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2015 was another positive year for the online travel agencies (OTA) sector, which recorded healthy growth.
The two leading players within this sector, Expedia, Inc. and The Priceline Group, registered strong performances, although it was the Chinese player Ctrip that achieved the strongest growth to become the third global OTA giant.
The next few years are expected to see the rise of new key players in online travel bookings, such as Google and TripAdvisor, which are currently challenging OTAs in terms of brand loyalty and which are even posing a disintermediation threat in the travel industry. OTAs are expected to respond to this challenge by changing their business models, shifting their focus from that of pure online bookings providers to offering services throughout the travel experience.
Another Strong Performance for Online Travel Agencies in 2015
According to Euromonitor International’s travel research, global sales of online travel agencies recorded another strong performance in 2015, growing by 19% in terms of fixed 2015 exchange rates to reach $246 billion. Growth was lower in U.S. dollar terms if we take into consideration the strong appreciation of the U.S. dollar in 2015, at 10% in terms of U.S. dollar year-on-year exchange rates.
This performance was driven by OTA sales in the Asia Pacific region, which grew by 43% in 2015 to reach $79 billion. Thanks to this strong growth, Asia Pacific, which is already the largest world market for total travel sales, almost reached North America’s OTA sales, at $83 billion, and surpassed Western Europe, at $67 billion. The performances of OTA sales were, however, positive in all world regions in 2015, with North America and Western Europe recording 11% and 9% growth, respectively.
The strong performance of online travel agencies is expected to continue during the 2015-2020 period with a 12% CAGR to reach sales of $434 billion. Asia Pacific is expected to remain the main driver of this performance, registering a 20% CAGR over the next five years.
Online Travel Agencies Value Sales by Region (U.S.$ billions)
Fixed 2015 Exchange Rates
Source: Euromonitor International estimates
Expedia Strengthens its Sector Leadership
Expedia strengthened its global leadership in the OTA sector in 2015 in terms of gross bookings, thanks to a robust 21% growth rate, which allowed the company to reach bookings of $61 billion. This performance was driven both by organic growth and by the acquisition of Orbitz in September 2015. Excluding bookings generated by Orbitz Worldwide Inc brands since the acquisition of the company, organic growth of Expedia Inc brands was still very strong in 2015, at an estimated 14%. This organic growth is higher than that of arch-rival The Priceline Group, also thanks to the fact that almost two thirds of Expedia’s bookings were generated in the U.S., where the company holds a dominant position in the OTA sector, and therefore were not negatively affected by the appreciation of the U.S. dollar.
The global leadership of Expedia in the OTA sector is expected to be further strengthened in 2016, when Orbitz bookings for the whole year will be included in the company gross bookings, which are expected to surpass $70 billion. Moreover, Expedia Inc reported figures do not include gross bookings generated by HomeAway, another major acquisition of 2015. HomeAway is estimated to generate a substantial amount of bookings in the short-term rentals category, well in excess of $10 billion, although only part of them through an online intermediary model, while part of them are generated through a subscription model.
Expedia’s strategy is clearly that of a market leader building a strong presence in all the main categories of online travel, including metasearch through Trivago, corporate travel through Egencia and, since December 2015, short-term rentals through HomeAway. In May 2015 Expedia sold its majority stake in eLong to Ctrip and a consortium of financial companies, due to the difficulty of competing with domestic players in China: its development strategy in the fast-growing Asian markets is now based on its partnerships with Ctrip and eLong itself, and on the organic growth of its brands in the region.
Top Global Online Travel Agencies by Gross Bookings (US$ Million): 2014-2015
|Ctrip.com International Ltd*||16,935||26,753||58|
|eDreams Odigeo Group||5,606||5,117||-8.7|
Source: Companies’ annual reports, Euromonitor International estimates
Notes: *estimates. Expedia’s figures include Orbitz’s gross bookings since the acquisition of the company on 17 Sep 2015 and eLong’s gross bookings until its disposal on 22 May 2015, while they exclude gross bookings generated by HomeAway; Qunar is excluded due to its mixed metasearch-OTA model; 2014 sales for Lastminute.com Group refer to Bravofly Rumbo Group before the company changed its name
Priceline Group’s Performance and the Strong U.S. Dollar
The Priceline Group remained the number two player in the OTA sector in terms of gross bookings in 2015, although it was the leading player in terms of revenues and earnings thanks to its strong position in the profitable hotel reservations sector. Gross bookings of the Priceline Group recorded very strong growth over the 2006-2014 period, at a 37% CAGR, driven by the extraordinary performance of its Booking.com subsidiary, which allowed the company to become the dominant player among online lodging intermediaries in Europe. In 2015, for the first time over the past 10 years, Expedia’s gross bookings also recorded a stronger performance in terms of organic growth. However, this was due in large part to the appreciation of the U.S. dollar, with bookings of the Priceline Group – almost 88% of which were generated outside the U.S. in 2015 – growing by 10% in U.S. dollar terms, but by approximately 25% in constant currency terms in 2015.
The performance of the company therefore remained very strong in constant currency terms in 2015, driven by its Booking.com, Agoda.com and RentalCars.com subsidiaries. In particular, Booking.com and Agoda.com are enjoying constantly growing popularity among independent travellers in Europe and Asia for their lodging reservations.
In the past few years The Priceline Group significantly strengthened its position in the fast-growing short-term rentals segments, not through acquisitions, as Expedia did, but through organic growth. In particular, Booking.com is increasingly targeting this category, with 380,000 holiday rental listings reached by the end of 2015, while in May 2014 it launched the brand Villas.com, specializing in holiday rentals and directly competing with Airbnb.
The strong performance of its most direct competitor, Expedia Inc, in 2015, driven by both acquisitions and organic growth, may be a factor inducing The Priceline Group to consider an important acquisition over the next months, with TripAdvisor a possible target.
Ctrip: The Rise of the Third Global OTA Giant
The OTA that recorded the strongest performance in 2015 was Ctrip, which grew by an impressive estimated 58%, to reach gross bookings of $27 billion, driven by the booming Chinese domestic and outbound travel markets. Ctrip is today the third global OTA player, and is forecast to be able to challenge Expedia Inc and The Priceline Group for global leadership by 2019.
The rise of Ctrip determines a scenario in which Expedia is the dominant player in North America, The Priceline Group in Europe and Ctrip in Asia. Ctrip has so far been focusing on the Chinese market, which is today the most interesting globally in terms of growth, but in the next few years it could also start targeting international markets, leveraging its strength in the fast-growing mobile channel: according to company sources, in 2015 around 70% of Ctrip’s air and hotel bookings were generated by its app.
Ctrip’s position was further strengthened in 2015 by a share swap with Baidu, which gave the company a 45% stake in Qunar, and by the acquisition of a controlling stake in eLong as part of an investment group. The most important result of these two deals was the end of the price war in the Chinese travel market, which had had a very severe impact on margins until 2015.
The Rise of New Key Players
The OTA competitive environment is becoming increasingly tough, with the smaller players suffering due to the rise of the leading players, especially in the hotel bookings category. This resulted in significant consolidation over the past couple of years, with Expedia in particular buying Travelocity, Orbitz and Wotif. While Airbnb, not a typical OTA, but more precisely a peer-to-peer short-term rental intermediary, is recording fast growth thanks to the rise in popularity of peer-to-peer short-term rentals, other players, such as eDreams Odigeo Group, are focusing on the air sector, where, however, margins are lower. The newly formed Lastminute.com Group has, on the other hand, embraced a, for the sector, innovative lifestyle brand concept.
The wider competitive environment also sees the rise of metasearch players, the push of hotels to increase their direct bookings and, especially, the entry of technology players in direct travel bookings.
In fact, OTAs are currently being challenged by companies such as Google and TripAdvisor, which have recently started offering direct bookings to be completed on their websites. These players, as well as social media players such as Facebook, are the ones closer to consumers and are able to attract huge numbers of visitors to their sites, increasingly aiming to keep them until the finalisation of the booking and beyond, following them during the travel experience. While TripAdvisor’s goal is to gain the brand loyalty of travel consumers, the long-term objective in the case of Google seems to be to disintermediate the travel industry to become the key generator of travel bookings.
The OTAs of the Future
Changes are expected in OTAs’ business models in the next few years in order to better respond to new competitive threats and consumer demands and to continue growing in this evolving competitive environment.
In the first place, to manage to stay ahead of innovation in travel technology will be the main factor determining if OTAs will be able to successfully address the threat coming from technology players. The leading OTAs are today among the most innovative companies in the travel industry and to defend this position would allow them to make the disintermediation threat coming from pure technology players unlikely to become real.
Secondly, as a result of the mobile, peer-to-peer and personalisation trends, travel consumers are today increasingly shifting from requiring travel services to demanding travel experiences. In addition, the rise of the mobile channel is also resulting in a shift of focus from the time before the trip to the time during the trip, with travellers looking for information and making reservations during their journey through mobile devices. As a result of these two trends, OTAs are expected to change their business model over the next few years from that of pure online travel intermediaries to that of travel companies offering services to consumers throughout their travel experience, including, in addition to bookings, mobile travel assistance and in-destination travel services and support.
Euromonitor International is a provider of global strategic intelligence on consumer markets, with offices in London, Chicago, Singapore, Shanghai, Vilnius, Santiago, Dubai, Cape Town, Sao Paulo, Tokyo, Sydney and Bangalore and a network of 800 in-country analysts worldwide. Euromonitor International’s analysis of the global travel industry covers a wide range of categories, including tourist flows and expenditure, lodging, transportation, car rental, cruise, tourist activities, travel intermediaries, online and mobile travel.