Could an established player from the world of wholesale online merchandising be a new force to be reckoned with in online travel?
The online travel agents (OTAs) could have done without it, but there is a fast-growing new player on their block.The US membership-only wholesale club group, Costco, has spotted what its brand strength can bring it in the online travel market. With around 90 million captive members on its books, well over 40% of the 25-and-older US population, (mostly in medium-to-upper income brackets), becoming an OTA was a no-brainer.
The numbers stack up very nicely: 63% of affluent Americans say they go on holiday over three times a year, reporting spending on average more than $13,000 and around $3,000 a trip, according to figures from Alliance Travel Insurance and Conde Nast Traveller. Add in OTA commissions, thanks to the lucrative hotel sector, that can reach 30%. Even on the cost-cutting, ultra-efficient business strategies employed by Costco, the gross margin in its core consumer goods business is around 13% gross.
The vast majority of Costco’s net income comes from its membership fees. These range from an annual $120 for executive membership down to $60 for the rest. Costco is beginning to expand its merchandise business into South America and Europe, so Costco Travel will follow.
Started some years ago, Costco Travel has only recently attracted headlines because of its rapid growth. The retail giant is offering members deals on hotels, flights, cruises, and rental cars. Perhaps it might not sound like the most glamorous way to book a trip, but its customers seemingly can’t get enough of it. As yet it has not disclosed how large its business has become, but its presence is certainly felt.
In Costco’s most recent report to the stock market, chief financial officer Richard Galanti explained that the quarter’s margin improvements were partly thanks to its travel business. “It’s not the value of that plane ticket and hotel, it’s the broker commission,” he said.
