Generative artificial intelligence (generative AI) has become seemingly ubiquitous across industries in an incredibly short amount of time. Sixty-one percent of respondents in Oliver Wyman’s Global Consumer Sentiment Survey reported using generative AI at work or school with their employer’s or teacher’s knowledge. With the technology continuing to advance rapidly, the global generative AI market is expected to grow to approximately $52 billion in 2028 from $11 billion in 2023, according to research firm MarketsandMarkets.
One area for which generative AI shows tremendous promise is leisure travel inspiration, planning, and booking. This also includes the pre-stay and in-stay inspiration, planning, and booking of non-core trip components such as activities and experiences. With a few simple natural language prompts, conversational tools such as Google’s Bard and Expedia’s ChatGPT integration can provide travelers with well-tailored destination options, detailed trip itineraries, and suggestions for add-ons like tours and car rentals for them to book. For example, a user might ask, “Can you create a five-day beach vacation for a family of four, leaving from New York City on November 6th, with a budget of under $3,000?” and receive a list of five destination options. After determining from the descriptions and photos that Myrtle Beach is the best choice, they can ask for hotel and flight recommendations, and even narrow the results to suit their airline and loyalty program preferences.
Leisure travelers have been experimenting with these tools since their initial release during the first half of 2023. But to get a full picture of their willingness to use generative AI for planning and booking their vacations, in August 2023 we conducted a survey of nearly 1,100 leisure travelers in the United States and Canada. The survey examined their prior knowledge and use of travel-related generative AI tools, the customer segments most open to using the technology, and the capabilities most important to them. Below is a sampling of our key findings and what they could mean for travel industry stakeholders.
Leisure traveler perspectives
Even though most generative AI tools launched only in the recent months before our survey, leisure travelers have been experimenting with them and are largely pleased with their experiences. More than a third of surveyed leisure travelers recently used generative AI for travel inspiration, planning, or booking, and approximately half of those who used it booked all or most of the recommendations they received. Clearly, the technology is providing valuable guidance to travelers that they’re prepared to act on — 44% already trust generative AI throughout the booking journey — despite still lacking robust personalization capabilities. All told, a whopping 84% of respondents reported being satisfied or very satisfied with the quality of generative AI’s recommendations.
It’s not surprising, then, that the technology is becoming a key factor in booking channel selection. The survey results strongly suggest that channels without generative AI tools could be at a disadvantage. However, generative AI-enabled channels will need to ensure they offer functionality that travelers find useful: Based on the survey, real-time price comparison, loyalty program integration, and the ability to book all components of a trip in the same tool should be the top priorities to maximize traveler adoption.
Clearly, generative AI has quickly caught the attention of and provided value to leisure travelers. This is great news for online travel agencies (OTAs) and other emerging players that have already developed tools of their own. However, for travel suppliers that have yet to implement generative AI capabilities, the enthusiasm expressed by travelers can’t be ignored. Suppliers will need to define their generative AI strategies and ultimately develop these tools for customer interactions in the booking flow. Otherwise, their influence on leisure travelers at the top of the travel funnel could begin to diminish.
Focus customer segment: Elite travel loyalty members
Our survey findings revealed that generative AI has gotten particular attention from elite airline, hotel, and cruise line loyalty members, whose 48% usage rate is more than double that of non-members. The outsize influence the technology has had on suppliers’ most valuable customers is notable, especially if generative AI tools begin redirecting elite loyalty members to plan and book their travel through competing channels.
We also discovered that elite loyalty members are more likely than both general loyalty members and non-members to select a booking channel because it has generative AI capabilities, as well as to trust the technology to book its recommendations.
To avoid pressure on supplier-direct booking share and loyalty program engagement levels, suppliers need to develop generative AI ambitions of their own given the interest expressed by their most prized customers. As part of the process, they should leverage valuable loyalty member data and unique local market knowledge to develop robust generative AI tools offering superior personalization.
Focus customer segment: Cruisers
Developing generative AI tools could have considerable importance for cruise lines, as survey findings revealed significant interest among cruisers. Fifty-six percent of travelers who had taken at least one cruise since the beginning of 2022 previously used generative AI tools, compared with 34% of all travelers. This usage rate increases as cruise frequency (that is, customer value) increases as well: 60% of travelers who had taken two or more cruises during the same period had used generative AI tools, compared with 53% of those who had taken only one.
Cruisers also seem likely to shift their booking behavior with the availability of generative AI. In our survey, 62% of cruisers trust generative AI to book its recommendations (compared with 44% of all travelers), and 70% said they would select a booking channel based on whether it offers generative AI functionality (compared with 55% of all travelers).
The results suggest there’s potential for a substantial increase in the online penetration of cruise bookings — online channels accounted for roughly one-fifth of U.S. cruise booking value in 2022, according to travel and tourism research firm Phocuswright. Greater online penetration would also present an opportunity for cruise lines to reduce their indirect channel costs.
Many cruisers are also keen to use generative AI tools to book cruise add-ons like onboard activities and shore excursions (39% said they would do so before going on the cruise, while 43% would do so mid-voyage). This further supports generative AI investment by cruise lines, whose sponsored excursions already are facing broader challenges. For one, cruisers are increasingly opting for independent excursions due to their greater intimacy, personalization, and flexibility. A study by the Florida Caribbean Cruise Association revealed only 35.7% of cruisers who disembarked during the 2017-2018 season purchased an excursion through the cruise line in 36 participating Caribbean destinations. If generative AI tools from OTAs increasingly point cruisers towards booking independent excursions, it could amplify the potential risk to cruise lines’ revenue from selling shore excursions.
There is clearly outsize interest in generative AI from the cruise line customer base relative to other travel segments. Considering the potential benefits of lower indirect channel costs and greater incentives for cruisers to remain in the supplier-direct booking ecosystem throughout their cruise, the results make a strong case for cruise lines to develop generative AI capabilities.
Travel activities and experiences
After booking a trip, 38% of travelers would use generative AI tools to book non-core elements of it like car rentals, activities, and experiences. Generative AI-enabled channels may have an opportunity to increase their booking share of these ancillary travel offerings, as the technology could increase visibility of options to travelers and reduce booking friction.
Additionally, generative AI may provide an incentive for suppliers to further integrate ancillary offerings into their loyalty frameworks. This could enhance the value proposition of supplier loyalty programs, end-to-end personalization offered to loyalty members, and customer data collected by suppliers.
Wider adoption and build-out of generative AI capabilities could lead to an uptick in vacation package bookings, which is defined as the simultaneous booking of a flight plus at least a hotel in a bundle (packages could also include a car rental and/or travel experiences). On average, leisure travelers booked 32% of their trips as vacation packages since the beginning of 2022, but that figure would increase by 10 percentage points if packages were to have personalized generative AI-produced itineraries in the future.
From a booking share perspective, this would benefit OTAs that specialize in selling vacation packages at the expense of travel suppliers that don’t offer packaged options. Given this, travel suppliers with in-house vacation package businesses should consider how they can more effectively bundle trip elements while continuing to offer personalization for their customers.
Economic implications for the travel industry
After reviewing the survey findings, we assessed the potential impact of leisure traveler generative AI optimism on economic outcomes for OTAs and travel suppliers. Using booking behavior response data as a baseline, we developed forecasts for OTA versus supplier-direct booking share of the U.S. online travel market (airline seats, hotel sleeping rooms, and cruise cabins) and commissions paid by suppliers to OTAs for indirect bookings. Our scenarios reflect varying degrees of travel supplier investment in generative AI, ranging from suppliers not investing in the technology at all, to suppliers investing significantly and developing more robust capabilities than indirect channels.
If the market landscape remains as-is and travel suppliers don’t develop generative AI tools of their own, our analysis indicated potential for a significant shift of booking share from suppliers to OTAs. In fact, Oliver Wyman estimates OTAs could increase their booking share of the U.S. online travel market by up to 15 percentage points by 2028. This would result in an estimated $1.8 billion of incremental commissions paid annually by travel suppliers to OTAs, roughly $1.4 billion of which would be borne by U.S. hotels.
However, if travel suppliers adopt an aggressive approach to generative AI and develop superior capabilities, we believe they could capture booking share from OTAs and save on commissions. Despite our forecast of modest annual commission savings of $330 million by 2028 from a three-percentage-point boost in supplier-direct booking share, we believe suppliers would have sufficient momentum for continued amplification of economic benefits over the long term.
The conclusion that can be drawn from our analyses is straightforward — suppliers that move quickly with developing generative AI strategies and build superior capabilities will avoid booking share erosion, resulting in accretive economic outcomes.
Leisure travelers have already shown a high level of enthusiasm for generative AI. As its capabilities continue to become more robust, including the ability to directly facilitate bookings, the technology will have an ever-greater influence on leisure traveler behaviors. Generative AI also has the potential to fundamentally change the travel search process and its underlying systems. That’s why it’s crucial for suppliers, OTAs, and other stakeholders in the travel value chain to develop their generative AI strategies in the context of strategic business objectives and competitive positioning. Given how quickly travelers have embraced the technology and the economics at stake, the time to do this is now.
As part of developing their generative AI strategies, travel companies will need to identify their unique generative AI value drivers — valuable loyalty member data or local market insights, for example — to offer greater personalization to their customers. The variation in strategies across stakeholders will have far-reaching effects on the future of travel, with impacts on everything from brand loyalty, industry economics, and the distribution of travel itself.
Special thanks to contributors: Grant Alport and Frank DePinto.