Travel Industry Transforms with Artificial Intelligence Booking Agents

The travel industry is on the cusp of a significant transformation as artificial intelligence (AI) agents begin to play a major role in booking travel arrangements.

One exclusive booking agent has already reported annual transaction volumes exceeding $1 billion, with more than half of that coming from travel-related bookings. This rapid growth has not gone unnoticed by investors, who are placing bets on which companies will emerge victorious and which will falter in the changing landscape.

Traditionally, travel suppliers had to choose between direct or third-party distribution models. However, the increasing influence of AI agents is disrupting this dynamic, allowing them to decide which brands appear, which systems complete bookings, which payment methods are used, and which loyalty programs earn rewards.

Hotels alone spend over $105 billion annually on distribution costs, a figure that AI companies are eager to tap into. As AI continues its march towards integration with the travel customer journey, it's clear that some industry players are not yet prepared for the shift in dynamics.

Travel companies must now navigate the complexities of the new travel commerce stack and make key decisions about how they will operate within this landscape, a challenge that Skift Commerce Summit aims to address by bringing together senior commerce leaders.

The way travelers navigate the discovery path is undergoing a significant shift. Gone are the days of browsing through search results and comparing options; now, it's more about asking a question and having AI platforms provide a shortlist of suitable choices.

This change has significant implications for travel companies that rely on being visible in search results to reach customers. As travelers become increasingly comfortable booking through AI platforms, space is opening up for these platforms to take over the discovery process, potentially leaving brands struggling to get their products seen.

Hotels and airlines are racing to optimize their presence within these AI platforms, but doing so requires them to give up some control over customer relationships. The question becomes whether it's worth sacrificing direct relationships with customers in order to be listed among a sea of other options on the platform.

Travelers are now comfortable booking across multiple channels, which has led to an explosion in competition within the market. Brands must navigate this complex landscape and decide what they value most: being visible on these platforms or maintaining control over their own customer relationships.

As AI becomes more prevalent in travel planning and management, companies must also ensure that their underlying infrastructure can handle the demands of trip management by AI agents. This includes providing tools for comparison shopping, order changes, cancellations, and problem-solving, all critical functions that require seamless integration with the platform's technology.

Travel companies are facing new challenges as non-industry players increasingly capitalize on travel-related revenue streams. These external businesses can earn significant profits from ancillary sales and loyalty programs, often outpacing traditional industry players.

According to recent data, a substantial proportion of travelers value loyalty programs offered by banks or credit-card issuers over those provided by hotels or airlines. Specifically, 32% of travelers consider these external loyalty programs the most rewarding, while hotel programs come in second at 26%, and airline programs trail behind at 20%.

The rise of non-travel companies profiting from travel-related revenue is a significant development for the industry. These businesses are not limited by traditional distribution strategies, which have long been dominated by debates over direct versus third-party bookings.

The economics of travel distribution have always been complex, with no straightforward choice between direct and indirect channels. Direct bookings come with their own set of costs, including marketing expenses and loyalty program management. Meanwhile, intermediaries can bring in incremental demand, fill unsold inventory, or connect brands with customers they would not have reached otherwise.

As a result, travel companies must adapt to this changing landscape and explore new ways to capture value within ecosystems built outside the industry. This includes providing tools for seamless integration with their technology platforms, which is critical for managing complex customer relationships.

The travel industry is witnessing a surge in channel diversity as new players enter the market. Online Travel Agencies (OTAs) are still significant, but banks, credit-card programs, membership platforms, social media channels, AI interfaces, and other partners are creating alternative paths to customers.

Each of these channels comes with its own set of costs, access to customer data, and ability to generate demand. The decision for travel companies is which channels offer the strongest return on investment (ROI) for specific customers, markets, and trips. This requires a tailored distribution strategy that balances direct channels with intermediaries.

The competition among travel distributors has reached an all-time high, according to Skift Research. Credit cards, social platforms, AI-native tools, OTAs, and suppliers are vying for a larger role in the booking process. The stakes are high as companies jockey for position in an increasingly crowded market.

Travel companies can tap into unique growth opportunities by leveraging their existing customer base, brand, assets, or operating capabilities to create new revenue streams. However, expansion comes with challenges, particularly when venturing into unfamiliar territories that require new technology, operations, capital, or customer behavior.

The key decision for travel companies is how far to expand their offerings without overextending themselves. Some adjacencies can strengthen the core business by utilizing existing capabilities, while others may create complexity and require significant investments in new areas.

A significant number of senior travel executives possess non-core assets that can be monetized, but most do not leverage them in an innovative way. A survey conducted by Skift and ZS revealed that 75% of these executives have valuable assets to exploit, yet only a third described their approach as "very" innovative.

The traditional notion of ownership is no longer relevant in the travel industry, where distribution has expanded beyond online travel agencies (OTAs) and supplier websites. Furthermore, companies are now competing with new intermediaries like AI platforms for customer attention. The transaction process has also become more complex, with payments and loyalty programs generating value beyond the initial booking.

Travel companies must reassess their business strategies to determine which aspects of the customer relationship they need to own in order to remain competitive. As agents increasingly stand between them and travelers, companies face a critical decision: what assets are essential for direct engagement, and which can be effectively outsourced or partnered with other platforms?