The State of Online Travel Agencies 2018 Part II: Supply

by Seth Borko + Skift Team - Aug 2018

Skift Research Take

Many online travel agencies are no longer specialists in one product, instead aiming to become one-stop shops. The platform that a booking site can offer is a key part of its competitive moat and the contours of supply at Booking Holding and Expedia vary widely from each other.

Report Overview

Skift has broken its online travel agency coverage this year into a multi-part series exploring different aspects of the business model in depth. The second part of our series, below, looks at the inventory and supplier aspect of online travel agencies in North America and Europe. The first part of the series examined the advertising spend of these same sites while a forthcoming piece will look at emerging market booking platforms.

Online booking sites have two essential competitive advantages. First, their massive scale provides them with more cash to spend on marketing and sophisticated ad-tech teams. Second, they consolidate a wide range of travel supply onto a single platform. These two strategies complement each other well. A broad travel offering allows booking sites to draw in consumers, whose commissions fund ad budgets to acquire further users, which makes the platform even more attractive to new suppliers. Rinse, wash, repeat.

While online marketing is becoming democratized, supply is as difficult as ever to wrangle up. Therefore, Skift believes one way to stand out and build a competitive moat is to be the go-to platform for anything and everything travel.

In this report we take a comprehensive look into the supply platforms of Expedia Group and Booking Holdings. We specifically focus on these two companies as they are largest online booking sites in the world, and both have publicly available filings.

Through country- and region-level analysis, we find that there remains room for both Expedia and Booking to grow accommodation supply geographically.

We also examine the shift into new product verticals. Expedia leads in hotel properties and airlines, but Booking dominates in alternative accommodations, car rentals, and restaurants. Expedia also has the relative lead in tours and activities for now.

The shift towards these new offerings brings the booking sites into highly fragmented markets. In order to digitize this inventory, we expect to see a further push into specialized business-to-business software, such as vacation rental revenue management or channel management for tours and activities.

What You'll Learn From This Report

  • A comprehensive survey of the suite of travel products offered by Booking and Expedia with respective market analyses
  • Property and room night comparisons between Expedia and Booking platforms
  • The evolution of both traditional and alternative accommodation inventory
  • Volume and economic trends in online air ticketing
  • Proprietary insights into the geographic positioning of Expedia versus Booking
  • Analysis of M&A trends with forward looking implications
  • Prospects for emerging online travel offerings such as tours and activities and restaurants

Executive Summary

Skift has broken its online travel agency coverage this year into a multi-part series exploring different aspects of the business model in depth. The second part of our series, below, looks at the inventory and supplier aspect of online travel agencies in North America and Europe. The first part of the series examined the advertising spend of these same sites while a forthcoming piece will look at emerging market booking platforms.

Online booking sites have two essential competitive advantages. First, their massive scale provides them with more cash to spend on marketing and sophisticated ad-tech teams. Second, they consolidate a wide range of travel supply onto a single platform. These two strategies complement each other well. A broad travel offering allows booking sites to draw in consumers, whose commissions fund ad budgets to acquire further users, which makes the platform even more attractive to new suppliers. Rinse, wash, repeat.

Online travel agencies remain marketing powerhouses but face growing challenges on the advertising front. In addition to the growing sophistication of hotel groups, both branded and independent, airlines, tech platforms, such as Google and Facebook are slowly, but steadily, moving into travel. These tech titans are able to compete for customer acquisition on an equal footing with giants like Expedia and Booking Holdings.

While online marketing is becoming democratized, supply is as difficult as ever to wrangle up. Therefore, Skift believes one way to stand out and build a competitive moat is to be the go-to platform for anything and everything travel.

In this report we take a comprehensive look into the supply platforms of Expedia Group and Booking Holdings. We specifically focus on these two companies as they are largest online booking sites in the world, and both have publicly available filings.

Through country- and region-level analysis, we find that there remains room for both Expedia and Booking to grow accommodation supply geographically.

We also examine the shift into new product verticals. Expedia leads in hotel properties and airlines, but Booking dominates in alternative accommodations, car rentals, and restaurants. Expedia has the relative lead in tours and activities for now.

The shift toward these new offerings brings the booking sites into highly fragmented markets. In order to digitize this inventory, we expect to see a further push into specialized business-to-business software, such as vacation rental revenue management or channel management for tours and activities.

Technical note: This report has been updated following its publication date to reflect the impact of Booking Holdings’ 2Q 2018 earnings.


Why Does Supply Matter for Online Travel Agencies?

Online booking sites have two essential competitive advantages. First, their massive scale provides them with more cash to spend on marketing and sophisticated ad-tech teams. Second, they consolidate a wide range of travel products — hotels, flights, rental cars, tours and activities, etc. — onto a single platform. These two strategies complement each other well. A broad travel offering allows booking sites to draw in consumers, whose commissions fund ad budgets to acquire further users, which makes the platform even more attractive to new suppliers. Rinse, wash, repeat.

Skift Research recently analyzed the first aspect of this business model, advertising, and found that the scale and sophistication of online travel agency ad campaigns dwarves anything else that the industry can bring to market. As such, these sites remain essential customer acquisition tools (see: The State of Online Travel Agencies 2018 Part I: Advertising). But despite the prominence of online travel agencies, they face growing challenges on the advertising front. Major hotel groups, airlines and others have upped their online marketing savvy, launching impactful direct booking campaigns and pushing into online travel’s traditional area of expertise. Plus, broad consumer platforms, such as Google and Facebook are slowly, but steadily, moving into travel (perhaps, one day Amazon will as well). These tech titans are able to compete for customer acquisition on an equal footing with giants like Expedia and Booking Holdings.

In light of these emerging challenges, Skift Research believes that differentiated and sustainable online travel agency businesses will have to lean ever more heavily on the supply-side of their models.

As with our first report in the State of Online Travel Agencies 2018 series, this report focuses on Expedia Group and Booking Holdings. This is because they are the two largest online booking companies in the world, based in the U.S. and Europe respectively, and both have publicly available filings. We recognize that there are other public OTAs, such as Ctrip in China and MakeMyTrip in India. Those OTAs have dynamics that are unique to their local markets and we intend to cover them in future reports.

Expedia has supplier contracts with 555,000 traditional hotel properties worldwide across all of its brands; Booking Holdings has 415,000 properties. Factoring in instantly bookable alternative accommodations boosts those figures to 750,000 and 1,740,000, respectively.

This supply has taken years to build and creates network effects that are a crucial competitive moat for the online travel agencies.

Mark Okerstrom, CEO of Expedia Group, has emphasized the importance of investments in additional supply. At a recent investor conference, he said, “As we increase our supply count, conversion rates go up, repeat rates go up, sales and marketing efficiency gets better without exception … around the world.”[1]

Glenn Fogel, CEO of Booking Holdings concurs, “We expect to continue to aggressively expand our supply of homes, apartments, and other unique places to stay,” he said.[2]

Not to put too fine a point on it, but, Booking Holdings’ accountants actually attempted to estimate the amount that it has paid to acquire new supply and distribution agreements. This metric, the gross carrying value of its supply and distribution agreements, is currently north of $1,068 million.[3] This measure is mostly an accounting artifact. The true value of Bookings’ supplier relationships is almost certainly higher, but nonetheless, it is an interesting yardstick to take note of. That huge upfront cost is an intimidating prospect for anyone looking to jump into the online travel game.

How should you think about these online travel giants’ supplier strategies? Skift sees two prongs — 1) geography, expanding into new regions and 2) product, offering new verticals like alternative accommodations or tours.


Where we Stand Today: Comparing the Core of Expedia and Booking

Before we look to future expansion plans, let’s take a moment to understand the status quo.

We start with the two core products that online travel agencies offer: hotels and airlines. We recognize that car rentals also have a long-standing place at both Booking and Expedia, but given it is a smaller part of each business, we will address it as part of the broader ground transportation section later.

Traditional Hotel Inventory

Booking hotels is the bread and butter of what online travel agencies do. It is one of the highest margin products available in online bookings and makes up the majority of Expedia and Booking Holdings’ collective $180 billion in gross bookings.

As of the first quarter of 2018, Expedia’s global websites can offer customers 490,000 traditional properties — hotels, motels, resorts, and the like. By the same measure, Booking Holdings makes 415,000 properties available on its flagship website Booking.com.

The below figures examine the progression of this traditional property inventory at both companies, in absolute numbers as well as relative growth rates. We are excluding listings from HomeAway and eLong in the case of Expedia. For Booking Holdings, which modified the way that it classifies alternative accommodations, such as homes and apartments in December 2017, we have made our best possible efforts to ensure backward looking comparability.[4]

 

Exhibit 1a: Expedia and Booking Holdings have access to a similar number of traditional properties, such as hotels

 
Exhibit 1b: Expedia has been growing supply faster than Booking Holdings in recent quarters

Source: Skift Research, company filings. Data as of 6/30/2018.

For Booking Holdings, both property counts refer to instantly bookable properties on Booking.com. For Expedia, traditional properties refers those available to book on Expedia’s global websites such as expedia.com, hotels.com, orbitz.com, and others. Expedia figures adjusted to exclude inventory on HomeAway and eLong platforms. Historical booking figures adjusted to reflect latest property methodology on a best-effort basis by Skift Research.

 

The data show that for at least the last three years, Expedia and Booking grew hotel inventory in lockstep. Property count increased from 200,000 each in early 2014 to 400,000 each by the end of 2017, a compound annual growth rate of 24% per year.

But in the fourth quarter of 2017, Expedia very clearly pulled ahead, adding traditional inventory at a 37% year-on-year rate versus. Booking’s 18% growth. The prior quarter, September 2017, Okerstrom had rolled out a new initiative to “make more aggressive supply, content and translation investments … in priority markets” as part of an initiative to be “locally relevant on a global basis.” Expedia’s pace of traditional property growth has only accelerated since then, hitting +48% YoY in 2Q 2018. In contrast, Booking’s property growth has decelerated, though it is still growing traditional property inventory at a high-teens rate.

Back in December of 2017, Okerstrom said his plan was, “to directly add nearly 2x the number of properties to our core OTA platform [in 2018] versus what we achieved in 2017. HomeAway additions to the platform will be on top of that number.” Translated to real numbers, Okerstrom effectively promised investors the company would add 220,000 core properties in 2018. As of 2Q 2018, it is on pace to achieve that goal, having added 115,000 in the first half of the year.

However, this inventory lead doesn’t mean Expedia is ahead of Booking Holdings in the accommodation sector. The challenge for Expedia is that if you include alternative accommodations, Booking Holdings has a substantial lead in overall properties that it can offer consumers, 1.925 million versus 750,000. We will delve into alternative accommodations more closely later.

 

Exhibit 2: Including alternative accommodations paints a different inventory picture

Source: Skift Research, company filings. Data as of 6/30/2018.

For Booking Holdings, both property counts refer to instantly bookable properties on Booking.com. For Expedia, traditional properties refers those available to book on Expedia’s global websites such as expedia.com, hotels.com, orbitz.com, and others. Expedia figures adjusted to exclude inventory on HomeAway and eLong platforms. Historical booking figures adjusted to reflect latest property methodology on a best-effort basis by Skift Research.

 

Airlines

Flights are an essential part of most business or leisure trips, but one of the least profitable part of the online travel business. Air ticket commissions can be 3–4% or lower, just a fraction of hotel take-rates which can range from 15–25%, or higher.

Both Expedia and Booking Holdings report their year-on-year change in airline tickets sold. Analyzing the numbers shows us that from 2009–2015, Expedia and Booking’s ticket volume changes tended to move in tandem. The implication, in our view, is that market forces played a bigger role in this time frame than company-specific initiatives.

This dynamic changed with the September 2015 acquisition of Orbitz by Expedia. Orbitz had a strong position in flights since it was, after all, originally a joint venture between five major U.S. airlines (Continental, Delta, Airlines, United, and later American) and then owned by global distribution system, Travelport. The deal boosted the volume of tickets sold on Expedia by as much as 70%, while growth stagnated at Booking Holdings.

Expedia was prioritizing flights around this time regardless and, even on an organic basis, outperformed Booking Holdings in ticket growth from 2015–2017. Today, ticket growth rates have re-converged between the two online travel agencies and are trending in the low- to mid-single digits.

 

Exhibit 3: After a period of airline ticket volume gains for Expedia growth rates have normalized

Source: Skift Research, company filings. Data is parent level for Booking Holdings and Expedia Group. Data as of 6/30/2018.

 

At the end of the day, we believe that Expedia is the larger player in this space. Over the last 12 months, Booking sold 7.0 million airline tickets according to its second quarter 2018 filings. Expedia does not disclose a similar metric, but, over the same time frame, it generated $809 million in revenue from airline tickets, representing 8% of company-wide revenue. For an equivalency, we have to make several assumptions, which we believe to be conservative. We start with a 4% take-rate on flights, which implies Expedia did around $20 billion in airfare bookings. Further, assuming an average ticket price of $1,000, this implies 20 million tickets sold on Expedia, which is nearly three times as many as Booking.

Yet, despite substantial efforts on Expedia’s part to increase the volume of tickets it sells, air does not make up any larger a portion of overall company revenue today than it did five years ago.

 

Exhibit 4: Despite ticket volume growth, air revenue has not increased as a share of total sales

Source: Skift Research, company filings. Data is parent level for Booking Holdings and Expedia Group.

 

This is because Expedia’s flight unit economics have been falling for most of the past decade. Over that time frame, Expedia’s revenue-per-ticket declined 3% Y-o-Y on average each quarter, due to a deadly combination of declining ticket prices (causing a corresponding decrease in gross bookings) and take-rate compression.

 

Exhibit 5: Air revenue per ticket has been persistently declining for Expedia

Source: Skift Research, company filings. Data is parent level for Booking Holdings and Expedia Group.

 

These dynamics are reflective of airfares becoming increasingly commoditized products and we believe they are indicative of trends across the industry. But despite the poor economics, Booking and Expedia both offer airfares anyway, as they are part and parcel of being a full-service online travel agency and help sell packages and incremental hotel rooms.


Geographic Supply Expansion

How to increase accommodation supply as an online travel agency? Well, here is one straightforward approach: start onboarding hotels and other places to stay in new cities. That is easier said than done, however, and despite years of effort, there is still headroom for the two largest booking sites, Expedia and Booking Holdings, to expand their maps.

To better understand how these two are positioned worldwide, Skift Research analyzed accommodation inventory on the U.S. version of Expedia.com and Booking.com. For both sites, we compared how many listings were offered to consumers in 100 of the most popular tourist destinations worldwide.[5] To make valid comparisons, the same set of cities was used on each site. We collected information for publicly available, English-language listings as of July 2018. When a date range was required we searched for inventory available in November 2018 (four months ahead). We collected 120,000 properties from Expedia.com, representing about 16% of its total inventory. On Booking.com, we collected 160,000 properties, representing roughly 9% of its total inventory. Both property counts include instantly bookable alternative accommodations. These are not complete samples, but we believe our dataset can help draw inferences about geographic positioning of these two online giants.

While Booking.com has 161% more properties than Expedia.com overall, in our sample set of 100 cities, Booking.com has 34% more properties than Expedia.com, with both figures including alternative accommodations. Booking.com has a substantial inventory advantage in Europe (most noticeably in Eastern Europe) while Expedia.com dominates in North America. This is unsurprising given where each site was founded.

More interestingly, our inventory map cautions against painting with a broad brush and shows the importance of strategic partnerships with local operators. For instance, Booking.com leads in China, where it has an inventory-sharing partnership with Ctrip. Booking.com CEO Gillian Tans has an observer seat on the Chinese company’s board.[6] But leadership in China should not be confused for dominance in Asia overall; in Southeast Asia, Expedia.com edges out Booking.com. We suspect that Expedia’s July 2017 investment in, and partnership with, Jakarta-based online travel agency Traveloka played a large role in Expedia.com’s Indonesian edge.[7]

 

Exhibit 6: Geographic distribution of Expedia.com and Booking.com properties in our sample

Source: Skift Research, respective public websites accessed July 2018. Data is for U.S. version of expedia.com and booking.com.

 

 

Exhibit 7: Expedia.com leads in the U.S.; Booking.com has the advantage in Europe

Source: Skift Research, respective public websites accessed July 2018. Data is for U.S. version of expedia.com and booking.com.

 

With Expedia in second place, Okerstrom has emphasized adding properties in “priority markets,” where he said the company is “firmly in execution mode.” While Okerstrom will not specifically name these markets, a city- and country-level analysis of our dataset indicates that some of the largest gaps are in Russia and Eastern European countries such as Hungary, Poland, and the Czech Republic. In Latin America, Peru, Argentina, and Brazil stand out. In Asia there are deficits in China and Japan. A quick review of Expedia’s open job listings would seem to confirm these priorities. As of July 2018, Expedia Group was hiring for at least eight Russian-focused partner service positions and had four openings in Brazil. Japan would also appear to be a priority market, with 12 listings and a ~30% inventory shortage versus Booking. We noted a large number of open partner service roles in Germany and the Czech Republic (48 in total) to cover supply partners across broad swaths of Western and Eastern Europe, and the Middle East.

Meanwhile, Booking.com could benefit from added inventory in the U.S., Canada, and Australia. Our sample data also show that overall property penetration rates for both Booking and Expedia have room to grow in many emerging markets. For instance, both sites offer between 600 and 700 properties per city in India and the Middle East. Yet in Western Europe or the U.S., property counts per city can be around 1,500 and, in some cases, even higher. Leading Indian booking site MakeMyTrip offers an average of 1,200 properties per city in India, so it is ultimately a connectivity issue and not simply a matter of there being fewer hotels in these regions.


Becoming a One-Stop Travel Shop by Moving Into New Verticals

In addition to building depth in traditional product offerings — hotels, airlines, and car rentals — the online travel agencies are now adding supply by pushing out into new verticals as well. The idea is to become a one-stop shop for all consumer travel needs. Increasing offerings on the platform should lead to greater customer value and engagement. Or at least that’s how the theory goes.

A quick look at acquisition and investment in the space seems to confirm this shift away from the core business and towards supplemental offerings. The early 2010s started with consolidation in metasearch and traditional online travel agencies. This period saw deals for Kayak, trivago, and Orbitz, among others. But starting in mid-2014, the pace of activity shifted toward deals that added new addressable markets for parent platforms including spaces such as restaurants, alternative accommodations, and tours and activities. Recently, as deals have been inked to add hotel and/or airline inventory, they tend to be equity investments in new geographies — such as in China or Indonesia — rather than outright acquisitions as was the case in the past.

 

Exhibit 8: Timeline of major acquisitions and investments at Expedia and Booking Holdings

Source: Skift Research, Capital IQ.

Bubble size corresponds to estimated deal size. Investments are sized to the total amount raised in that round, which in the case of syndicates is not the exact amount Expedia and/or Booking directly invested.

 

Alternative Accommodations

The market for alternative accommodations is rapidly growing, fueled by a change in consumer behavior. Travelers increasingly value experiences over fancy hotel rooms and find that vacation homes, apartment rentals, homestays, and other unique properties can better deliver distinctive, local activities.

Additional reasons why guests prefer alternative accommodations to hotels include cost, size, and location. Data from our annual U.S. Affluent Traveler Survey confirms this trend.

 

Exhibit 9: Price, experience, and size cited by affluent travelers as reasons for alternative accommodation stays

Source: Skift Research. Data as of April 2018.

 

A prime example of the upswing in demand for vacation rentals shows up in the European hospitality data over the last decade. In Europe, the largest market for vacation rentals, alternative accommodations accounted for 34% of all room nights in 2006 but had grown to 38% by 2016. In absolute terms, that means that in Europe, room nights spent in alternative accommodations have increased by 50% from about 800,000 to 1.175 million room nights.

 

Exhibit 10: Alternative accommodations gaining ground in Europe

Source: Skift Research, Eurostat. Data as of March 2018.

 

Much of this growth has come from foreign tourists, whose share of room nights in alternative accommodations increased from 27% to 37%, rather than domestic European travelers, who, the data would suggest, are long-time fans of alternative accommodations.

Perhaps that explains why Netherlands-based Booking.com had the foresight to invest in alternative accommodations years before its U.S.-based rival Expedia and offered 200,000+ alternative properties as far back as 2014.

A quick note on terminology as this topic can quickly become confusing. “Listings” typically refers to the total number of individually bookable units at a “property,” whether or not those units are all available for booking at a given point in time. A hotel with 100 individually bookable rooms would represent one property and 100 listings, while a five-bedroom vacation home that is bookable as a single unit would represent one property and one listing. With the exception of this section, the entirety of this report refers to property counts, not listings.

Returning to our regular programming, though Airbnb gets much of the credit for popularizing alternative accommodations, Booking.com is at the point where it can reportedly match Airbnb in scale. An April 2018 filing from Booking.com claims that the site has five million alternative accommodation listings. That is on par with Airbnb, which as of July of 2018 claims “over five million” listings.

 

Exhibit 11: Booking Holdings close to Airbnb when it comes to alternative accommodation inventory

Source: Respective company websites and media reports. Data as of Spring/Summer 2018.

Company Listings from Booking.com filings as of June 2018, Airbnb webpage accessed July 2018, and Expedia Filings as of June 2018. Property counts from respective company filings. Room nights from The Information as of May 2018.
*HomeAway properties only refer to those available for instant booking on Expedia.com, while listing counts are for the broader HomeAway platform.

 

As Booking.com and Airbnb duke it out for first place, it’s clear that Expedia was caught off guard by the popularity of alternative accommodations. In order to catch up, Expedia executed a large M&A-driven pivot, purchasing HomeAway in November 2015 for $3.9 billion.

But even with this deal, Expedia is still clearly behind. It has 1.7 million listings on HomeAway and has ported over 195,000 of these alternative properties to Expedia.com. The difference in total accommodations, traditional plus alternative, offered on Expedia versus Booking Holdings is clear in the below charts.

 

Exhibit 12a: Booking Holdings has supplemented traditional inventory with alternative accommodations for several years

 
Exhibit 12b: Expedia growing overall property inventory faster than Booking Holdings as it pushes to increase its alternative accommodation count

Source: Skift Research, company filings. Data as of 6/30/2018

For Booking Holdings, both property counts refer to instantly bookable properties on Booking.com. For Expedia, traditional properties refers those available to book on Expedia’s global websites such as expedia.com, hotels.com, orbitz.com, and others. Alternative accommodations refers to HomeAway inventory available for immediate booking on select Brand Expedia, Orbitz, Travelocity, CheapTickets and ebookers websites. Expedia figures exclude inventory on eLong.

 

We note two crucial distinctions between the full accommodation and traditional accommodation series. The first is the substantial head start that Booking Holdings has over Expedia on an absolute basis, with nearly 2.5x the total inventory count. Secondly, while Expedia is now growing at a faster rate than Booking Holdings, there has been no deceleration on the latter’s part.

Expedia is growing its overall inventory at a 72% year-on-year rate versus 44% at Booking. But, to demonstrate just how far behind Expedia is, if both companies continued to add inventory at these respective rates, it would take until 2023 for Expedia to catch up with Booking’s absolute inventory count. Even if Booking did not grow supply at all, but Expedia continued to grow at current rates, it would not break even for another 18 months.

Finally, it should be noted that it takes time for Expedia Group to “turn on” HomeAway inventory on its flagship Expedia.com website, because the alternative accommodations must first be made instantly bookable. Rental homes and apartments were traditionally negotiated on an individual basis and that is still how many property managers operate. A crucial distinction with Booking.com’s inventory is that it is entirely instantly bookable. This makes the properties look and feel like traditional hotels, at least when viewed online. Booking.com even displays alternative properties alongside hotels in its online search results, placing the two stay types on a near-even footing. This perhaps boosts bookings of alternative accommodations but may also confuse inattentive customers.

Alternative accommodations can be quite profitable with take-rates often exceeding commissions charged to branded hotels. The combination of dollars and growth means that alternative accommodations are sure to remain a hot space. We expect to see many future developments, potentially including M&A and technical software innovations. Expedia is rapidly expanding here, but for the time being Booking Holdings remains well in the lead.

 

Exhibit 13: Alternative accommodations to remain a key market given favorable economics, especially vs. branded hotel take-rates

Source: Skift Research, company data.

 

In-Destination

The in-destination market is the most immature vertical to be tackled by both Booking Holdings and Expedia Group. It will be a challenging space to operate in, as the market is extremely fragmented, filled with mom-and-pop operators who have little experience in online connectivity. Yet, in many ways this is reminiscent of the original opportunity that the online booking pioneers were built to execute against. If Expedia or Booking can repeat their initial hotel and airline successes in the in-destination market, it could prove to be a driver of growth for years to come.

The two online booking leaders have thus far been pursuing different tactics to crack this market. Namely, Expedia has focused on tours and activities while Booking has gone after restaurants. Additionally, Booking Holdings has favored acquisitions to Expedia’s slower, more organic approach. As competition heats up, however, these approaches may quickly converge.

Tours and Activities

Expedia has focused on offering tours and activities through its Expedia Local Expert offering. This business sets up kiosks and concierge stands where Expedia Local Expert staff sell tours and activities in more than 100 hotels and other retail locations — plus online bookings in more than 1,000 locales worldwide.

In the first-quarter of 2018, Expedia CEO Okerstrom said that his company sold more than $500 million of tours and activities in full-year 2017. Okerstrom also said that in the first quarter of 2018, Expedia grew its activities transactions by approximately 20%.

Skift Research repeated our above geographic supply analysis to examine tours and activities inventory. We focused on the same 100 top tourist destinations worldwide across the U.S. versions of six prominent online booking sites. We found 8,300 activities available on the Expedia platform in these cities, accounting for a third of the total 25,000 tours it offers online.

The plurality of operators that Expedia partners with are in Europe (34%), though this mostly reflects broad industry trends favoring that region. Relative to peers, Expedia unsurprisingly over-indexes on U.S. inventory available on its platform.

 

Exhibit 14: Breakdown of tours and activities inventory by geography; Expedia over-indexes to the U.S.

Source: Skift Research, respective public websites accessed February 2018.

 

Expedia is currently in the process of migrating its existing suppliers to a new platform which it hopes will further boost inventory growth by allowing new operators to directly upload their tours and activities.

That is all impressive for what has been a mostly organic effort to date. However, evidence suggests that inorganic growth may be required. For instance, though Viator remains the leader in tours and activities, the battle for second place is more contentious than ever. Our analysis shows Expedia has been leapfrogged by startup GetYourGuide, which we estimate to have 14,000 tour listings available in our sample city set. Close on Expedia’s heels is Airbnb Experiences. CEO Brian Chesky’s ambition is to add an additional 25,000 peer-to-peer experiences to his platform this year on top of the 5,000 already offered.

 

Exhibit 15: Expedia has a strong position, but is it being aggressive enough to compete with Get Your Guide and Viator?

Source: Skift Research, respective public websites accessed February 2018.

*For Klook, we are tracking unique suppliers of activities on its U.S.-specific webpage. This means that activities with multiple package options are only counted once. Please note that individual providers will vary on how they display activities with multiple package options but we believe our sampled data is broadly comparable and generally only tracks top-level activity options.

 

Booking Holdings also stepped up the pressure with its April 2018 acquisition of FareHarbor. Terms of the deal were not disclosed. Prior to its acquisition, FareHarbor, claimed to have generated more than $50 million in revenue last year — roughly double the revenue of a year prior — and to be on track for more than $1 billion in transactions in 2018. It said that its reservation platform supported 2,500 clients offering over 25,000 activities.

FareHarbor provides back-end software to tour operators; it is not customer facing and so, for now, has been an investment in supplier relationships rather than an attempt to build a front-line business. In an interview with Skift, Booking Holdings CEO Glenn Fogel said that Booking.com now offers tours and activities in 40 cities. The brand launched a consumer offering in 2016, though Booking.com’s offerings are not as prominently placed on its website as Expedia’s. Fogel said the company is “considering doing standalone tours and activities bookings,” but has yet to do so.

Skift Research believes that those looking to compete on in-destination activities will likely focus on filling in the gaps in their regional inventories. We expect further acquisitions in addition to ongoing attempts to grow supply organically.

Restaurants

The $2.6 billion acquisition of OpenTable by Booking Holdings (then the Priceline Group) in June 2014 was an ambitious shift out of the company’s core expertise of travel and into restaurant reservations. “The kind of work that we do day-to-day is very similar,” Priceline CEO Darren Huston said in an interview with the Wall Street Journal at the time of the deal, “It’s just a different marketplace.”

Results have been mixed. On the one hand, translating domain knowledge in travel into dining proved more difficult than expected. OpenTable did not grow as fast as initially planned and as a result, Booking had to take a $941 million write-down in 2016 on part of the price it paid. More recently, operational issues led top management to restructure how OpenTable is organized, placing it under the supervision of the Kayak leadership team, in a bid to boost growth.

But despite a bumpy road thus far, we should not overlook the fact that OpenTable is still the leading online restaurant reservation platform in the world. It offers connectivity to 50% more restaurants than its next closest peer, La Fourchette.

 

Exhibit 16: Booking Holdings is far and away the leader in online restaurant reservations

Source: Skift Table, company websites. Data as of July 2018.

 

And what’s more, the trend toward food tourism that Booking spotted in 2014 may prove prescient, even if the price for OpenTable was not quite right. We estimate that close to 15% of total restaurant spending in the U.S. is associated with travel. In dollar terms, that translates to nearly $139 billion in U.S. food-travel expenditures.

We see further confirmation of the trend in our recent U.S. Affluent Traveler Survey which found 19% of travelers (and 22% of travelers without children) prefer an urban culture and food trip when vacationing. Additionally, in 2017, TripAdvisor saw 57% year-on-year growth in bookings of food tours.

As a result, Airbnb announced a restaurant reservation partnership with the Resy platform in September 2017. Though, as of this report publication, Airbnb only offers 660 restaurants on its site. And European reservation giant La Fourchette has been owned by metasearch site TripAdvisor since 2014.

Under competitive pressure, Expedia is now experimenting with its own restaurant reservation offering. Reserve struck a deal to be the exclusive provider of restaurant reservations on Expedia.com in the United States starting in May 2018. Reserve works with 1,000 U.S. restaurants in all 50 states. Only restaurants on Reserve’s network will be available for booking on Expedia. The reservations will be made directly on the Expedia Local Expert website, its tours and activities platform, discussed above.

It’s a start for Expedia, but still leaves it with just a fraction of the restaurant inventory that Booking can bring to bear. Plus, Expedia’s partnership with Reserve appears to have no associated equity investment. That is fairly rare for these types of deals and indicates that Expedia is hesitant to commit. We will be watching to see if Expedia continues to take tentative steps or shifts to a more aggressive posture in this space.

Ground Transportation

Of the western online travel duopoly, Booking Holdings has the advantage when it comes to rental cars. It built its current offering, Rentalcars.com off of the acquisition of TravelJigsaw in 2010. At the time of TravelJigsaw’s acquisition, it had 40,000 on- and off-airport locations. Today Rentalcars.com has 53,000 locations and 8 million customers.[8] For comparison, Expedia’s offering Carrentals.com (yes, it is confusing) has 29,000 locations and 7 million customers.[9]

Over the last year, Booking sold 73 million rental car days, but that figure seems to have plateaued as the pace of growth slows to mid-single digits year-on-year. Expedia does not disclose an equivalent figure.

 

Exhibit 17: Booking Holdings sells 73 million rental car days, but growth rate is decelerating

Source: Skift Research, company filings. Data as of 6/30/2018.

 

Growth is slowing, we believe because of secular challenges to car rentals from the ridehailing/ridesharing industry. A recent Skift survey of business travelers, found near-universal acceptance of ridehailing. More than 90% of those surveyed said that their employer allowed the use of ridehailing services when traveling for work.

Data from expense software provider Certify corroborates this trend. It found that 71% of business travel receipts were for ridehailing applications in 1Q 2018, up from 8% in the same time frame four years ago. Rental cars have meanwhile seen their share drop to 23% from 55% of expenses over the same time frame. Certify’s data does not include car service expenses, due to the complexity of tracking them.

 

Exhibit 18: Ridehailing usage among business travelers has picked up dramatically over the last four years

Source: Certify.

 

Further cementing the popularity of ridehailing was Skift Research’s U.S. Traveler In-Destination Mobile Usage Survey 2018. While the Certify data looked at business travelers, we surveyed leisure travelers and found that 55% has used their mobile phones to access ridesharing services. Uber was the most popular app, followed by Lyft.

 

Exhibit 19: Ridehailing is heavily used among leisure travelers

Source: Skift Research U.S. Traveler In-Destination Mobile Behavior Survey 2018, n=1,671. Data as of July 2018.

 

In response to these trends, Booking Holdings recently announced a partnership with leading Chinese ridehailing service Didi Chuxing. Booking will invest $500 million, but as Didi is a cash-flush unicorn, we believe the priority to be the strategic tie-up. The plan is for Booking Holdings’ brands to have the ability to offer on-demand car service through their apps, powered by Didi.

The move has implications beyond China, as Didi recently launched services in Mexico, Australia, and Taiwan; acquired local ride-hailing company 99 in Brazil; and announced plans to roll into Japan.

The ground transportation market continues to evolve, and it is no longer as simple as car rentals. We have seen investments and startups in ridehailing, airport transfers, rail travel, and intercity buses. All stand to be changed by innovation and online connectivity. We expect the online booking companies to continue to invest in these areas as they strive to make their travel product portfolios ever-more comprehensive.


Conclusion

Remember when Priceline only offered “Name Your Own Price?” We won’t blame you if you don’t. The era of specialist booking websites seems to be drawing to a close. Sites today aim to offer demanding consumers the ability to book nearly every step of the travel journey online on a platform.

The shift is partly inspired by the success of Amazon and its “everything store” platform. It is also a result of increasing competitive pressures. Major hotel groups, and increasingly independents, have the ability to drive direct bookings, which push into online travel’s traditional area of expertise. While online marketing is becoming democratized, supply is as difficult as ever to wrangle up. Therefore, one way to stand out and build a competitive moat is to be the go-to platform for anything and everything travel.

There remains room to grow supply geographically and also by moving into new products. The shift towards new products — alternative accommodations, tours, and restaurants — brings the online travel agencies into highly fragmented markets. In order to digitize this inventory, we expect to see a further push into specialized B2B software, such as vacation rental revenue management or channel management for tours and activities.

Expedia was one of the first to move toward a one-stop-shop model but Booking Holdings has been game to compete. Over the last 12 months, Booking Holdings sold 696 million room nights to Expedia’s 322 million, a function of both its outsized alternative accommodations platform and strong occupancy/conversion rates on its traditional accommodations.

In recent quarters, Expedia and Booking Holdings have posted very similar room night growth rates, a strong predictor of gross bookings growth rates. Net-net Expedia barely edges out Booking Holdings for gross bookings, $92 billion versus. $86 billion; the advantage is likely a function of airline and other products.

 

Exhibit 20: Room night growth rates have converged for Expedia and Booking Holdings in recent quarters

Source: Skift Research, company filings. Data is parent level for Booking Holdings and Expedia Group. Data as of 6/30/2018.

 

Finally, we summarize the current state of Expedia and Booking Holdings’ supply ecosystem by the numbers below: Expedia leads in hotels and airlines, but Booking dominates in alternative accommodations, car rentals, and restaurants. Expedia also has the relative lead in tours and activities for now.

We expect supply to remain a competitive battleground and look forward to following the many future developments that will follow.

 

Exhibit 21: Surveying Expedia vs. Booking Holdings by the Numbers Across Multiple Products

Source: Skift Research, company filings. Data as of July 2018.

Booking Holdings: Gross Bookings is for the trailing twelve months across all Booking Holdings Brands. Traditional properties and alternative accommodations refer to instantly bookable properties on Booking.com. Car rental customers refers to transactions on rentalcars.com, restaurant partners are those available on OpenTable. Airline tickets sold are across all Booking Holdings brands.
Expedia Group: Gross Bookings is for the trailing twelve months across all Expedia Group Brands. Traditional properties refers those available to book on Expedia’s global websites such as expedia.com, hotels.com, orbitz.com, and others. Alternative accommodations refer to HomeAway inventory available for immediate booking on select Brand Expedia, Orbitz, Travelocity, CheapTickets and ebookers websites. Car rental bookings refers to customer transactions on carrentals.com, restaurant partners are those available through Resy partnership. Airline tickets sold are across all of Expedia Group.

 


Footnotes

1. Goldman Sachs Technology and Internet Conference 2018, Feb 13, 2018
2. Booking Holdings Fourth Quarter 2017 Earnings Call, Feb 27, 2018
3. Booking Holdings First Quarter 2018 10-Q Filing
4. Per 4Q 2017 10K: “Booking.com has begun categorizing properties listed on its website as either (a) hotels, motels and resorts, which groups together more traditional accommodation types (including hostels, resorts, inns, and motels), or (b) homes, apartments, and other unique places to stay, also referred to as alternative accommodations, which encompasses all other types of accommodations, including homes, apartments, villas, igloos, and beyond. Booking.com previously classified properties as hotels, vacation rentals, or other. We believe the new categories are more consistent with those used by other industry participants and allow for a more direct comparison of traditional and unique property counts among companies”
5. Euromonitor International Top 100 City Destinations
6. Booking CEO Gillian Tans Gets a Ctrip Board Seat
7. Expedia to Invest $350 Million in Indonesia Booking Site Traveloka
8. Based on public website accessed July 2018
9. Ibid

Further Reading

  1. Skift Research, “The State of Online Travel Agencies 2018 Part I: Advertising” June 2018
  2. Skift Research, “U.S. Affluent Traveler Trends 2018: Annual Survey on Travel Behavior.” April 2018
  3. Skift Research, “U.S. Traveler In-Destination Mobile Usage Survey 2018.” July 2018
  4. Skift Research, “Tours and Activities Race for Dominance in 6 Charts.” March 2018
  5. Skift, “Every One of Expedia Group’s 23 Brands, Explained.” July 2018
  6. Skift, “Expedia’s Hotel Boss on Becoming a Global Platform.” July 2018
  7. Skift, “Expedia Marketing Spend Levels May Reflect a Changing Advertising Environment.” July 2018
  8. Skift, “Booking Holdings CEO on the Foolishness of a Short-Term Focus.” April 2018
  9. Skift, “Booking Claims It Beats Airbnb With 5 Million Alternative Accommodations Listings.” April 2018
  10. Skift, “Booking Holdings Buys Activities Distribution Startup FareHarbor.” April 2018
  11. Skift, “Expedia Sold More Than $500 Million in Tours and Activities in 2017.” April 2018
  12. Skift, “Why Everybody Now Wants a Piece of the Tours and Activities Sector.” April 2018
  13. Skift Table, “OpenTable Reorganizes Its Marketing, Product and People Teams.” June 2018
  14. Skift Table, “Reserve Is Expedia’s Exclusive Reservations Partner in the U.S.” April 2018
  15. PRNewswire, “Didi Chuxing and Booking Holdings Enter into Strategic Partnership.” July 2018
  16. TechCrunch, “Travel giant Booking invests $500M in Chinese ride-hailing firm Didi Chuxing.” July 2018
  17. Skift, “Lyft Continues to Gain Ground in Business Travel Ground Transportation.” April 2018
  18. SkiftX + Lyft, “New Research Finds Near-Universal Acceptance of Ridesharing Among Business Travelers.” April 2018