused on aggregating hotels, which involve much higher margins, to devote significant resources to building a robust activities offering. This lukewarm attitude is due largely to activities relatively lower average transaction value and smaller margin potential. Page 4

Traditional tour operators: Europe s packaged tour providers, including storied travel brands TUI, Thomas Cook, Kuoni and others, have long distributed tour and activity products (if not owned them outright). As these companies continue to migrate online, they must do the same with their activities offerings, as signaled by TUI s acquisition of Isango. Branded sightseeing tour cooperative Gray Line has made the notable move of providing each of its licensed tour operators with technology by TourCMS. This strategy, aimed at enabling real-time inventory and last-minute availability across Gray Line s portfolio, provides the back-end capabilities the company and its distribution partners needs to power mobile bookings with participating suppliers. Media, search and discovery: Arguably the largest direct aggregator of in-destination activity content, TripAdvisor has amassed listings of some 335,0 things to do (as of 3Q13) and has referral advertising partnerships with Expedia, GetYourGuide and Viator. With the enormous volume of visitors to its online and mobile sites, TripAdvisor is uniquely positioned in this space with a critical mass of both demand and supply. Although TripAdvisor does not offer direct activity booking (and many of its activity listings are not bookable online at all), the brand may have found a sweet spot: the ability to monetize online travel s lowest-margin segment through a listing- and referral-based ad model. Google has also created a niche for itself through aggressive initiatives into local content aggregation and search. In addition, the search giant has introduced several interesting projects that could impact travel activities, including its Tour Builder tool, its Field Trip app, and a carousel search display for local attractions and things to do. Alongside moves by bigger companies, a seemingly endless parade of new local discovery mobile apps promises to help both locals and travelers find great things to do wherever they are. Foursquare is perhaps the most wellknown, especially after the strategic shift that turned it from a local, social, check-in service to a local deals and discovery service. Other notable mobile discovery apps include Sosh, Vamos, Applauze, Hugecity, Eventyard and YPlan. 4. Why is the online travel intermediary share of the activities pie so small? Three key reasons: As mentioned above, a big part of online activities sales is event tickets, which are booked through well-established ticketing websites. 0 0 Consumers are accustomed to purchasing many of these activities in the destination and in person, typically directly from the provider. Page 5

With a few exceptions, the big online intermediaries focus on travel s core products hotels, flights and packages and in-destination activities consequently suffer from less attention and investment. 5. Why haven t we seen an Uber equivalent for activities? Taxi-hailing startup Uber, a rising star, rapidly disrupted the ground transportation segment with innovative solutions to old problems. Could the same thing happen with tours and activities? Several companies in the online travel activities arena are pursuing a similar concept: a two-sided marketplace that provides technology to empower supply and win over demand. OpenTable s restaurant reservation service is built on a similar model. While consumers, intermediaries and forward-thinking activity providers are wild about the prospects for mobile, significant barriers to mobile distribution remain. For starters, many of the different activity segments are really distinct industries. A local dive operator has very different needs from an amusement park. Also, much of the travel activities distribution ecosystem is powered by manual processes spreadsheets, faxes and emails still provide inventory details and availability confirmation. While that killer travel activities app may seem easy to build on the front end, last-minute availability and mobile ticketing represent major challenges on the back end. 6. What is the chance that a dark horse disruptor will enter the market and accelerate growth? While maverick startups have the potential to shake up virtually any industry, the obstacles discussed above make the activities segment a tough nut to crack. A number of activities startups of late, for example, have focused on the peer-to-peer tour concept local, sometimes amateur, guides connecting with like-minded leisure travelers. GetYourGuide absorbed two of these startups (Gidsy and igottaguide), while others, such as Vayable and Withlocals, continue to search for the right formula. To date, none have proven truly disruptive. No one can rule out a game-changing startup, but accelerated change in travel activities is more likely to come from a brand whose name everyone already knows potentially in collaboration with existing activities aggregators or technology providers. For example, Google, TripAdvisor or a major OTA throwing its full weight behind a travel activities push could be extremely disruptive. A potential disruptor might fit one or more of these profiles: The Technology Fairy: Limited technology capabilities and manual distribution processes among activities providers pose considerable problems for last-minute and mobile distribution. An activities player that provides the Page 6

needed technology at no or low cost to providers could quickly eliminate a major barrier to online and mobile growth. This approach comes with its own drawbacks, but the right company with the right offering just might succeed (and several are trying). The Demand Aggregator: A powerful travel or media company with a significant existing customer base could rapidly heighten traveler demand and drive intermediary bookings. TripAdvisor, for one, clearly has the reach and potential. The Experience Wizard: While back-end issues remain an issue for any mobile activities offering, a mobile play that delivers personalized, relevant and contextualized activities content has great potential to shake things up. With the right mix of location-based targeting, couponing and customer conveniences (e.g., click-to-call and integrated maps and directions), enabling a booking may not even be necessary to drive demand and receive attribution. Key Findings Size of the Market: Large, Diverse and Fragmented European travelers spent 37.2 billion on activities in 2012, making the travel activities market more than three times as large as the car rental segment and nearly half the size of the hotel and lodging segment. Fragmented and diverse, the more than 30 types of activities addressed in this study, exhibit wide variations in provider size, distribution practices, average transaction value, and integration with the broader travel distribution ecosystem. Tours/activities represents the largest major activities category, comprising just under half (44%) of the total European activities market. However, tours and activities is also an extremely fragmented segment whose online penetration is low compared to events/attractions, which comprises the largest share of the online activities market. Same-day and offline purchasing dominate sales of travel activities, although advance purchasing and online shopping and booking are on the rise. Online travel intermediaries (OTAs and OASs) represent just 1% of the total online market which is dominated by online event ticketing specialists and provider websites. European Active Travelers: Digital Influence on the Rise The Internet plays a significant role across the activity planning and booking process. Two in three active travelers usually shop online and 23% of travel activity gross bookings were transacted online in 2012. Mobile will play a key role in activities influence and distribution, but it Page 7

is unlikely to make speedy advances. Two in three active travelers own a mobile device, but three in four limit use when traveling internationally. Two in five active travelers have shopped for activities via mobile device, yet only one in three providers have a mobile website. Due in part to variation in travel activity offerings and lack of well-established brands or categories with clear service standards, European travelers generally do not have as good an understanding of travel activities as they do of other travel products. As a result, the way providers and distributors describe activities has a substantial influence on purchase decisions (a much larger impact than descriptions have on purchases in other travel segments). Activities that travelers consider the most important to their trip as well as activities with strong provider brands, relatively high costs, or inventory/scheduling constraints are the most likely to attract advance bookings and online purchases. Activities without these characteristics are often chosen out of convenience and are most likely to be booked in-destination. Some impediments to online activity booking are due not to limitations in distribution, but to attitudes among European travelers. Many travelers prefer not to schedule a specific activity in advance, think booking offline is more convenient, and desire to speak to someone before booking. Activity Providers: The Long, Long Tail of Travel Activities The travel activities landscape is dominated by small providers. Three in five providers generate less than $1 million in annual revenue, and one in three bring in less than $250,0 in annual gross bookings. Activity providers typically lack the resources and/or expertise to implement advanced distribution technologies. Nearly seven in 10 spend less than $25,0 on technology annually. Email and phone are the primary methods for managing inventory and bookings; 65% of reservations with distribution partners are handled via email. Seven in 10 activity providers now offer a website with booking capability a substantial jump from three years ago. Implementation of central reservations systems has also grown. While adoption of mobile technology among activity providers is low, future intent is high. Nearly half of activity providers plan to create a mobile website, and 46% intend to offer ticketing via mobile app. Page 8

Methodology When They Get There (and Why They Go): Activities, Attractions, Events and Tours in Europe charts the European travel activities landscape. This study has the following objectives: 1. Size the travel opportunity for events and activities in Europe, with a focus on the U.K., France, Germany, Spain and Italy. 2. Assess how travelers plan, shop for and book activities. 3. Understand the role and impact of emerging technologies on the activities segment, including distribution technologies, social media and mobile. 4. Identify the opportunities and challenges involved in the travel industry s participation in this important but understudied market segment. This study incorporated three major research components: 1. Consumer survey: PhoCusWright conducted a projectable online survey in 2013 of over 1,0 qualifying active travelers per country across France, Germany, Italy, Spain and the U.K. This 23-question survey was fielded to adults (age 18+) who had taken at least one leisure trip in the past year that included one or more of the qualifying activity types (see Key Terms and Definitions). Respondents had to have access to the Internet; be involved in planning their trip (be a travel decision-maker); and have taken a leisure trip that included flight by commercial air, rail or paid accommodation over the past year. Respondents were sourced from independent panel firm Global Market Insite. Survey results are projectable with a ±3% margin of error at a 95% confidence level. Note: Because Italy and Spain have a lower online penetration among the adult population in comparison to France, Germany and the U.K., survey results in the Spanish and Italian markets may be less representative of all adult travelers and not fully capture the purchasing and behavior of travelers who do not use the Internet regularly at home. 2. Activity provider survey: PhoCusWright conducted an online survey of 196 global travel activity providers (tours, activities, events, attractions, etc.). The survey was fielded by GetYourGuide, Leisure Pass Group, TUI and Viator. The results apply to activities providers that work through the distribution companies that fielded this survey and should not be considered representative of all activity providers. Survey results have a ±7% margin of error at a 95% confidence level. Monetary values are presented in U.S. dollars (US$). 3. Executive interviews: PhoCusWright conducted more than 20 in-depth interviews with senior executives across the activity provider and travel distribution landscape, including OTAs, OASs, activity providers and technology companies. Page 9

PhoCusWright sized the market (e.g., population, activity gross bookings, online sales) by projecting consumer survey results against the relevant total activity provider population. Market sizing projections include travel-related consumption of and spend on activities by European active travelers for qualifying leisure travel. Market sizing excludes spend on these activities by local residents as well as such spend by travelers when they are not traveling. Projections have been cross-checked against and occasionally adjusted to reflect results from the provider survey, interview results and (where available) third-party data sources. Totals in some charts may not add to 1% due to rounding. For Internet penetration of the total adult populations, PhoCusWright used Eurostat 2011 incidence of adults (aged 16-74) who used the Internet at least weekly during the last three months of 2011. The surveys were conducted online. Again, because of lower Internet penetration among the adult populations in Spain and Italy, results for those markets may not reflect the total population of adults who travel and purchase activities when traveling, but instead reflect a smaller segment of active travelers who are Internet users. As a result, for Spain and Italy, this study may undersize total travel activity spend and oversize certain segments, such as online penetration. Market sizing for the total European travel activities market includes Switzerland, Norway, and the first 15 European Union (EU) countries. Market sizing for the European Five includes France, Germany, Italy, Spain and the U.K. Key Terms and Definitions Activity provider: A supplier or seller of a travel activity, such as a sightseeing or day tour operator, museum, amusement park, or prearranged ground transportation provider. PhoCusWright uses provider to avoid confusion with other travel industry terms, such as packaged tour operator (e.g., TUI Travel, Thomas Cook). DMO: General acronym referring to any destination marketing organization, whether privately or publicly funded, such as a tourism bureau or convention and visitor bureau. European active traveler: An adult (18 or older) with online access who has 1) taken a leisure trip that included flight by commercial air, rail travel or paid accommodation in the past year, and 2) purchased or participated in an activity, tour, event or attraction while traveling in the past year. European Five: A group of five key European travel markets that includes France, Germany, Italy, Spain and the U.K. Page 10

European Five activities market: All activities, tours, events and attractions consumed by travelers whose home market is among the European Five. European travel activities market: All activities, tours, events and attractions consumed by European travelers whose home market is among the first 15 European Union (EU) countries, Switzerland, or Norway. Online activity specialist (OAS): Websites and travel distribution platforms (B2B) such as City Discovery, GetYourGuide, Isango and Viator that focus on aggregating, marketing and selling travel activities. Online intermediary: General term referring to any website that offers travel products from third-party suppliers, such as airlines, hotels, cruise lines or activity providers. Intermediaries include OTAs, OASs, metasearch companies such as Kayak or Trivago, and the websites of some DMOs. Travel activity: PhoCusWright uses this term to signify as a group all included activities (see Figure 2) when purchased or experienced by travelers on a qualifying leisure or personal trip. Page 11

Section Two Market Structure and Size The Long Tail of Travel Activities The European hotel and lodging segment is notably fragmented. The large number of small, independent suppliers has opened up a significant opportunity for online intermediaries to aggregate and market lodging content. The travel activities market, however, is exponentially more varied and complex. Small providers dominate the global travel activities landscape: Three in five activity providers surveyed grossed under $1 million in revenue in 2012, and more than one in three grossed less than $250,0 (see Figure 1). But because these results reflect a survey sample of activity providers that were working with travel distribution intermediaries, their revenue numbers likely underrepresent very small providers. The long tail of travel activities is very long indeed. Figure 1: Activity Providers' Annual Gross Sales Revenue, 2012 35% 25% 24% 15% 1% Under $250K $250K $1M $1M $5M $5M $1M More than $1M Question: Which of the following ranges best describes your gross sales revenue for 2012? Please answer in US$. Base: Activity providers (N=196) Note: Based on findings from PhoCusWright s When They Get There (and Why They Go): Activities, Attractions, Events and Tours, which covered the U.S. market in 2010. Page 12

Adding to this complexity is the remarkable diversity of travel activities, events, attractions and tours (see Figure 2). PhoCusWright studied more than 30 types of travel activities and grouped them into five key categories. Each activity type essentially constitutes a distinct travel vertical. Both across and within activity types, provider size, distribution practices, average transaction value, and integration with the broader travel distribution ecosystem show enormous variation. Figure 2: Activity Groups, Types and Segment Activity Group Activity Type Activity Type Segments 1. Activities and Tours Tours Sightseeing tours by land, water and air Cultural tours Shore excursions Adventure / recreational activities Walking tours Riding, land-based, and water-based adventures Sporting activities as a player (golf, tennis, etc.) Hunting/fishing Skiing and snow-related sports Spa and wellness 2. Attractions Amusement parks Museums, zoos, or aquariums Cultural/historical attractions Natural attractions (parks, garden, reserves, etc.) 3. Events Performing arts events Spectator sports Festivals Festivals Music concerts (rock, pop, metal, jazz, etc.) Classical music (orchestra, opera) Music festivals Theater (plays, musicals Dance / ballet Football (Premier League, Ligue 1, Bundesliga, La Liga BBVA, etc.) Rugby (Local rugby fixture, Six Nations, Heineken Cup, etc.) Tennis (Wimbledon, French Open, etc.) Motorsports Winter sports (alpine skiing, cross country, ice hockey, etc.) 4. Ground transportation (prearranged shuttles, taxis, transfers; excludes transient taxis) 5. Multi-attraction passes (e.g., CityPass, Edinburgh Pass, London Pass, Historic Scotland Explorer Pass) Page 13

The difficulty of aggregating and/or selling activities across Europe is intensified by differences between country markets, such as language, consumer behavior and technological sophistication. The European travel activities opportunity, however, is substantial and on the rise. Size of the Market 3) Projected from findings in PhoCusWright s When They Get There (and Why They Go): Activities, Attractions, Events and Tours, which covered the U.S. activities market in 2010. European travelers spent 37.2 billion on travel activities in 2012, far more than U.S. travelers 23.9 billion 3 (see Figure 3). This major difference is driven in part by the comparative abundance of vacation time European travelers have. Not only do Europeans spend more time traveling for leisure, but active travelers among them generally spend more on travel activities than their U.S. counterparts. Figure 3: Total U.S. and European Travel Activities Market Gross Bookings ( B), 2012 37.2 23.9 U.S. Europe Note: Projected based on findings from PhoCusWright s When They Get There (and Why They Go): Activities, Attractions, Events and Tours, which covered the U.S. market in 2010. The travel activities market in Europe is more than three times as large as the region s car rental market and almost half the size of its hotel market (see Figure 4). In 2012, in-destination activities accounted for 13% of the total European travel market. Page 14

Figure 4: European Travel Market by Segment ( B), 2012 106.7 80.1 37.2 10.5 Air Hotels Travel Activities Car Rental Figure 5: European Travel Activities Market Gross Bookings ( B) and Share by Country (%), 2012 8.5 8.6 6.6 6.6 4.0 2.9 Germany U.K. France Italy Spain Rest of Europe Market Share by Country 23% 18% 18% 11% 7% 23% and European Online Travel Overview Ninth Edition Page 15

4) PhoCusWright s sizing methodology may slightly undersize the activities markets in Italy and Spain due to these countries relatively low online penetration among adults. The five key European markets in this study Germany, the U.K., France, Italy and Spain together comprise more than three quarters of Europe s activities market (see Figure 5). Germany, which hosts the largest total travel market in Europe, also represents the largest activities market, contributing nearly one quarter of activities gross bookings. The U.K. and France follow; each grossed 6.6 billion in activities bookings in 2012. Italy and Spain, whose economies continue to struggle, had the lowest activities spend of the European Five. 4 PhoCusWright grouped travel activities into five broad categories: tours and activities, attractions, events, ground transportation, and multi-attraction passes. Tours and activities is the largest category, accounting for over half of all European Five activities bookings. Tours which brought in 7 billion in 2012 among the European Five and adventure/recreation activities ( 5.7 billion) represent the top two subcategories (see Figure 6). Performing arts and ground transportation are also popular. Festivals, natural attractions and multi-attraction passes are the smallest subcategories. Figure 6: European Five Travel Activities, Revenue by Activity Type ( M), 2012 Tours 7,050 Adventure/recreational activities 5,659 Performing arts 4,073 Ground transportation 3,121 Spa and wellness Sporting events Amusement park/theme park 2,036 1,938 1,729 Cultural/historical attraction Museum, zoo or aquarium Festivals Natural attraction Multi-attraction pass 1,052 829 586 321 260 Tours & activities Attractions Events Ground transportion Multi-attraction passes Note: The European Five includes Germany, the U.K., France, Italy and Spain. Page 16

While tours and adventure/recreation activities are consistently the most popular activities in each of the European Five, this popularity varies across markets (see Figure 7). In France, for example, ground transportation is the third largest activities category, with nearly 1.4 billion in revenue. In each of the other markets, ground transportation ranks fifth or sixth. Similarly, German active travelers are significantly more likely to purchase spa and wellness activities, while U.K. travelers put more priority on both performing arts and sporting events. Figure 7: Top Travel Activities by Gross Bookings by Market * Activities highlighted in red are highlighted because they are significantly more popular in that market vs. other markets. France Germany Italy Spain U.K. Tours Tours Tours Tours Tours Adventure and recreational activities Ground transportation Adventure and recreational activities Performing arts Adventure and recreational activities Performing arts Adventure and recreational activities Performing arts Adventure and recreational activities Performing arts Spa and wellness Sporting events The Online Activities Market Offline bookings, predominantly via direct methods such as purchasing in person from a ticket office or over the phone, are the most common way to buy travel activities in Europe (see Figure 8). Across Europe, 55% of gross travel activity bookings were conducted directly with activity providers through offline channels (see Figure 9). However, online channels are gaining attention and power in the market. Nearly one in four euros spent on travel activities in 2012 a total of 8.8 billion were spent online. At nearly 30%, the U.K. had the highest online activities penetration among the European Five. In Italy and Germany, roughly one quarter of activities gross bookings were transacted online, while Spain and France, which both had penetration below 20%, lagged. Page 17

Figure 8: Channel Share of Travel Activities for European Five by Market, 2012 Offline Direct 55% 50% 52% 54% 57% 63% Offline Intermediated Online 22% 26% 19% 21% 24% 19% 23% 24% 29% 25% 19% 17% Europe Germany U.K. Italy* Spain* France * Online penetration may be overstated due to online-only survey methodology. See Methodology section. Note: The European Five includes Germany, the U.K., France, Italy and Spain; total may not add to 1% due to rounding Clearly, the U.K. and Germany are the leaders in online activities adoption. Germany is the largest contributor to the European online activities market, booking over 2 billion online in 2012. The U.K. is not far behind at 1.9 billion. Of the five markets, Spain s online gross bookings were the lowest, at just 545 million in 2012. Online penetration and booking dynamics vary dramatically by activity category. While tours and activities represent the largest share of the overall activities market, the events category is the biggest contributor to online activities bookings. Compared to the more fragmented tours and activities market, online distribution channels for events especially concerts, performing arts and professional sports are better established and largely powered by sizable ticket distributors such as Live Nation. Differences in traveler behavior across markets also create variations in booking dynamics from one activity type to another. For certain types of activities such as museums and natural attractions most travelers do not even consider booking in advance. Travelers perceptions of the relative importance of individual activities is directly correlated to when and where they complete bookings. For example, travelers are far more likely to plan and book in advance for activities that are more vital to the trip, as well as activities with constrained supply or a set schedule. Events, including music concerts and sporting events, are popular among European active travelers. They also typically have fixed inventory and a set schedule, which drives advance purchasing. Page 18

Figure 10 shows each activity s share of the total and online activities markets. 5 Performing arts, for example, accounts for just 14% of the total market, but comprises 27% of the online market. This gap between online and total Figure 9: Total and Online Travel Activities Gross Bookings ( M) and Online Penetration (%) by Country, 2012 8,545 Total Market 6,612 6,6 Online Market 24% 2,016 29% 1,910 17% 1,145 4,028 25% 1,0 2,869 19% 545 Germany U.K. France Italy* Spain* * Online penetration may be overstated due to online-only survey methodology. See Methodology section. Note: The European Five includes Germany, the U.K., France, Italy and Spain. 5) PhoCusWright excluded the ground transportation and spa/ wellness categories from online market sizing due to limitations in data collection for this study. While a meaningful percentage of ground transportation and spa appointments may be made in advance and online, payment is generally made at the time of service regardless of the reservation method. PhoCusWright s definition of online booking includes payment. share is true for sporting events and festivals as well. Adventure/recreation activities has the opposite dynamic: While the category makes up 20% of the overall activities market, it accounts for only 10% of the online market. Travel Activities Market Forecast Following years of economic instability, the European travel market finally surpassed its prerecession high in 2012. While significant challenges remain for hard-hit markets such as Italy and Spain, Europe as a whole is on track for more vibrant economic growth. The post-recession era is bringing a gradual return to normalcy in which the market s maturity, rather than its economic woes, dictates growth trends. Europe s total travel market is projected to grow in low single digits through 2014, and its total activity market is likely to align with these broader trends (see Figure 11). By 2015, Europe s travel activities market will reach 40.9 billion, up from 37.2 billion in 2012. Page 19

4% 5% 3% 4% 2% When They Get There (and Why They Go) q February 2014 Figure 10: European Five Total and Online Travel Activities Gross Bookings Share by Activity, 2012 25% 25% 27% Events Tours & activities Attractions 20% Darker shades: share of total travel activities market 14% 14% Lighter shades: share of online travel activities market 10% 11% 7% 7% 6% 8% 4% N/A N/A 1% 1% 1% 1% Tours Adventure/ Recreation Performing Ground Spa and arts transportationwellness Sporting events Amusement parks Cultural attractions Museum, zoo or aquarium Festivals Natural attractions Multiattraction pass Note: The European Five includes Germany, the U.K., France, Italy and Spain. Figure 11: European Total and Online Travel Activities Markets Gross Bookings ( B) and Annual Change (%), 2012-2015 37.2 38.2 39.4 40.9 Total Market Online Market 8.8 10.1 11.4 12.8 2012 2013 2014 2015 Total Market Annual Change 23% 4% 4% Online Market Annual Change 15% 13% 12% Page 20

Online travel activities bookings will grow significantly faster than the total activities market. PhoCusWright projects double-digit online growth through 2015, when bookings will reach 12.8 billion. 6) Due to PhoCusWright s sizing methodology, some key ticketing intermediaries (e.g., Live Nation, StubHub) are considered providerdirect channels. The vast majority of online bookings will be transacted via activity provider websites and event ticketing intermediaries (see Figure 12). In 2012, online travel intermediaries captured just 1% of all online travel activities gross bookings. 6 As consumer awareness of the ability to book activities online and via mobile grows, a larger share of travelers will consult intermediaries. Intermediaries currently represent a tiny share of online bookings, but their portion is projected to nearly double to 2 million by 2015. Figure 12: European Online Travel Activities Market ( M) and Intermediary Share (%), 2012-2015 Activity Provider Websites Online Intermediaries 8,679 9,974 11,364 12,720 119 145 171 2 2012 2013 2014 2015 Intermediary Share 1% 1% 2% 2% Despite their small share of the European activities market, intermediaries particularly OASs play a crucial role in activities distribution. Key players such as Viator, GetYourGuide, City Discovery and Isango, as well as numerous smaller entrants, aggregate activities products by contracting directly with providers. Often playing both a B2C and B2B role, aggregators provide connectivity and access to activities content for other parts of the travel ecosystem such as online travel agencies, travel media sites, and airline and hotel websites. The biggest intermediaries, however, offer little in the way of activities. The rapid rise of Booking.com has made plain the benefits of relentless focus on accommodations, a relatively high-margin proposition, and Priceline (the brand) recently exited the activities space. Activities products have a relatively low average transaction value, and contracting directly with myriad small and disparate providers can get expensive. Several OTAs partner with Page 21

an OAS such as Viator or GetYourGuide, but the product segment must compete for company resources against heftier revenue segments such as hotels and packages. Among OTAs, Expedia has made the biggest bet on activities, offering products from a wide variety of suppliers. In a few locations, Expedia also sells an in-destination concierge service called Local Expert. Even on Expedia, however, the Things to Do shopping experience and product merchandising has languished due to the parent company s prioritization of hotels, packages and flights. Activities may not figure into the future for more specialized, hotel-focused OTAs such as Booking.com, Agoda and Hotels.com. But for online sellers pursuing a full-service strategy, the opportunity to incorporate in-destination activities and thus serve and upsell the customer across the entire trip life cycle is nothing to dismiss. This opportunity will expand as travelers use their mobile phones for discovery, shopping and booking, both before departure and in-destination. OTAs, which often have access to travelers itineraries, have a clear opportunity via mobile to tailor in-destination offerings to their customers. Although activity providers and European active travelers both express strong interest in booking activities via mobile and some travelers do book this way the share of online activities revenue transacted via smartphone and tablet currently remains low. Page 22