A hotel price war hasn't materialized as some dreaded. Booking Holdings CEO Glenn Fogel sees an opportunity to prove the value of his brands as a source of demand for hotels and managers of alternative accommodations.
When the pandemic first struck, some observers worried that hotels would engage in deep discounting to try to fill occupancies. But new data from travel conglomerate Booking Holdings suggests that hotels have held the line on average daily rates generally speaking despite the large number of vacancies.
“For newly booked room nights, ADRs [average daily rates] are in total only off a couple of points, even though there’s a big shift in that toward domestic travel,” said David Goulden, Booking’s executive vice president and chief financial officer.
One factor is that countries that often have a lot of outbound travel shifted some spending domestically, enabling some domestic hotels to keep some pricing power, said Booking Holdings executives on a second-quarter earnings call on Thursday.
Booking Holdings tends to focus on leisure travel, so business hotels, which saw more severe falls, aren’t reflected in its numbers.
Some hotels are more dependent on business travel, and those will see their average daily rates suffer because they’ll miss some of those corporate travel expenditures. Business travel may not come back in lockstep with an economic recovery if companies substitute some in-person meetings for more virtual meetings.
Booking CEO Glenn Fogel expected many of these business-dependent properties would turn to Booking Holdings to help “put heads in beds.”
“They’ll be looking to someone like us,” Fogel said. “They’re going to look any which way they can to get demand. If it’s cost-effective, they’ll do it.
Booking Holdings provided some numbers suggesting that the pace of recovery has been uneven across markets. The travel conglomerate runs several brands, including Booking.com, Priceline, Agoda, Kayak, and OpenTable.
“After a period of relatively steady improvement in many geographies, in recent weeks, we’re seeing these growth rates worsen in some countries,” Fogel said. The growth rate in the U.S. plateaued in July, for example. (Booking Holdings reported its results after the U.S. State Department’s announcement that it would lift its global health travel advisory.)
In Europe as a whole, travel booking rates continued to grow for Booking Holdings. But bookings plateaued or deteriorated in recent weeks in Spain and Belgium.
Elsewhere in the world, they fell in countries like Australia, Japan, Taiwan, and other countries, the company said. Worldwide in July, Booking Holdings was down about 35 percent on room nights on a booked basis and down 45 percent on a recorded basis after accounting for cancellations.
The travel patterns directionally dovetailed with that of smaller arch-rival Expedia Group. A week ago Expedia Group reported that its July booking data showed a “slight weakening” after a somewhat better performance earlier in the second quarter. Expedia said its Europe-based business underperformed.
More Color on Its Layoffs
The conglomerate’s earnings report on Thursday came two days after its announcement that its largest unit, Booking.com, planned to trim up to 25 percent of its workforce, a figure Skift estimated to be roughly 4,300 employees.
Fogel said Thursday that the personnel reductions at Booking.com might save between $250 million and $300 million a year.
Reported cuts in headcount of about 22 percent across the Kayak, OpenTable, and Agoda brands, including some furloughed workers, would reduce annualized personnel costs by about $80 million, Fogel said.
The cuts followed similar job reductions by Airbnb, Tripadvisor, and, right before the pandemic, Expedia Group.
Fogel said he intended to ring-fence some investments around his “connected trip” vision for the company, which long-term would include more spending on selling airfares to customers and on offering attractions and other services to train customers to use its mobile app often, building brand affinity.
Alternative Accommodations Grow
Booking Holdings is seeing customers book more alternative accommodations, such as short-term rentals, than in the past.
In the second quarter, Booking.com alternative accommodations represented about 40 percent of all new bookings in the quarter,” Fogel said. “It’s a big number compared to what we’ve seen in the past.”
The interest in alternative accommodations has also been noted recently by the CEOs of Expedia Group, owner of the Vrbo brand, and by Airbnb.
“Throughout this initial reopening phase, we have seen new customer booking and travel patterns emerge,” Fogel said. “We’re seeing customers staying closer to home and be more interested in less urban areas. The share of these types of bookings has increased meaningfully this quarter.”
Fogel told investment analysts that he suspected the pandemic had accelerated trends that were already in progress. The popularity of alternative accommodations wasn’t a momentary blip but would endure, he argued.
“If you’re going to take a couple of days away from work while you’re working but not at work, you want something more than a double occupancy hotel,” Fogel said, implying that someone may want a separate room to do their work while other parts of a family are elsewhere.
Fogel said the supply of alternative accommodations would also change long-term, or “structurally,” due to the crisis.
“Many people haven’t used [alternative accommodation] before and now found it to be not so bad,” Fogel said. “So the growing demand will accelerate, but what that means is that you’ll see many companies that had only dipped their toe in creating this type of accommodation pour in investment capital, and that will professionalize the segment, and as it becomes more professionalized, the difference in the operation margin between alternative accommodation and hotels will close.”
A Quarter Best Forgotten
Booking Holdings notched net income of $122 million in the second quarter, down 88 percent from the same period a year earlier. Revenue decreased 83.7 percent to $630 million. Room nights booked in the second quarter were down 87 percent year-over-year to 28 million. Gross bookings were down 91 percent to $2.3 billion.
Booking Holdings had more than $10.4 billion in cash and equivalents and restricted cash and equivalents as of June 30. It reported no investment or acquisition activity.
Updates on Brand Efforts
Agoda, Booking Holdings’ Singapore-based brand, said Thursday that it had joined the Japanese Tourism Agency’s campaign to boost domestic travel. Shoppers on Agoda now have a more seamless way to make use of the Japanese government’s travel subsidy at eligible hotels.
The company’s largest brand, Booking.com, made several moves in the past three months. Booking.com recently received criticism from some hoteliers for chargebacks on credit cards for canceled reservations, given that hotels are often in a tougher cash position than Booking Holdings. The company has said that the chargebacks are mainly triggered by governments deciding to restrict travel, which triggers a force majeure clause in contracts and Booking.com expects guests to be refunded, though the brand says it waited until the last possible day in such situations.
In other moves, Booking.com rolled out its new attractions business in a partnership with TUI’s Musement brand, as Skift reported earlier this week.
“The faster we can get different types of attractions up and running and available to our customers, the better,” Fogel said. “Whether we do it ourselves or partner or buy someone, we want to do it. We went with a partner here. We are live in a certain number of cities. It will help drive use of our app while travelers are in a destination.”
Booking also increased its advertising on price-comparison brand Trivago. Fogel didn’t provide any color on that except that the company would continue to use so-called performance marketing channels where it saw a cost-effective return-on-investment but wouldn’t do brand awareness campaigns until consumer minds had returned to being receptive to such messages.
To reduce its dependence on Google search ad marketing, Booking Holdings had increased its spending on brand marketing to draw more people to its sites for repeat business. Up until the crisis, it got above 50 percent of its customers from direct or non-paid channels. Fogel said it was still above 50 percent in the second quarter, and he continued to tout his ambition to grow direct and repeat traffic.
Like many travel companies, Booking Holdings excelled at analyzing travelers’ willingness to pay and finding ways to convert online “lookers” into “bookers.” But it has less skill at figuring out travelers’ willingness to fly or book a place during a pandemic.
“Our models don’t work as well now,” Fogel said.
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Photo credit: A jetty for guest arrivals at the Baros Maldives, a luxury property in the Baros resort island in the Maldives that reopens October 1, 2020. Baros Maldives