Travel Megatrends 2019: Online Travel Agencies Scurry for Salvation Beyond Hotels

The online travel agency business over the last couple of decades has largely been built around selling hotel stays. But in 2019, there will undoubtedly be an acceleration of the drive to diversify their core businesses not only into apartments and vacation rentals, but also into tours and activities, restaurants, food delivery, and ridesharing.

The online travel agency future is wide open. Although it has more to do with marketing and business models than products, just consider that Booking Holdings over the last year and a half reversed long-standing practices and leaned into brand advertising instead of paid ads on search engines, and accelerated its use of the prepay merchant model over its mainstay pay-at-the-hotel agency model.

So anything can happen.

But back to the subject at hand, which is the diversification of online travel agency business lines, TripAdvisor has been a leader in the march away from hotels, which however is still its main business at 73 percent of revenue in the 12 months ending September 30. In the same period, TripAdvisor’s revenue from its non-hotel segment — experiences, restaurants, and home rentals — jumped 80.8 percent to $429 million compared with the year-earlier period.

And during the most recent 12-month period, the latest information available, TripAdvisor’s experiences, restaurants and home rentals segment contributed 26 percent of the company’s total revenue of $1.59 billion. This non-hotel sector’s contribution to TripAdvisor’s total revenue increased nearly 4 percentage points compared with the 12 months ending September 30, 2017.

For TripAdvisor, particularly in its peak third quarter in 2018, it was experiences and restaurants that drove the boost in its non-hotel business. The company’s alternative lodgings business, mired in a hyper-competitive market alongside Airbnb, Booking.com, and Expedia’s HomeAway, saw its revenue decline a single-digit percentage in the third quarter, for example.

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TripAdvisor CEO Steve Kaufer has compared the drive to make tours and attractions online bookable to bringing hotels to the internet 15-20 years ago, and he argues that the profit margins could be similar.

“You see great growth, or we think it’s great growth, in terms of online bookable supply,” he said during an earnings call several months ago. “And we’re still overall at the tip of the iceberg. So when we look at how this attraction business, this experiences business can compare to the trajectory of bringing hotel booking online 20 years ago, we still see remarkable parallels, a similar margin structure. And it starts with collecting demand and supply, bringing it together, and that’s exactly what we’re doing.”

But then there’s the financial issue of experiences generally being lower-priced than hotel bookings. We asked Kaufer that question at Skift Global Forum in New York City in September, and he perhaps coined the name of a new sector: food and activities. Or at least it is an interesting way to look at in-destination opportunities. He argued that volume in the breadth of activities, from dining to tours, that travelers pay for on vacation can compensate for the sometimes-lower prices.

“Yes, there are the Motel 6’s and the $250 helicopter tour,” Kaufer said. “So on average, I’d probably agree the transactions are of smaller size (than hotels) — I’m not sure — but think about how many things you do when you are in-destination on a leisure trip. And you are spending a comparable amount in in-destination food and activities as you do on the hotel, at least. Therefore, that’s a really big spend pie that we can help consumers with.”

TripAdvisor will clearly expand its experiences and dining footprint in 2019. It has already begun to expand its TV advertising beyond hotels and into tours and attractions, and off icials announced they will broaden the focus of its advertising in terms of all the various things — not just hotels — that you can book on TripAdvisor this year.

Unlike TripAdvisor, Booking Holdings doesn’t break out its revenue according to business lines, but undoubtedly makes the vast majority of its money on hotels. While the company, which owns brands from Booking.com and Kayak to OpenTable and Agoda, sold 1.8 million airline tickets and booked 19 million rental car days in the third quarter, it is branching out through investments in China and Southeast Asia and via its own business operations into tours and activities, ridesharing, and food delivery.

Booking Holdings and TripAdvisor both acquired tours and activities software-connectivity companies in 2018 to further expand in the sector. Booking Holdings picked up FareHarbor for $250 million, and TripAdvisor bought the smaller Bokun for an undisclosed sum.

“In the area of experiences, we are building out our product capabilities, creating a seamless integrated way to offer more choices for our accommodations customers,” Glenn Fogel, the Booking Holdings CEO, said in a November earnings call. “This quarter, Booking.com made progress integrating FareHarbor’s products, giving Booking.com access to new local attractions in the U.S. and the ability to leverage FareHarbor’s technology to help even more tours and attractions around the world come online.”

Booking Holdings’ step into tours and activities is clearly not as advanced yet as TripAdvisor’s, but it shows how all the major players are branching out beyond hotels, and looking to capture travelers through the entire trip.

“Booking.com’s experiences product is scaling well, and we now offer experiences in approximately 70 cities worldwide,” Fogel said. “In addition, we are making progress with experience in other areas such as offering at-hotel services and restaurant booking options, though we note these are nascent efforts.”

Expedia is less focused on making a big play in tours and activities, although it has offered brick-and-mortar tour businesses in popular vacation destinations such as Las Vegas and Honolulu for years.

As the online hotel booking business gets more competitive, with big chains pushing direct bookings, Google getting into the fray, and Airbnb throwing its weight around, you can look for online travel agencies to continue to point their businesses beyond hotels.

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