The biggest knock on the online travel agencies these days is that the competition is intense and that their golden years are done. Expedia's Mark Okerstrom counters that his company has a single-digit share of a $1.6 trillion market, and he's going wide and deep to pick up more. The jury is still out.
Expedia Group’s strategy is to go wide by expanding into new countries and to build up its hotel and apartment supply.
And likewise the plan is to go deep — to focus on key markets and to bring them more locally relevant inventory, payments systems, language translation, and other products.
Outlining his expansion plans in “wave one” markets, under way since late last year, and next year’s “wave two markets,” Expedia CEO Mark Okerstrom said Thursday during the company’s third quarter earnings call that the “overall opportunity” — notwithstanding heightened competition — “remains very significant.”
By the way, one of the mostly closely held secrets in the Expedia Group camp is the identity of those focus markets. The company isn’t calling them out, most likely for competitive reasons.
An analyst asked Okerstrom about how he views growth and market share in the coming years given Google’s gains, the hotels’ push for direct bookings, and the emergence of alternative accommodations.
“Well, I think, first of all, we think that the overall opportunity we were moving into remains very significant,” Okerstrom said. “You continue to have a massive industry. You’ve got offline to online trends and, yes, we hear this industry is fully penetrated. The answer to that is not even close. If you look at where we are in the U.S., it’s, call it, high 40s, 50 percent online penetration. It steps down from there the further you move away from, call it, Manhattan.”
He said that for Expedia’s corporate travel Egencia unit, mobile penetration is 80 percent to 90 percent, and “the reality is as long as the experience is good, people don’t really want to talk to a human. So we think that the offline-to-online opportunity is significant. And where we are investing to make sure that we continue to be the place where people go to for travel in all of the places that you’ve heard us talk about. We continue to have a huge opportunity from the geographic expansion standpoint.”
While most companies will tell you that they focus on their own businesses and don’t pay much attention to what the competition is doing, Okerstrom admitted he’s paying close attention.
“We’ve been investing in all of the chatbot technology and are currently in some countries in Asia doing significant volume through our chatbots online and other applications,” Okerstrom said. “So we are staying at the forefront of this industry. We think the opportunity is very significant. We watch very closely what others are doing in the industry and to make sure that we’re trying to ensure that we are one step ahead. And we think that’s going to be a growth formula for us that can sustain us for a very, very long time to come.”
So, Expedia is expanding. It has about 895,000 lodging properties now, which trails its main rival Booking Holdings’s 1.9 million as of June 30, and added 40,000 in the third quarter. Meanwhile, it has taken 300,000 alternative accommodations properties from its HomeAway unit, and integrated them into Expedia Group brands such as Expedia.com and Hotels.com.
On Thursday, Expedia announced that it acquired two homesharing tech startups, a move geared to make HomeAway and Expedia.com more urban in its focus.
Long History of Understanding Repeat Customers
There is method behind the madness of Expedia’s quest to get much bigger in its lodging supply.
“And just as a reminder, we’re doing this because we have seen very compelling evidence of a very high correlation between property coverage and repeat rate,” Okerstrom said. “It’s too early for us to give you any numbers in these particular markets. It’s always dependent on the actual travel cycle and repeat cycle of the customers that we’re actually serving. But certainly, we have a long history of understanding this relationship, and we have no question that we will see stronger repeat rates as a result of this.”
In the third quarter, Expedia saw its room night growth decelerate to 13 percent, a 383 basis point drop compared to the year-ago quarter, and that’s a far cry 54.5 percent growth in the third quarter of 2014, for instance. Hence the talk about online travel agencies’ glory days being over.
Okerstrom pointed out, though, that Expedia’s room night growth is increasing faster than the 13 percent rate in some of its unidentified focus markets, and the company is trying to balance top-line growth and profitability. Expedia’s adjusted selling and marketing spend in the third quarter increased 8 percent to $1.33 billion, excluding its Trivago unit.
He said the company is happy with the progress it is making. “I will remind you it is a multi-year journey,” Okerstrom said.
Okerstrom said metasearch channels have been a headwind in terms of room night growth, and he wouldn’t conclude too much about the quarter to quarter room night deceleration.
“I wouldn’t draw anything from it,” Okerstrom said. “I would say that, on balance, the metasearch channels, which are running slower and in some places — you saw Trivago yesterday actually decline year-on-year — can have a disproportionate impact on our international room night growth certainly compared to our domestic. So I would call that out as a headwind even though it’s pretty consistent from quarter-to-quarter.”
In the third quarter, Expedia Group saw its net income rise 49 percent to $525 million on $3.07 billion in revenue, a 12 percent hop.
The company said tours and activities are a priority, but how much is unclear. Okerstrom said the sector “is absolutely in the frying pan along with the other fish.”
He noted that tours and activities are subject to heightened competition, and hinted that there might be a mergers and acquisitions opportunity without directly saying so. Said Okerstrom: “There are a lot of exciting players out there doing exciting things.”
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Photo Credit: Expedia Group CEO Mark Okerstrom at Skift Global Forum on September 28, 2018. Skift