Krassi Simonski, Market Analyst, Eastern Europe, PhoCusWright at Online Travel 3.0 2013

A Sleeping Giant Awakens:
Eastern Europe’s Online Travel Market
September 25, 2012 ATO, Moscow, Russia
Krasimir Simonski
Market Analyst,
Eastern Europe

Project Sponsors
Agent.ru
Amadeus IT Group SA
Amargo
Anywayanyday.com
Avis Budget Group
California Travel and Tourism Commission
Hotel Reservation Service (HRS)
Marriott International, Inc.
Nabortu.ru
Oktogo.ru
OpenJaw Technologies
Ostrovok
Ozon.Travel
Poezdka.ru
Pososhok.ru
Travelport Inc.
Travolver
V.I.P. Service

Methodology
• 100+ Executive Interviews
•Travel suppliers
•Intermediaries
•Technology providers
•Media websites
• 300+ Public Sources

Conclusions
Russia
Intermediaries
Size of the Market
Key Findings: Travel Technology
Russia and Eastern Europe: A Snapshot
Agenda
Methodology

Russia and Eastern Europe Travel Market:
A Snapshot and Key Findings

GDP: Western Europe has GDP almost
5x higher than Eastern Europe
Land Size: Eastern Europe is 6x size of
Western Europe
Population: 40% of European citizens
reside in Eastern Europe
Source: PhoCusWright’s Eastern European Online Travel Overview

A Region of Contrasts
Rural vs. urban areas: on opposite ends of
technology scale
Tourism plays different roles in terms of
overall economy
Variation in travel market size and stages of
development
Monopoly vs. market economy: intensive
redistribution in progress
Economic crisis vs. strong economic growth

PEST Analysis
• Political isolation
has created
intrinsic desire for
travel and tourism
• Political instability
makes long-term
strategies for
growth for travel
industry hard to
implement
• Privatization of
state industries
continues to
extend to tourism
• Most markets now
in recovery
following 2009
downturn
• Growing middle
class
• Emigration of
young, upwardly
mobile, who lead
technology
adoption
• Rural migration
leads to social
divide – most
travelers live in
urban areas
• Internet
penetration
growing rapidly,
though still behind
Western Europe
• High-speed
Internet offered in
big cities but
abandoned in rural
zones

Crossing the Chasm
Support for pragmatic mainstream
market is under development
References to early majority market
are not appealing yet
Online booking becoming popular

Innovators
EarlyAdopters
Early
Majority
Late
Majority
Laggards
TippingPoint
Crossing the Chasm: Online Travel Market Trends

Online travel is still in very early stages of development,
but is growing at a substantially higher rate than both
the total travel industry and the economy!

Key Findings: Travel Technology

SoLoMo: Social, Local, Mobile!
Technology is changing the travel paradigm and
landscape in Eastern Europe

Search and Metasearch:
Challenges for Google
Note: *Liverinternet.ru (http://www.liveinternet.ru/stat/ru/searches.html?slice=ru) March 21, 2012
Google is incorporating hotel content
from the region
Skyscanner and Momondo are among
most popular metasearch solutions
Yandex is most popular search engine
in Russia, with 60% market share*
Google lacks good local content, as
Eastern Europe is not a priority

Fragmentation Sparks Metasearch in Russia
Source: PhoCusWright Inc.
• Favorable conditions to thrive:
•Low trust in e-commerce
•Uncertainty in making decisions online
•Price-sensitive market
•Strong presence of OTAs
• Driver of growth in online bookings
• Competition is high; plenty of room for redistribution
• Metasearch converting users to online booking by offering trusted
solutions and helping with decision making following OTAs enabling early
and mainstream technology adopters to build trust in online commerce
• Increasing use of mobile for travel related activities further metasearch’s
potential

Quarterly Gross Revenue (US$M) of Leading Metasearch
Sites in Russia
Source: Alexa Internet and PhoCusWright Inc.
0
10
20
30
40
50
60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2011 2012
aviasales.ru
skyscanner.ru
momondo.ru
buruki.ru
jizo.ru

Social Media: Difficult to Monetize
Lack of practice to assess return of
investment
Almost no working direct revenue
models
VKontakte, Moi Mir, Odnoklassniki:
popular social media brands
Focus on PR and brand image
Good communications tool to
maintain relations with customers
Source: TNS-Aug. 2011; PhoCusWright’s Eastern European Online Travel Overview

Mobile Solutions
Mobile is used mostly pre-trip for
research/planning
Smartphones generate most of
mobile Internet traffic
Almost every OTA offers mobile
interface or plans one soon
Last-minute travel deals are not
that popular in the region
Not as typical to search for local
content as in Europe or U.S.

Technology: Flash Sales/Daily Deals
Well accepted by customers of this
highly price-sensitive market
Average of 30+ players in each market
Impulse buying syndrome for travel is
same as Western Europe
Not well accepted by suppliers:
cheapens product in consumers’ eyes

Size of the Eastern Europe Market

- 50 100 150 200 250 300
Total Travel Market Gross Bookings (US$B) by Region, 2009 & 2012
Source: PhoCusWright Inc.
Europe 2012
Europe 2009
U.S. 2012
U.S. 2009
East Eur 2012
East Eur 2009
LATAM 2012
LATAM 2009
APAC 2012
APAC 2009

Eastern European Online Leisure/Unmanaged Business Travel
(US$B), Online Penetration and Total Market Growth, 2011-2013
Note: 2011-2013 projected
20.9
16.7
13.1
92.5
86.2
81.5
2013
2012
2011
Online Total Market
16%
19%
23%
OnlinePenetration(%)
+11%
+6%
+7%
+33%
+27%
+26%

Online Leisure/Unmanaged Business Travel by Region,
Penetration of Total Travel Markets, 2010-2014
Source: PhoCusWright’s Middle East Online Travel Overview

Eastern European Online Leisure/Unmanaged Business
Travel Market (US$M), 2009-2013
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2009 2010 2011 2012 2013
OTA
Airline Website
Hotel Website
Rail Website
Car Rental Website
Tour Operator
Website

Eastern European Leisure/Unmanaged Business Travel
Share Per Market – Online vs. Total Market, 2011
Note: 2011 projected. Totals may not add to 100% due to rounding.
Russia
38%
Other
Eastern
European
Countries
62%
Online Market
Russia
60%
Other
Eastern
European
Countries
40%
Total Market

Eastern European Intermediaries

Eastern European Online Travel Agencies Gross Bookings
(US$B) and Growth, 2009-2013
0.0 2.0 4.0 6.0 8.0 10.0
2013
2012
2011
2010
2009
+40%
+33%
+27%
+26%

Top 15 Eastern European Online Travel Agencies, 2011
Note: “Others” include estimates for remaining online travel agencies.
Booking.com (Total)
Expedia (Total)
AnyWayAnyDay.com
(Russia)
Ozon.Travel (Russia)
eSky (Total)
Student Agency (Czech
Republic)
Airticket (Greece)
Agent.ru (Russia)
V.I.P. Service/Biletix.ru
(Russia)Lidot (Baltics)Pilot (Ukraine)
Altisaero (Ukraine)
Oktogo (Russia)
Pososhok (Russia)
Amargo (Russia)
Others (Total)

Online Travel Agencies by Segment
• Local OTAs sell predominantly air – 90%
• OTAs overshadow supplier websites in Ukraine and Bulgaria
• Supplier websites gain momentum, surpassing OTAs in Russia and Greece
• OTAs have small online share
• Rail companies do not offer deals
• OTAs have small share of this fragmented business
• OTAs seek redistribution, but this late majority market is slow to automate
• Dynamic packaging is not popular so far
• Outbound hotel is dominated by Booking.com and Expedia
• OTAs are often intermediaries between TAs and travelers

From Peripheral to Powerful

Who is Traveling?
Growing middle class to reach 27% of the
population in the next 2-3 years
19% or 25M people in Russia are defined as
middle class
15M families have an annual income of
US$20,000 and higher

Volume of Credit Card Transactions in Russia, US$M
Source: National Bank

57.9
53.0
48.6
2013
2012
2011
Online Gross Bookings Total Gross Bookings
10%
14%
18%
+69%
+51%
+39%
Russian Travel Market (US$B) and Online Growth Rates,
2011-2013
OnlinePenetration(%)

0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2009 2010 2011 2012 2013
OTA
Airline Website
Hotel Website
Car Rental Website
Rail Website
Tour Operator Website
Russian Online Travel Market (US$M), 2009-2013

Nearly 2/3 of Online Bookings are Through Suppliers

Challenges for Growth
Tour operators just beginning to see
advantages of going online
Travelers prefer the comfort of packages in
comparison with risk of doing it themselves
Legacy players in tour operators, airlines,
rail market entrenched for now
Online package booking tools in advanced
stages of development

Russia: Social Media
Believed to be impossible to
monetize
Viewed as source of information
without same convincing power
Not trusted as others do
Used mostly for PR and customer
relationships
Facebook is #4 social media site

Russia: Search and
Metasearch – to be
revised as per the
article
Note: *Liverinternet.ru (http://www.liveinternet.ru/stat/ru/searches.html?slice=ru) March 21, 2012
Momondo
• Russia is the third-largest market for Momondo after
Scandinavia and the U.S.
Skyscanner
• 25% of Skyscanner traffic from Russia comes from
mobile devices
Yandex
• Dominant in Russia and Ukraine
• Works closely with OTAs but yet to launch own travel
service
• Yandex.travel is registered
• 60% of Russian search occurs on Yandex (Google
carries 26%

Investors* assume risks
associated with Russian online
travel market and support
innovators
Note: *such as Accel (which invested in Facebook, Groupon, Kayak, and Hotel Tonight), General Catalyst Partners (backer of ITA Software and Kayak) and
Mangrove (Skype)

The New Savvy Shoppers
Are not the most loyal consumer;
more driven by price or reputation
Prefer not to risk their credit card
information to an unknown agent
Arrange their own travel, and
research widely using the web
Are vertically oriented
Like to see more competition

The Barriers to Overcome
Credit card penetration – bank deals
Trust in online transactions – e-Commerce
Travel content – structured and easy to find

Krasimir Simonski
Market Analyst, Eastern Europe
PhoCusWright Inc.
ksimonski@phocuswright.com
Dr. Krassi Simonski is PhoCusWright's market analyst, Eastern Europe and managing director
of eCommerceAcademy.net. Krassi is the lead analyst for PhoCusWright's Russia and Eastern
Europe: Navigating the Emerging Online Travel Marketplace research initiative. The Special
Project measures travel size and trends and forecasts online travel penetration for Russia,
Ukraine, Poland and other Eastern European travel markets.
Prior to establishing the eCommerceAcademy.net, Krassi was head of business development
for TravelStoreMaker.com, managing the spin-off of innovative business lines into different
companies. He is also executive officer of Skal International's Sofia club, assisting in expanding
the international relations in the region.
Krassi's background also includes chair of the Bulgarian Research and Education Network.
Prior to that, he served a political mandate as deputy chair of the State Agency for ICT of
Bulgaria in charge of the national IT development. He was the Bulgarian representative to
several EC high level groups including Internet and information society. Krassi implemented
multiple ICT projects of EU and national funding in the area of digital inclusion, broadband
penetration, research networking and e-learning. He was the first chair of the
Telecentres.Europe organization to support the network of telecenters across Europe
His university background as adjunct professor in computer sciences and 12 years as director
of communications and computing at the first American University in Central and Eastern
Europe (AUBG) as well as being one of the first Internet missioners in the region, brought to
him thousands of contacts at the national, European and international levels.

Krassi Simonski, Market Analyst, Eastern Europe, PhoCusWright at Online Travel 3.0 2013

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Krassi Simonski, Market Analyst, Eastern Europe, PhoCusWright at Online Travel 3.0 2013