Online travel agency group eDreams Odigeo has been a stock market disappointment since its $1.5 billion IPO in 2014. In less than half a year its share price had fallen 75 percent — a decline from which it has never really recovered.

Perhaps it was this failure to recover that persuaded investors to look at taking the company private at the tail-end of 2017. The company didn’t take long to decide it wasn’t interested in selling, preferring instead to continue with its turnaround strategy.

The reason for turning down the approaches was essentially that whoever was bidding didn’t believe in the management team’s plan. The company is in the process of shifting from a flight-centric sales model to something a little more diversified, while at the same time being a lot more upfront and transparent with its prices – something that used to annoy a lot of people.

The rumored private equity bidders perhaps didn’t buy into the narrative or maybe didn’t care.

But should these changes bear fruit, then the logic goes that the company will be more successful and if it decides to sell, it will do so for a lot more money.

CEO Dana Dunne told Skift that the potential buyers were looking for a “big discount” over the uncertainty surrounding the price transparency changes and the revenue diversification strategy.

“We felt that it was the best thing for actually our shareholders to continue to own the shares and to continue to push it forward,” he said.

Cause and Effect

EDreams Odigeo, which includes brands such as GO Voyages and Opodo, is coming towards the end of its turnaround period but booking growth remains pretty elusive. While the company can point to reasons for this, it is worrying given the current climate and the success of some its European peers.

Nevertheless, Dunne is confident that while the changes might cause some short-term pain, they will pay off in the long-term.

In the locations it has made its changes, the first price a customer sees when they search on, say Google, is no longer cheaper than the competition. eDreams Odigeo used to offer discounts on customers using non-mainstream payment types, which kept the price they could advertise low.

“So a lot less people just click on us and come to us and so therefore we get a lot less bookings now. We get a much higher conversion rate, but even still it doesn’t compensate enough for the loss of traffic that comes to our site. So there is a slight reduction of bookings,” Dunne said.

Overall booking numbers are therefore still a mixture of transparent and non-transparent pricing markets and the most recent set of results showed a 3 percent decline for the nine months to the end of December 2018.

“[O]ur business is a mixture…of growth and this one-time hit and it comes up to be roughly flat or slightly negative growth, sometimes it’s slightly positive, sometimes it’s slightly negative but it’s around that,” Dunne said.

Pricing isn’t the only significant change. The product mix has shifted and now includes a bigger portion of what management calls “diversification revenue”, which means things like vacations and flight ancillaries. Products that command much better margins. In the third quarter this made up 43 percent of all revenue, and now represents a bigger share than its “classic customer” revenue, which is things like flight service fees.

“The growth is just phenomenal, and we still believe that we’re in the let’s say, early to mid-stages, not that we’re in the kind of mature end stages of it,” Dunne said.

As well as the four main online travel agency brands — eDreams, GO Voyages, Opodo, and Travellink — eDreams Odigeo also has a metasearch company, Liligo.

Wait and See

Not everyone is convinced that the plan will work. Analysts at BBVA bank said they needed “stronger evidence that the new revenue model is functioning well.” Analysts at Deutsche Bank expressed a similar view, saying “we would need several quarters of growth to be convinced that its pivot to more transparent pricing has been successful.”

There are those, however, who are more positive. Analysts at CaixaBank think the company has plenty of upside, especially at the depressed share price.

In a detailed blog published this week, the former chief marketing officer and co-founder of eDreams Odigeo outlined some of the challenges the company faced in such a competitive market.

“EDreams Odigeo remains the largest OTA [online travel agency] in Europe in Revenue and EBITDA, but it is losing market share, growing at half the rate of the European online travel market,” he said.

However, he pointed out that the company had one of the better EBITDA margins — a good indicator of operating profitability — in the online travel market. EDreams Odigeo was fourth behind Booking Holdings, package vacation specialist On The Beach, and TripAdvisor.

At the end of February eDreams Odigeo raised its full-year profit guidance by up to $2.3 million (€2 million) but, somewhat worryingly said “an uplift in bookings performance is expected to take longer to materialize.”

The issue for any company pursuing a turnaround is that there has to be an ending. You can’t go on trying to fix a problem forever. There comes a point when investors and other interested onlookers will need to pass judgement on whether the strategy has paid off.

Photo Credit: Dana Dunne, eDreams Odigeo CEO speaking at the 2019 ITB Berlin Convention. The online travel agent is coming towards the end of its turnaround plan. ITB Berlin