Hilton and Marriott’s substantial advertising campaigns to entice direct bookings on their websites and to steal share from online travel agencies does not mean the sky is falling for sites such as Expedia, Booking.com and Ctrip, according to a new study.
A Morningstar research report characterizes the risk to the online travel agencies from major chains’ direct-booking campaigns as “overblown,” and forecasts that they will produce a 1 percentage point headwind for the Priceline Group (compared with Morningstar’s mid-teen percent annual booking growth estimate for Priceline through 2020); a 1.5 percentage point headwind for Expedia (in conjunction with a low-teen percent annual booking growth forecast through 2020), and a 0.5 percentage point headwind for Ctrip (which is forecast to grow bookings at an annual mid-30 percent clip through 2020).
Why would the impact to the online travel agencies be so negligible?
Morningstar points to “Priceline and Expedia’s network, marketing, and technology scale; the cost that sustained discounting of rooms has on hotel financials and brand (key sources of moats in the lodging industry); the Priceline and Expedia’s ability to participate in direct bookings of hoteliers; and the higher fragmentation of hotels relative to airlines.”
On the latter point, Morningstar estimates that American, Delta, United and Southwest command about a 75 percent share of U.S. online flight bookings while the hotel-direct website share in the U.S. is only about 50 percent. And the online travel agencies likely have a higher percentage share of online hotel bookings in Europe, where the hotel market is much more fragmented than in the U.S.
The equity research firm argues that online travel agencies are responsible for 10-15 percent of all hotel bookings worldwide and that their “network advantages have reached critical mass.”
For example, while Marriott-Starwood, which completed their merger late last month, can now boast of 1.2 million rooms, Booking.com alone among the online travel agencies offers 23.7 million rooms, including hotels and alternative accommodations, Morningstar states.