Technology likely to disrupt more sectors

It is a changing landscape for travel agencies, manufacturers, vehicle insurers and repairers and financial advisers

In the past year, technology and sharing economy startups have continued their disruption of traditional industries — from Uber and other ride hailers’ shake-up of the taxi market to Airbnb’s myriad alternatives to conventional hotel stays. But which will be the next businesses to be challenged by further digitisation and automation? Financial Times correspondents have looked ahead five to 10 years to identify those industry sectors and companies set to shrink — or disappear completely — as tech disruption marches on. Here are their next five nominations for industries under threat:

Tui is the world’s largest tour operator, running high street travel agencies under the Thomson and First Choice brands. But CE Fritz Joussen says the “end game” is to morph into a different kind of business — less reliant on selling package holidays and more focused on owning and operating hotels and cruise ships. “We have today about 30% to 35% of profit contribution from hotels and cruises. In three years, I would say we will be way above 50%. We are really transforming the company.”

The changes at Tui reflect broader shifts in the industry.

Traditional bricks-and-mortar agencies have been in decline for years as travellers become more comfortable booking trips through online outlets such as Expedia.

According to the US Bureau of Labor Statistics, the number of travel agents in the US fell from 132,000 in 1990, to 74,000 in 2014. It has predicted it will fall another 12% by 2024.

Thomas Cook, one of the UK’s largest tour operators, needed a £200m loan in 2011 to tackle a cash crisis that had jeopardised its survival. Since then, it has closed hundreds of high street stores and plans to shut more if they are unprofitable. It has shifted towards selling travel deals online and creating trips through its own airline fleet and hotels.

Henry Harteveldt, founder of Atmosphere Research, says travel agencies will not wither away completely, but do need to change. “The ones that survive will be true experts,” he says. “They could be used to book a significant trip — a honeymoon, a significant family getaway, or a complex journey like planning a safari.”

Some customers still want face-to-face contact with travel agents. Research conducted by the Association of British Travel Agents (Abta) suggested that most travellers book online. But the number booking within stores rose in the 12 months to October 2016 from 17% a year earlier to 19%.

Abta’s research suggests the “most affluent households” — the top 4% of the population — were most likely to book in store, with 35% having done so.

Any concertgoer knows it is easier to print tickets than pick them up or hope they arrive in the post. Businesses will soon realise the same applies to spare parts, equipment and electronics. The explosion of 3D printers is expected to shake up entire supply chains, allowing companies to print much of what they need rather than order it, often from overseas.

Bosch Rexroth, the drive and control unit of the private German electronics group, projects that in five to 10 years up to 40% of the manufacturing equipment it uses could be printed instead of purchased.

“If we look at spare parts for older cars or engines, prototypes for new products or small batches in manufacturing, 3D printing will make a major difference,” says Stefan Hoevel, manufacturing process development manager at Bosch Rexroth. Bosch is already printing objects to create prototypes that were either not constructible before or took a long time to process. Hoevel says equipment manufacturing could become up to 60% cheaper than conventional methods used today.

The technique is sometimes known as “additive manufacturing” because of the way plastics, metals and other materials are built layer by layer. At the Munich show Electronica in November, Israeli startup Nano Dimension showed how 3D printing would go well beyond making simple parts. Its desktop-sized Dragonfly printer can create multilayer printed circuit boards — the film-like boards found in smartphones and computers that allow signals and power to be transmitted.

RESEARCH AND DEVELOPMENT

CE Amit Dror says the 3D printing of circuit boards will boost the research and development process for prototypes, allowing electronics companies to bring new products to market faster. In 2016, HP printed a lightweight chain link in less than 30 minutes — then attached it to a hoist and lifted a car.

Imagine a future in which fleets of driverless cars move quietly and carefully in and around our cities and countryside, seamlessly picking up and dropping off passengers. There are fewer cars on the roads, and those that are there tend to have fewer collisions.

For some, this is utopia. For the world’s insurers it may be just the opposite. Vehicle insurance is a mainstay of the industry. It generates $260bn in annual premiums for big global insurers and $17bn in profits, say Morgan Stanley and Boston Consulting Group. They estimate the vehicle insurance industry has a market value of $200bn.

New technology, the analysts say, puts a big chunk of that under threat. First, fewer cars and fewer accidents mean less demand for insurance. In mature economies the market size could shrink more than 80% by 2040. Second, the insurance will be bought by companies such as car manufacturers, rather than consumers. And as car makers and tech companies get better at collecting and using data, they may be in a stronger position to sell insurance than the insurance industry itself.

Insurers say short-term automation is driving up the cost of car cover, because gadget-filled cars are more expensive to repair than basic models.

Murray Raisbeck, an insurance partner at KPMG, says new technology will also create opportunities. “There will be different risks that need insuring, such as the risk of an algorithm failing, or cyber risks relating to driverless cars,” he says.

“There will be less bent metal and lower personal injury risk.”

In the UK, Axa has joined a number of government-backed groups looking at how best to introduce driverless technology. In Japan, Mitsui Sumitomo and Tokio Marine, two leading insurance groups, are already examining new types of insurance products that might be needed.

But Raisbeck says the whole industry needs to take more decisive action to deal with the threats. “Insurers are good at reacting to change,” he adds. “But automotive and technology companies are completely different competitors coming to try to eat their lunch.”

Traditional financial advisers have encountered a blizzard of regulation in recent years and now face being usurped by algorithms. Liberatum, an association for financial advisers, estimates that 13,500 advisers left the industry following the introduction of the new rules in 2013, while the UK’s Financial Conduct Authority puts the figure at 2,000.

The commission ban, which removed advisers’ main source of income, forced those remaining in the business to either raise fees charged to retail investors or increase the minimum investment sum they would offer advice on.

Suddenly unable to afford their adviser, investors turned to “robo-advisers”. These are websites that recommend a portfolio of funds based on an investor’s answers to an online questionnaire, and have tried to disrupt face-to-face advice by offering a low-cost alternative to customers increasingly comfortable with digital investing. Citigroup estimates assets managed by robo-advisers could reach $5-trillion globally in the next decade. Banks, asset managers and wealth managers have also spotted “robo-advice” as a potential way to help retail customers.

UK banks Barclays, Royal Bank of Scotland, Lloyds Banking Group and Santander UK are developing online investment websites, as are Swiss bank UBS and wealth managers Investec Wealth, Brewin Dolphin and Killik & Co.

Electric cars are often marketed to consumers as cleaner and cheaper to run than petrol or diesel rivals. But because they contain few moving parts battery cars boast another advantage: there is not much to go wrong under the bonnet. While that may be good news for motorists, it spells trouble for garages that service and fix petrol or diesel cars — one of the most profitable parts of the motor sector.

Philippe Houchois, an automotive analyst at Jefferies, says: “As long as we have cars with an internal combustion engine the repairs will continue to be the main source of earnings for dealers.”

INTERNAL COMBUSTION ENGINE

While an internal combustion engine in a car sold today may have several thousands of moving parts, an electric Tesla contains just 18, says Credit Suisse. “Electric motors need virtually nothing doing to them,” says Steve Nash, CE of the Institute of Motor Industry, a professional body in the UK.

The IMI estimates there are 40,000 after-sales businesses in the UK alone, ranging from large groups such as Kwik Fit to smaller independent garages.

Volkswagen recently said it would retrain 7,000 engineers in electric technology as it strives to make a quarter of its cars electric by 2025.

“Because they look like cars, politicians assume that someone who works on cars will be able to adapt themselves to it,” says Nash. The stakes of tampering with an electric car without sufficient training are high, he adds. “An electric car battery can produce 300-400 volts of electric current. That is worse than … the electric chair.” /© Financial Times 2017