Travel online this week
For large online travel agencies, their competitive position and outlook is much different in 2022 than in the aftermath of 9/11 and the end of the Great Recession in 2009.
Some travel research brands, Skift Search and Bernstein, agree that the future will be much more difficult for the online travel agency sector.
In a December Skift podcast, Booking Site Winners and Losers, which featured Skift Research’s Seth Borko and myself, Borko said online travel agencies have recovered strongly after 9/11 and the financial crisis. from 2007 to 2009, because hotels needed the big online travel agencies. to help them fill the halls.
But it’s different now.
“Hotels have maintained their pricing power and ADRs (Average Daily Rates) are recovered at almost 90%,” Borko said, referring to competitive dynamics at the end of 2021 and adding that the magnitude of the recovery hotel depends on the region. “OTAs’ reputation for discounts has suffered as direct hotel bookings come with lower rates. And customers have more to spend.
Borko, who covered much of this topic in a recent Skift Research Online Travel Agency Factbook, said that this time during the pandemic, online travel agencies aren’t getting the same boost as after past crises.
“While they are recovering fairly quickly, it wasn’t quite the benefit for OTAs that many thought it might have been because it wasn’t quite a repeat of the last two crises,” Borko said.
Borko said gross bookings and commissions from online travel agencies have largely recovered from 2019 before the pandemic, poised for gains.
“The problem is on the cost side,” Borko said. They have sunk themselves into a huge profitability hole. While revenue is coming back, EBITDA (earnings before interest, tax, depreciation and amortization) and other earnings are not coming back as quickly.
He argued that online travel agencies’ margin levels will not rebound as quickly as their gross bookings.
Hotel chains such as Marriott and hilton have been very aggressive in promoting direct booking campaigns from 2017 to 2019. Expedia countered to some extent, downgrading branded properties in favor of independents.
Although frequent TV ads and other hotel brands in recent years promoting direct bookings have diminished, Borko warned that “chain wars will return” in the next few years.
In other words, as online travel agencies try to regain their profit momentum, hotels will not sit idly by in the contest for travelers’ eyeballs.
Bernstein, in his new report, Online Travel Agencies: “A Rough Guide to Online Travel”, is perhaps a bit more pessimistic about the future of online travel agencies, although Bernstein thinks they will be around for some time.
“That we, hosting analysts rather than internet analysts, are the authors of this black book is telling,” the report said. “They are no longer growth disruptors at more than 30%, but established travel players, in competition with their underlying product and themselves disrupted by technological intrusion, in particular google and Airbnb. Our central thesis is that the core business (i.e. hotel distribution/metasearch) is a slowing opportunity, as tailwinds from online penetration, direct distribution share gains and share gains from competitors are attenuated or even reversed.
The relative consensus optimism about online travel agencies “is too positive on the way forward,” Bernstein said.
Among the trends, there will be
Hotel OTA revenue growth is expected to slow from a CAGR of 23% in 2010-19 to a mid-single-digit rate after Covid-19, with branded hotels in particular regaining control of their distribution. Other travel opportunities exist, but these face tougher competition (e.g. against Airbnb), have a lower take rate/margin (flight, package, B2B, etc.), or are small opportunities market (for example, car rental and cruise). OTAs aren’t going anywhere — for some customers and providers, they provide a high-value service; but our analysis suggests that the consensus is too positive on the way forward.
Among the trends will be “market share shifts towards direct bookings, and a refragmentation of the OTA market, with Google, Airbnb, and Hopper creating a tougher competitive landscape than ever before,” Bernstein said. “Growth in the future, where feasible, will either come from new verticals, more aggressive price competition, or from taking share of each other.”
In particular, Bernstein predicted that Reserve credits will be “underperforming”, and he ranked Expedia Group as “market performance”.
“The main difference is that we expect Booking to disappoint sooner, with consensus margins that are too high in the short term, whereas with Expedia we see more revenue versus risk in the longer term,” Bernstein said.
Expedia Group and Booking Holdings declined to comment on the Bernstein report.
The debate over the future of online travel agencies is not new. In the aftermath of a weak second half of 2019 for Expedia Group, which led to the CEO’s ouster at the end of the year, speculation was rife that online travel agencies would play a weak role in because of Google’s forays into online travel. .
Meanwhile, Airbnb had its best third quarter last year.
At the Skift Global Forum in September, I asked Uber CEO Dara Khosrowshahi, former CEO of Expedia and current board member, on an earlier Bernstein report that was equally unenthusiastic about the future of online travel agencies.
“Well, I think the comeback will be boom time, and then it’s going to be for OTAs to create their own booms,” he said.
That will be the big challenge for online travel agencies: to create lucrative new revenue streams, perhaps in fintech and elsewhere, to accelerate growth and drive those margins up again.
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