Shifting hotel bookings to their own websites is clearly a positive for the large hotel chains, but online travel agencies could actually come out ahead, as well.
For the online travel agencies, much of the volume that move to hotels’ own channels will be replaced by smaller chains and independents.
The commission rates from those entities are likely meaningfully higher than those paid by the mega brands in the U.S. If volume is shifted rather than lost, the online travel agencies should benefit from higher commissions and improved margins on each transaction.
The worst-case scenario for the online travel agencies would be a broad shift in consumer behavior where direct booking becomes the norm for all hotels.
Given the online travel agencies’ vast inventory and huge marketing budgets, the most likely result is a gradual increase in direct booking for the large chains and some smaller ones riding the direct booking campaign coattails.
The majority of volume would simply shift between the larger hotels to smaller ones and independents resulting in a neutral to positive economic outcome for the online travel agencies.
The ongoing debate surrounding direct booking continues to play itself out during earnings season. The hotels have touted their success while Expedia once again emphasized that there was minimal impact thus far.
At first glance, this seems to be inconsistent where one side must be disingenuous, but the economics behind the scenes supports the claims by both sides, although there are obviously risks involved.
Expedia was the first of the large online travel companies to report earnings in the third quarter of 2016 with Priceline and TripAdvisor reporting on November 7 and November 9, respectively.
Expedia’s room night growth, excluding the impact of acquisitions, was up 11 percent year over year. This was down from 12 percent in the prior quarter. However, Expedia states this has reversed course with 14 percent growth in September.
Most large, publicly traded companies would be ecstatic to see consistent double-digit volume growth, but compared to Priceline, and Expedia’s own historic growth trajectory, these numbers could be described as subpar.
The fear surrounding Expedia’s core online travel agency business is that volume is slowing due to the success of the large hotel chains’ direct-booking campaigns.
However, this is more likely correlation versus causation where the actual driver of slower growth is the maturing of the U.S. online travel agency market (Expedia derives nearly two-thirds of its bookings domestically).