Travel industry to hit record $11.1 trillion in 2024: opportunities and risks for Online Travel Agents (OTAs)

The travel and tourism industry is poised for a remarkable recovery in 2024, according to the World Travel & Tourism Council. The sector's global economic contribution is projected to reach an all-time high of $11.1 trillion, surpassing its previous record by $770 billion. International visitor spending is projected to reach the 2019 peak, approaching US$1.89 trillion, while domestic tourists are anticipated to surpass any previous records with US$5.4 trillion spending.¹

As the industry rebounds, the Online Travel Agency (OTA) merchant model is experiencing significant growth. This model where OTAs, such as  Booking.com, Expedia and Trip.com, act as the merchant of record and process payments directly from travellers, has gained traction due to its ability to offer competitive pricing and streamlined booking processes.

The growth of the OTA merchant model has led to increased strategic partnerships between OTAs and Travel Management Companies (TMCs). These collaborations aim to leverage the strengths of both parties, combining the technological prowess and consumer reach of OTAs with the corporate travel expertise of TMCs. Such partnerships enable a more comprehensive service offering, catering to both leisure and business travellers.

Navigating credit risks amidst growth

However, the merchant model is not without its challenges, particularly in terms of credit risk. OTAs operating under this model assume financial responsibility for bookings, which can expose them to significant risk if travellers or corporate clients default on payments. This risk has been exacerbated by the volatility in the travel industry, especially in the wake of the COVID-19 pandemic.

A notable example of the vulnerability of OTAs to cash flow issues and credit risk is the collapse of AsiaTravel. Despite its initial success as a leading OTA in Asia, the company was forced to suspend trading on the Singapore Stock Exchange in 2018 and was eventually delisted in 2022². This followed the failure of its controlling shareholder to make a crucial payment of US$5.4 million, which AsiaTravel stated was essential for its continued operations and debt payments. Consequently, the company struggled to manage its cash flow and pay its invoices. ^{3 4}

Even in the wider travel industry beyond OTAs, the infamous collapse of Thomas Cook in 2019 serves as a stark reminder of the vulnerabilities of the interdependent travel sector.  Once a giant in the industry, Thomas Cook succumbed to a combination of factors, including mounting debt, intense competition, and changing consumer preferences. The extent of the impact of their insolvency highlighted the ripple effects of a travel company’s failure. With a total debt exceeding £1.7 billion⁵, creditors faced significant losses, ranging from financial institutions to suppliers and service providers. Small businesses that relied on Thomas Cook for a substantial portion of their revenue were particularly hard-hit, some facing bankruptcy themselves due to unpaid invoices.

These incidents underscore the importance of robust credit management practices and the need for OTAs to carefully assess the financial stability of their corporate clients.

Despite these challenges, the OTA merchant model continues to evolve and adapt. Many OTAs are implementing more stringent credit checks, exploring insurance options to mitigate risks, and diversifying their revenue streams to reduce dependency on the merchant model alone.

As the travel industry recovers and grows in 2024 and beyond, OTAs utilizing the merchant model will need to balance the opportunities for expansion with prudent risk management strategies. The success of this model will largely depend on the ability of OTAs to navigate the complex landscape of credit risk while capitalizing on the projected growth in global travel and tourism.

Partnering an expert to manage credit risks and fly high

As a seasoned broker with extensive experience in the travel industry, we take pride in our deep understanding of the OTA merchant model and its unique challenges.

Our expertise allows us to craft bespoke trade credit insurance policy structures that complement existing risk management strategies, providing a robust safety net that enables OTAs to pursue growth opportunities while mitigating potential financial losses. 

With Howden’s proven track record of success and commitment to staying ahead of industry trends, we are a trusted partner for OTAs seeking to navigate the complex landscape of travel commerce with assurance and peace of mind.

1 World Travel and Tourism Council, Travel & Tourism set to Break All Records in 2024, reveals WTTC, wttc.org
2 Update on notification of delisting, sgx.com
3Asiatravel says it can weather the storm, ttgasia.com
4AsiaTravel Annual Report 2020, sgx.com
5 Bisnow, The Landlords Most Exposed To Thomas Cook’s Collapse, bisnow.com