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After listening to the Tripadvisor and Booking Holdings first quarter earnings calls over the past few hours, it’s striking that despite the world-changing disruption of the coronavirus pandemic, how the CEOs of these two major travel businesses similarly argue that the underlying dynamics of the travel industry will largely remain intact when travel snaps back.
Tripadvisor CEO Steve Kaufer and Booking Holdings CEO Glenn Fogel, each 20-year veterans of their respective companies, might be on target in their assessments, based on the travel industry’s past experiences rebounding from recessions and disease, or they could be missing fundamental shifts.
Among the key issues, has the world already seen peak travel demand? Will international travel be relegated to cross-border bubbles of pandemic-free zones? Will travel and the nature of work be redistributed to less-dense regions? Will alternative accommodations be favored over hotels? Will flying be forever changed? Will hotels lean into online travel agencies and metasearch sites to put heads in beds or will these customer acquisition channels be too expensive in the new era?
“In terms of — at the biggest macro level from a traveler perspective, how do I think things are going to change in travel in a two-, three -year time frame?,” Kaufer said Friday in its first quarter call with analysts. “I got to say not much. People love to travel. It’s more and more of the younger generation is growing up, looking for experiences in travel, always rate super highly on what people want to do. So the demand, I believe, will be there.”
Hotels Versus Rentals
Booking Holdings saw an early uptick in domestic travel bookings in April, and travelers opting for alternative accommodations when booking stays of at least a couple of months in advance.
And Tripadvisor’s Kaufer said his company is well-positioned for travelers around the world favoring domestic vacations as the the recovery begins.
But despite what Airbnb and others in the short-term rental industry argue, neither Fogel nor Kaufer feel that the future necessarily spells alternative accommodation dominance over hotels.
For example, Airbnb’s Brian Chesky argued in a Skift interview that the the pre- and post-pandemic travel industry will look much different, and there will be an era of “travel redistribution.” He said travelers will be looking for extended stays, will favor domestic itineraries, and that even the nature of work will change because employees won’t be “tethered” to the cities where their companies are based.
Fogel said Thursday during his company’s first quarter earnings call that accommodations supply in the long run “will match up” with pre-pandemic levels, although it could be patchy in some regions during the recovery. “But here’s the point,” Fogel said. “The buildings don’t disappear… If there’s demand, it [the hotel] will get to maybe a new owner, it may be recapitalized and such. But it will be there.”
At Tripadvisor, Kaufer said it will still be important to give consumers the choice to book alternative accommodations, but he doesn’t believe that they will be advantaged over hotels. “There’s an argument that says alternative accommodations come back a little quicker than hotels, but probably on the margin, and I’m not even sure that I personally buy into that,” Kaufer said. “I find anecdotally different opinions depending on different demographics I speak with.”
There might be a different mix of hotel chains versus independent properties, Kaufer said, but the bottom line is travelers will still seek out hotels.
“But if you believe my prediction that the demand will be returning within a couple of years at least, then you have the same need for accommodations,” Kaufer said. “And so the hotels may come under a different flag or maybe be reborn under different ownership in general, but they’re there. And perhaps more will join chains, perhaps the reverse. That’s a bit tough for me to read right now.”
Hotel Direct Booking Campaigns
Jordan Klein, the managing director at Baird, has argued that during a recovery cash-constrained hotels may be reluctant to turn to online travel agencies to tap into consumer demand because it is hotels’ highest-cost distribution channel.
Kaufer, though, contended hotels and online travel agencies will lean into Tripadvisor’s metasearch auctions in a recovery, as they have after prior downturns, and Fogel said hotels may do less in brand advertising for direct bookings in the future because they could be tight on cash.
“So I would — I’d say I’m cautiously optimistic that many of our current clients, certainly, the big folks will be very eager to get access to the [Tripadvisor hotel] auction that we have on our site,” Kaufer said. “And so as demand picks up, those eyeballs are that much more valuable.”
In the past couple of years, major online travel agencies such as Expedia Group and Booking Holdings have reduced their marketing spend in metasearch platforms such as Tripadvisor and Trivago.
But Kaufer expects that hotels and online travel agencies — such as Fogel’s Booking Holdings — will be eager to access Tripadvisor’s visitors. Kaufer said the liquidity of the Tripadvisor hotel auction will be fine. “People will be fighting over travelers on our site and others,” he said.
Competitive Dynamics Will Be Unchanged
For observers who may envision great changes in competitive dynamics after a recovery, the two online travel CEOs downplayed that prospect.
Fogel said Thursday that it is a “frothy time” for mergers and acquisitions because there is much higher risk, although Booking Holdings will always be opportunistic.
“So one of the things that I think is important to understand, while we do believe that, certainly, because of this pandemic, some of the smaller players in the industry are going to have trouble going forward,” Fogel said. “But the big players are still going to be around. They’re going to be very competitive as they were in the past.”
Consolidation is already played out, Kaufer said.
“The big, super big macro level, you already have such a consolidation amongst the big OTAs (online travel agencies), that there’s kind of not much further that, that can go, in my opinion at least,” Kaufer said. “So it’s not clear that there’s going to be tectonic shifts in the travel space that we will look back in three or five years and say, wow, look what this pandemic caused in terms of the big supply — the big suppliers — and the big intermediaries being consolidated. But again, just my two cents.”
Can Tripadvisor Reinvent Itself?
Tripadvisor saw a net loss of $16 million in the first quarter compared with a pre-pandemic first quarter profit of $26 million in 2019. Total revenue through the March quarter of 2020 fell 26 percent to $278 million.
In other news, officials said Tripadvisor remains committed as a junior partner in its joint venture with China’s Trip.com Group.
During its earnings call Friday, Tripadvisor officials detailed the steps they’ve taken to maintain liquidity, and reduce spending, including layoffs and furloughs that impacted some 25 percent of its staff.
Kaufer said the company historically opted for speed and emphasizing conversion of hotel and experiences shoppers, arguing the company grew “quite nicely” in its two decades of existence.
But he said Tripadvisor is taking the opportunity that the pandemic represents to keep travelers coming back to Tripadvisor to book their entire trips, and not just a hotel or an experience.
“And at the end of the day, our total unique users per month might go down, but the repeat rate goes way up because we’ve found the set of audience that is entirely — that loves being dependent upon TripAdvisor for the whole experience versus using us for a point task,” Kaufer said.
Given competitieve dynamics, including Google’s increasing stature in travel metasearch, Tripadvisor’s vision will be extremely difficult to deliver.
But that’s the goal, anyway.