The search landscape is poised for swift transformation over the next two years as Google faces growing pressure to provide faster, more accurate answers

It echoes how vertically integrated tour operators struggled to adapt their models amid competition from low-cost carriers. Traditional operators relied on high-priced brochure bookings, later using heavy last-minute discounts to fill flights. In contrast, low-cost carriers began with low fares, gradually increasing prices in increments, so late bookers paid the most.

Unsurprisingly, this enabled travel agents and OTAs using dynamic packaging tools—combining Bedbank hotels and low-cost airline flights—to undercut brochure prices and capture bookings before switching to selling discounted stock from vertically integrated operators close to departure. The situation worsened when low-cost carriers like Jet2 adopted this model to launch their own in-house tour operations.

The CEOs of vertically integrated companies recognised the problem but, as publicly owned businesses (PLCs), knew that radically changing their yield model would hurt profits for years as re-educating customers to book early for the best deals would be difficult after years of last-minute discounting. Ultimately, they failed to adapt, and low-cost carriers gradually destroyed them

Google is faced with the same conundrum. Its massively profitable “Cost per Click” encourages it to provide a directory of links. For example, Expedia search shows that customers visit 277 different web pages before choosing and booking. Giving customers better answers quickly severely damages Google’s model.

AI search engines like www.perplexity.ai, Bing’s Co-Pilot, and the newly launched ChatGPT-integrated search are starting to erode Google’s global dominance in search.

Search experts widely predict a major shift from Google’s traditional “10 blue links” model to new AI Search tools that synthesise information from multiple sources, deliver comprehensive answers, and prompt users to explore further with autogenerated follow-up questions.

Unlike the major tour operators, when faced with a threat, Google is evolving by integrating AI into its search results with features like AI Overviews, gradually shifting from a traditional search engine to an AI-driven experience, and it retains the power to acquire startups like Perplexity that may innovate faster.

The key point, however, is that they are being forced to evolve, and the speed of this change is likely to escalate.

So, what are the implications for the Travel Sector?

1. A shift to Cost per Acquisition (CPA): If AI search delivers “answers” and improves click quality, click prices will rise significantly. However, most suppliers view this as risky and will prefer fixed CPA payments, such as 8% of the sales price, to secure their margins.
2. Trusted brands will prevail: AI engines will prioritise sourcing information from major, trusted brands that users feel confident booking with, as these drive their revenue. This will benefit companies like Booking.com, leading OTAs, and low-cost tour operators over smaller players.
3. Importance of Reviews Scores. What else can these engines base answer when asked, “Recommend the best boutique hotel in Majorca for couples?” However, they will use all customer feedback, not just an overall score.
4. The growth of Comparison Engines. In general commerce, Amazon is a natural partner as a one-stop shop for most products. In travel, however, customers prefer to compare prices to secure the best deal, making comparison engines like Trivago ideal partners. The choice for “holiday comparison” remains less clear, creating the potential for a new AI-driven holiday comparison platform (watch this space)
5. Smaller businesses: How these new engines will onboard smaller businesses remains unclear, but a model will emerge. Ensuring easy integration and visibility on AI search engines must be a top priority for all businesses.

My conclusion: Recent trends will persist. Major online players will dominate mass-market holidays, but there remains ample opportunity for niche or high-quality providers to offer a personal touch for complex or long-haul holidays.

EasyJet’s latest financial results highlight the significant impact of EasyJet Holidays’ rapid growth on the profitability of its PLC parent.

This initiative has been spearheaded by CEO Johan Lundgren, who, with his extensive experience leading TUI Holidays, fully recognises the profit potential within the holiday sector. The momentum will continue under the leadership of Kenton Jarvis, the incoming CEO as of January 2025, with whom I had the privilege of working closely during our time at Airtours PLC.

Holiday division profits rose by 59% to £190m, contributing nearly a third of the company’s pre-tax profits, driven by a 36% passenger increase to 2.6m. With EasyJet forecasting 25% growth in 2025 due to strong early sales, profit growth is expected to continue, reflected in the 23.84% share price surge over the past year, with analysts projecting over 20% growth for 2025

With only 5.8% of its 89.6m flight seats sold as package holidays, the holiday division has a significant opportunity for expansion.

Easyjet Holidays is significantly smaller than Jet2 Holidays, which increased carrying 15% to 6.08 million passengers last year. However, with 68.3% of Jet2’s flight seats sold as package holidays, EasyJet Holidays is poised for faster growth and will likely surpass Jet2 and TUI volumes to become the UK’s largest tour operator within five years.

However, this rapid volume growth may make too many holiday packages available in the UK market. We began to see signs of this in Sept and October, with substantial discounting needed to clear excess stock.

This is undoubtedly positive news for UK travel agents, as trade distribution remains cost-effective and drives more ‘swing’ sales than other channels, suggesting higher commissions are likely in the coming years.

City investors appear to view major OTAs ‘On the Beach’ and ‘Love Holidays’ as potential losers, with Jet2 allocating more flight seats to internal holiday packages and EasyJet’s API fees rendering holidays based on these flights uncompetitive. This likely explains On the Beach’s remarkably low market capitalisation of £281m, resulting in a 4.8 EV/EBITDA ratio, positioning it as a relative bargain for a strategic buyer.

Which brings us nicely to the Ryanair Question?  How can they possibly continue to ignore the holiday profit opportunity in the face of EasyJets results?

Ryanair has already completed a 360-degree reversal, deciding to work closely with the major OTA’s and broader travel trade after years of hostility, so why not go the whole hog and buy a ready-made tour operating division in the form of On the Beach?

At the same time, why not purchase Love Holidays from its current VC backers, who are openly looking for a sale?

The last time I saw a market environment like this was just before the four major tour operators, Thomson’s, Airtours, Thomas Cook and First Choice, all consolidated.

The pressure on Ryanair to embrace the packaging revolution will intensify with each EasyJet announcement, so watch this space.