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Editor’s Note: Skift is publishing a series of interviews with online travel CEOs talking about the Future of Travel Booking, and the evolving habits and device preferences of travel consumers. Check out all the interviews as they come out here.
Founded in 2000 as a Silicon Valley vacation-packages startup with two employees, Barcelona-based eDreams Odigeo has emerged as a flight-search specialist that has rolled up five brands in Europe, employs 1,600 people, and executed an IPO in April, although its stock has tumbled and now trades for less than 3 euros ($3.81).
Founder and CEO Javier Pérez-Tenessa speaks of the complexities of flight bookings, the one trillion price changes the company monitors daily and the seven billion pricing decisions it makes on an hourly basis as “quite a paradise for a company of engineers, mathematicians and people like us at eDreams.”
eDreams Odigeo, according to Pérez-Tenessa, operates in a way that is contrary to a lot of perceptions about selling flights online. eDreams Odigeo, he says, sets many of its own prices because it creates millions of flight combinations that others ignore; it is a high-margin business, and the company reduced the average price that its customers paid by 10% in 2013 despite often charging booking fees.
Skift spoke to Pérez-Tenessa about the future of travel booking, eDreams Odigeo’s competitive advantages, its labors in creating a common technology platform for its five brands, mobile trends, and the significant challenges the company has faced since its April IPO.
An edited version of the interview follows:
Skift: Travel companies have been offering flights online for nearly 20 years. How difficult can it be for eDreams Odigeo to offer them something new and different, and where do you think the future of flight booking is heading?
Javier Pérez-Tenessa eDreams Odigeo has been offering flights online for 15 of those 20 years and every year we improve and add to our product offer. This has allowed us to go from a two-person startup in Silicon Valley to today becoming the world’s largest retailer of flights by revenue, based on last year’s data, with more than 15 million customers per year.
Flights is the largest ecommerce category in the world and finding the best price is a very complex problem, which we still continue to see. The number of combinations of routes, airports, stopovers and fare classes is very, very large and continues to grow. And we are also seeing a surge in ancillary services such as bags, boarding passes and seats etc.
Just to give you the idea of the size of this, we monitor about one trillion price changes daily. This is quite a paradise for a company of engineers, mathematicians and people like us at eDreams. Just to give you an idea how everything has changed when we started selling flights 15 years ago, travel agencies made all their money from airline commissions, tickets came in paper and had to be shipped to the customer by couriers.
We exclusively sold inventory coming from one global distribution system (GDS), we were price takers and just published prices as defined by airlines in just one country with a significant number of sales coming from offline and call centers. And Google and social media did not exist.
If you look at what has happened, we now sell online over $5 billion worth of tickets in 43 countries, 17 languages, 100% electronic. We are now price-makers; that’s a big difference in the model. And we make in fact seven billion pricing decisions an hour, which is a huge number. And 67% of the flights that we sell are not your basic GDS flights. And also airline commissions make very little of our flight revenue.
On the marketing side, we manage millions of keywords in search engines and we have been a pioneer in the introduction of technology that reduces the final price to our customers. We are the first online travel agency to sell large volumes of low-cost airline flights and one of the very few to combine charter inventory and the world’s three GDSs.
Every year we’ve been able to reduce the average price that customers pay us because we find new ways to improve all of our service and last year we were able to reduce the average price that customers pay us by 10% from $617 in December 2012 to $552 [at the end of 2013].
Skift Is that what you mean by being a price-maker?
Pérez-Tenessa We do a lot of things. Yes, we set prices. Before airlines gave us prices and we adjusted them and now we decide what price we are going to sell when, and we also combine lots of different inventories and we look for combinations that are different your basic combination. The order of magnitude is very large.
We are also making improvements in profits, which is important. We’ve been doing that by investing in engineering for 15 years and this year we are spending even more. We never have spent more in engineering. We are spending over $45 million [in capital expenditures] so there is no lack of ideas and opportunities to improve the experience of our customers. Can you still do something different? Yes.
Skift What are some of the major trends that you are seeing?
Pérez-Tenessa Some of the biggest trends we are seeing is more mobile bookings and more cross-device bookings, starting on mobile and finishing up on the PC or the other way around. Also a vastly increased number of products that we’ve made available online, partly as a cross-sell of flights.
So anything that has to do with a traditional hotel and there are a lot of new non-hotel accommodations that are starting to be sold, and in-destination products like tours, etc. We think the future will be a vast array of increased products that you can cross-sell with flights.
From a model perspective we will be seeing more of a mix of ecommerce revenues from pure transactions and lead generation. And we see that happening with a number of players. It is happening with us and other players in the industry.
Skift: Can you expand on what you mean by lead generation and how it relates to a model shift?
Pérez-Tenessa: Ecommerce is when a transaction happens and you need to take money from someone and give them something in exchange. If you look at us our traditional business has been in ecommerce, but we also have a metasearch part of the business.
Skift: But you split ecommerce and metasearch by brand within your group?
Pérez-Tenessa: A little less than a year ago we bought a brand [Liligo] and we are experimenting with offering metasearch services across all of our brands. And we see that the frontier [i.e. boundaries] between metasearch and online travel agencies will be disappearing. It’s the same as you see with some of our competitors.
Skift: So you are not afraid of combining transactions and metasearch’s lead-generation on the same sites?
Pérez-Tenessa: No. It gives you more flexibility. There are some occasions when it makes more sense to do ecommerce because you can add more value to the customer. There are other areas where you might have similar value or it will scale faster with a lead-generation business. So you need to look at both the customer side and the company side.
Skift: You mentioned mobile and the fact that customers are starting their searches on one device and maybe booking on another. So what are you doing in that area?
Pérez-Tenessa: In our June report we announced that 14% of our total bookings were done on mobile devices, and that’s up from 8% the previous year, and also up from 11% three months before. So the pace at which it is growing is very strong. In 2011 we made two very large acquisitions: eDreams acquired GoVoyages and Opodo. That was the most ambitious European online travel transaction in history because we put together the three largest competitors to create a leader.
All that was great, but it also meant we had to spend a large part of our integration efforts on platform unification. The good part of that is that most of that platform unification is now complete and is fully complete for everything that touches mobile, including mobile Web and apps.
And that has meant a strong acceleration of our mobile bookings and we can finally put best practices across all of our customer base. We think in general that our speed of development will be very strong.
Skift: Everyone talks about flights as being a low-margin business and you have to add service fees in order to make it all work. How do you go out to the consumer with a proposition like that?
Pérez-Tenessa: You have to deliver value. Actually we did not start in flights. We were a vacation packages startup. But we saw that flights were the most attractive thing for us in Europe and based on that we have been a very successful business for 15 years. But we started from nothing. We were two people and were opposed by the largest players out there.
And we reached $152 million of adjusted EBITDA last year, which makes us, to our understanding, the largest [travel] ecommerce company in Europe by EBITDA, and the second most profitable among publicly traded OTAs in terms of EBITDA margin. I think we’ve built a very successful and high-margin business.
It starts with a superior booking experience for customers, yielding better prices versus competitors, with better ease of use and bookability, better inventory, and sophisticated pricing that leads to higher margins. Flights are very particular and you can do this on a massive scale. And we are comfortably adding more revenue streams and these superior margins also allow us to invest more than competitors toward improvements in flights, and this leads to a better customer experience. It is sort of a virtuous circle.
Skift: I have to ask you about CheapOair. Do you view them as a competitor?
Pérez-Tenessa: CheapOair is not one of our main competitors because they are very small in Europe, where we are very large, and we are small in the U.S., which is a big market. I know them but I can’t really speak with a lot of know-how about them.
Skift: It would seem like a natural combination, no?
Pérez-Tenessa: I don’t know. We can’t speculate on combinations, right?
Skift: Right. Can you talk a little about your multi-brand strategy with eDreams, GoVoyages, Opodo, Travellink and Liligo, and what that says about the future of travel booking?
Pérez-Tenessa: They are very well-known brands. When we ask our customers why they book from us, 42% tell us they always book with that particular brand. And that ultimately means we don’t have to pay anyone, not Google or anyone, to get customers to come back and that’s a huge advantage in this market. Our brands are also the most solid brands in the flight category among online travel agencies.
On the flip side, however, I will tell you our five brands came with six different technology platforms from the different acquisitions. They had different front ends, different booking engines, different revenue lines, different models etc. We really don’t like many platforms. This is why we embarked on a multi-year platform unification work. A big part of that was completed in the summer of last year and it immediately yielded very improved customer acceptance and profitability. From now through the end of 2015 we will have completed essentially all the remaining bits of platform unification.
Skift: That leads into the next question about how your stock has been doing since your IPO, and does all the work you’ve done on your common technology platform mean that there are brighter days ahead? Or what’s been going on regarding the pressure on your stock price?
Pérez-Tenessa: We have a 15-year track record of growth. We have 60 consecutive quarters of revenue and EBITDA growth and have had to deal with dynamic changes all of the time, during all of these 15 years. But it is true that the challenges we have faced since the IPO were significant and of course we have plans that we are working on to implement and to mitigate them.
The financial markets don’t like their prices so it is up to us to work and deliver the performance and to repay the trust. And going forward we think we will return to the strong historic financial performance that saw us grow revenue and EBITDA that we’ve had for 60 consecutive quarters.
Ultimately, we think in the long term the market for travel is extremely large. Flights will be the largest category within travel. Online transactions will continue growing around the world, and there also a number of very large markets where either we don’t have a presence or are still pretty small and don’t have a big market share. Our brands are very strong; our scale is very large; our technology is strong, and now that we are finalizing integration we will even be able to deliver more value.