Even if Booking doesn't break through in China as it would like, it still has an incredible chance for growth in the U.S.
After its rapid ride to dominance in online travel in Europe over the past decade, Booking.com is seeking to expand in China and the U.S., its CEO said in an interview.
Darren Huston, who heads both Booking.com and its U.S. parent company Priceline Group, said Booking.com is targeting a 20 percent increase in bookings going through its website in the third quarter and still has years of growth ahead.
“Travel is growing at twice the rate of GDP. Do-it-yourself travel is growing faster than packaged travel. And online is growing faster than offline. So we’ve got three tail winds,” Huston told Reuters from Booking.com’s Amsterdam offices.
“If you can’t grow double digits (in this industry) then you’re not keeping up.”
Priceline, once a dotcom wipeout, revived its fortunes in 2005 by buying Dutch online hotel reservation service Booking.com for $133 million.
The deal proved a masterstroke. By 2010, Priceline had eclipsed major rival Expedia, which is still larger in the United States, in global sales.
Today, Priceline’s market capitalization of $66 billion is four times Expedia’s.
Booking.com realized the potential that lay in Europe’s fragmented market. Small hotels without the resources to build their own websites needed a way to be visible to customers. Europeans with five weeks of vacation a year found Booking’s listings and telephone support in their native languages a useful tool.
Soon the company was controlling the market in European hotel rooms. It takes a 15 percent cut to connect buyers and sellers, a margin Huston said is not under pressure.
“That’s become the market clearing take rate in this industry.”
In the second quarter of 2015, Booking.com accounted for around 85 percent of Priceline Group’s $2.28 billion in revenues.
Priceline, which doesn’t break out earnings for Booking.com, reported $517 million in net profit for the quarter.
That compares to Expedia’s $1.65 billion in revenues and $82.2 million in profit.
Huston said he hasn’t seen much evidence of a Chinese or global slowdown in the online travel business, noting that Booking’s big European growth spurt came after the 2008 crash.
“I don’t think there’s any change in the medium to long term trends in China,” he said.
“It’s not that travel is immune: people might go shorter distances, they might trade down…but they still move,” he said.
“We’re growing our property count there really fast.”
Expedia remains the company’s biggest competitor in what is frequently called a duopoly. Expedia has an estimated 75 percent market share among on-line travel agents in the United States after acquiring both Travelocity and Orbitz. Priceline’s businesses — Booking and the original Priceline, which sells discounted travel packages — have around 20 percent.
“We have a lot more to do in the U.S.,” Huston said, adding that the company only began branded Booking.com advertisements in 2013, one reason it has a relatively low profile there.
But there are other competitors, including Google and travel review site TripAdvisor, though Huston says ultimately both have more to gain from cooperating with them as a customer than a competitor.
Booking.com devotes much of its $2.7 billion marketing budget to buying advertisements on TripAdvisor and to place ads linked to Google searches, such as “hotels in Paris.” Many analysts believe Booking.com is Google’s biggest customer.
“We are one of their largest partners,” Huston said.Huston described Airbnb as an innovative competitor, but said overlap between the companies was limited.
Booking.com wants to attract owners who are willing to let customers book a property instantly, while in Airbnb’s more social model, people renting out their own homes take time to vet guests.
Booking.com is also keen to attract more business travelers, which make up half the online travel market but only 20 percent of the firm’s current business, Huston said.
The site currently has 700,000 hotels and rental properties compared to Expedia’s 257,000. Huston expects Booking.com to pass a million “sometime next year”.
(Reporting by Toby Sterling; Editing by Elaine Hardcastle)
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