This is your chance to watch Peter Kern, Expedia Group's CEO, share his views on stage with Skift founder and CEO Rafat Ali — no stone left unturned exploring the current state of online travel.
A lot of ground was covered during Peter Kern’s appearance at Skift Global Forum in New York City on September 21. The vice chairman and CEO of Expedia Group gave his take on technology, micro-services, mergers and acquisitions, and outlined why the online travel agencies still only control around 20 percent of a “multi-trillion dollar” travel market.
And of course he (delicately) responded to comments made earlier at the forum by Barry Diller, the chairman and senior executive of both Expedia Group and IAC, that working from home was “kind of stupid” and “a crock,” while in discussion with Skift founder and CEO Rafat Ali.
Watch the full video of the “Democratizing the Travel Ecosystem” session below, as well as read a transcript of it.
Rafat Ali: Okay, so, let’s get into this. So thank you again for coming. I know you were there last year. You were there and on video as well. You’ve spoken since you took as CEO. So one of the big questions that I wanted to start with is the first 20 years, 25 years was very much exponential growth of online travel. You, Booking, Airbnb has emergency trip, et cetera, trip.com, have become large players. It seems like the exponential growth of online travel phase is over, and now Seth had this slide about either you have overwhelming scale or you have product innovation. So what is the next phase of… Is there exponential growth left?
Kern: Yeah, well I think what you’re referring to obviously is the offline to online trend that drove certainly North America and the West. It’s still happening in other parts of the world to different degrees. But the easy money, we’ll just be online and we’ll just collect everybody who’s decided to book online has certainly lessened over time. Now there’s still a lot of offline travel, and Seth had a slide about some tendency that we’re seeing of people when they’re nervous about travel to want an actual agent to talk to. And we power thousands and thousands of travel agents with our products. But I think they’re still going to … As the online products get better and better, we’re heavily invested in service, which Seth dismissed, but we are heavily invested in service technology and service capabilities, and have invested more and more in that over Covid. So I think as those products improve… And he’s right, we need innovation. We’ll just see more on offline to online conversion. Generationally, we’ll continue to see it, and I think it’s a huge market.
You mentioned the big four, us, Booking, Airbnb, and Trip. Probably together we’re maybe 20 percent of the multi-trillion dollar travel market in the world. So there’s the other 80 percent that belongs to small people, small players, offline players, airlines, hotel chains, direct, all of those things. And I think those are all opportunities, not for us to steal the business, but from our perspective for us to participate in the business and help those partners drive their businesses. So I think there’s huge opportunity. You just have to innovate the products and innovate the business model over time.
I don’t know about exponential, I don’t remember exactly when it was exponential. Maybe it got to geometric and then just linear. But I think there’s plenty of growth for all of us.
Ali: Does M&A feature now in your plan?
Kern: It might, but it’s not first and foremost. We were the first in the market, and then we bought a lot of things … We’ve spent the last couple years really focusing on bringing our technology, our brands, everything together in a logical way.
Ali: This was your MO. This was your MO to bring it all together?
Kern: That was the whole plan, yeah. That’s what I got here to do. I mean, that’s what I realized we needed to do when I got in, and COVID really gave us an opportunity to focus really aggressively on it. And it’s a journey. We’re not finished with it, but we’ve made huge strides and we’re going continue to work towards that. So when we’re really set up in a great way and we think we have tons of organic growth, yes, we will be in a position to potentially buy other things if we see things that are interesting. But if anything, we’ve gone the other way during Covid. We merged the Egencia, or corporate business, with Amex GBT and made a great corporate company out of that.
Ali: You own a stake in that?
Kern: We own a stake, and we power them with supply and technology in the same way our B2B business has done for many partners and other corporate partners.
Ali: And so the number of consumer brands… How many consumer brands do you have now?
Kern: We still have over 20 around the world.
Ali: And what do you want this to come down to?
Kern: I don’t think it’s a down to, I think we’re focused mostly on our biggest brands, which are Expedia, hotels.com, and Vrbo. We’re certainly continue to service all our customers and all of our brands, but when we talk about focusing our energy in terms of marketing, branding, et cetera, we’re pulling most of that energy towards those three brands.
And then this coming year we’re launching an overarching loyalty plan, called One Key, that’s going to touch all our brands so that if you’re in Vrbo and you book something and then you want a airline ticket on Expedia or you want rent a hotel room on hotels.com, all of those pieces will attach. And we think that will further bring the brands together and unite them. So it’s not a question of will we get to five or three or one, it’s just a question of pulling them all together in a logical way that works together for the customer, and then letting the customer drive that.
Ali: I should remind people, we do have time for questions, so if you want to ask questions, whether in room, in person, or people who are watching online. I should acknowledge people who are watching online. Thank you for watching. I know you’re watching from all parts of the world. So there is time for questions. And I’ll come to the poll in a second.
Loyalty, you mentioned One Key. You’ve gone around loyalty a few times with different names.
Kern: Well, many brands had their own loyalty and some brands had no loyalty.
Ali: And so why do you think, one, when general people who are not that aware of the industry, consumers in general do not associate online travel companies with loyalty. They associate airlines, they associate hotels, with loyalty. What role does loyalty play? What real role do you think loyalty can play for you?
Kern: I think loyalty plays a huge role, and it’s not a competitive role. There are people in this room who are probably, I’ll talk about our friend Tony, Bonvoy members, and you travel all the time, you travel for business, but most people are not like that, right? There’s always going to be concentration in airline loyalty programs, in hotel loyalty programs, and with us you get airline miles plus our points, so it’s not an either/or. Hotels is different. But the real point is that most people don’t ever earn enough in rewards programs to get much reward out of it. And for us, we have tens of millions, hundreds of millions, of members who can get benefit, even if they’re traveling once, twice, three times a year and going to different places and staying in different hotels and needing to take different airlines, they can still get benefit. They can get member prices, they can get package prices, they can get points that are worth money, not like I have to save up 80,000 of them to get toast or a waffle or something. So I think we serve a really important role there.
Now, we haven’t done it in a really synthesized way. We’ve had different programs and it was sort of the pick your brand, pick your program, or pick no program. Now we’re saying no, we want everybody to get the benefit of it, we want everyone to be tied together, and we want people to enjoy our brands as a family of brands and products as opposed to discreet things you just go into and think of as a single brand.
Ali: And so one of the things that’s a big part of your business is B2B, that’s been there, Ariana is running it out of London. She’s done an amazing job. Did you consider Egencia as B2B?
Kern: We sort of thought of it that way, because it wasn’t exactly like our retail OTA consumer business. But it wasn’t really the same at all. I mean, it was very driven by an end user that we had the service in a different way with a different set of products. And that’s really the decision we made during COVID, which was, it’s a very different undertaking to go sell corporate partners and to go service corporate partners. It looks very different than the consumer business. And there are companies who are wholly focused on it, like Amex GBT and others who we power, and we said the real power of what we’re doing is to power partners with supply, power them with technology.
We’ve talked a little bit about we’ve started this open world project, which is basically to turn all our technology into microservices so that partners can take some or all or smaller partners can use it. And that was really our drive. So we said, let’s turn Egencia into the same thing. Let’s put it in the best place to succeed and let’s turn it back into the thing we’re really good at, which is powering supply, powering technology. So it’s now basically looks like the rest of our business and our B2B business, whereas before it was kind of a unique, special thing.
Ali: And so B2B, how big is that as part of the overall company today?
Kern: It’s a very big business for us. We don’t disclose all the numbers, but in 2019 it was nearly a $20 billion throughput business. Now, it’s going to evolve, not just because we think it can grow, but because there are different kinds of partners coming on board. As I said, we power lots of loyalty programs, bank loyalty, AARP, all kinds of things. We also power some smaller ones, we just announced-
Hopper as well. We’re happy to power Hopper and they’re doing great. But we just announced a deal with Built, which is a FinTech company for renters who pay their rent through it. So anytime there’s a pocket of consumers that a company has a special relationship with, we can help them use travel to monetize their relationship, put value back into their partnerships. But those are our big old school ones.
The new world is where we now have someone piloting just using our fraud service. We have best in class fraud detection services. So we have a travel partner piloting using that just as that service. We have many partners interested in using service as a service. So we would use our service technology, perhaps even our people, to answer calls and serve their customers more efficiently and better than they can. So you take it all the way through machine learning, all kinds of technology capabilities, there’s lots of pieces.
So we think there’s a future where that happens, and then a future where smaller players, our technology was built mostly for enterprise partners, it took a lot of work to stand up a bank or stand up AARP, but we want to get to the point, and are on a road to get to the point, where small entrepreneurs can use our technology to get into the travel business. So if you are an influencer, and let’s say you’ve got 100,000 followers because you write about travel for people with physical disabilities, we can power you to turn those ideas into trips, into hotel options, into whatever, and you can literally put it wherever you are, Instagram or whatever, and you can power your own travel business and participate in that travel economy. So not just a link off, not just an affiliate deal, but a real ability to sell travel.
Ali: I think you announced a small thing where TikTok influencers can use your API. I think TikTokers in the room as well, the people who work in the travel part, for them to be able to sell travel as well?
Kern: Yeah, we’re working across all the fronts that you would expect us to work across. And it’s not where we want it yet, but it’s all linked together. Our ability, and I know it’s a popular topic, some of my competitors have talked about it, but our ability to drive a trip end-to-end. We’ve been selling all the products for a long time.
I’m happy to talk to Seth about all the innovations we have in our product that we’ve delivered recently. But those same innovations play through all our partner relationships.
We have a new tool called Trip Boards, which is basically an ability to build a trip, save things into trips, and then actually poll your friends or family, if you’re traveling with. If we’re traveling together with our families and I say, “Hey, how about this flight? How these three hotels?” You say, “No, I like these three.” And we go back and forth and choose. That collaboration capability, those kinds of technologies are technologies we can bring to our business partners so that they can drive it. So all of those innovations that we do for ourselves are opportunities to drive business for them.
Ali: And it looks like Booking.com, Booking Holdings, is taking your playbook. They bought two large B2B companies in the last year. One, what’s your sense of them competing against you on the B2B front? And two, would you do more M&A? I mean there’s a lot of tech companies in here, hotel tech cetera, et cetera. Should they be talking to you?
Kern: Listen, as I say, we’re not closed for business. We don’t have some big aggressive M&A plan either. But I think the reality is it’s never going to be a one player market. We don’t expect to own 100% of the market, but we think we have great products, we think we have great service, which is really important if you’re going to entrust your customers with a partner. We think we have best in class service. You need to take care of your customers. And we think the way we’re building our technology… We had a problem, but in solving the problem we’ve got a great opportunity, which is our problem was multiple stacks, multiple technology, constructs, now we’re pulling it all together into one unified platform. The opportunity in doing that is we are rebuilding many things, and if you rebuild them in a way that’s purpose built for extensibility to drive it to other partners, now it becomes tools and capabilities that are much easier for partners to adopt through APIs, et cetera.
So the idea of just saying it, or buying … We’ve bought a lot of companies that had old technology that did some things pretty well, but getting to the new new of the future of the world and APIs and being able to provide micro-services, that’s a tough journey. It’s one we’ve been involved in for the last two years. We probably have some more time to go. But whoever starts next is going to have to start at the beginning.
Ali: Let’s quickly put up the poll that we have. What do you think is the number one driver? Price is still the biggest factor, no surprise. The question I have is, one of the things that you and I talked about in our call previously, and your team has stressed to me, and I think you said in the earnings call as well, you want to focus now on the higher value customer, away from the mass of the people.
Kern: That’s not exactly…
Ali: That’s not what you said?
Kern: That’s not what we mean. I might have said it, so maybe I misspoke. But what we mean is we want to focus on customers who have high value to us. That might be somebody who books a bunch of two star hotels but is loyal to us and is a regular customer that we don’t have to go buy out of the market from Google or whomever. It could be somebody like you, who stays in six star hotels and travels the world.
Ali: I don’t. Is Aman open? I don’t know if it’s just opening. Anybody has stayed there? You’re not going to raise your hand even if you did.
Kern: Who’s got five grand a night for the Aman?
Ali: Five grand? You won’t even get into the hotel at five grand.
Kern: You can buy dinner, maybe. It’s really about the types of customers and the types of activities…
There you go. Seth should have had this. It’s flight tracking and whatever. It’s really about whether they are the types of customers who get the benefits we get, meaning member pricing, loyalty, et cetera, enjoy the product features we have, and are likely to stick and be longterm customers. As opposed to just buying in meta, pushing everyone through the funnel, and whatever happens, happens.
Now, right now it’s still the land of the masses. So we’re just getting smarter about how to get people to take the right actions to turn them into longterm valuable customers. Which means getting our app, getting a member price, or points, or other things that add value to their trip. And every time we do that, the customer becomes more valuable to us.
Ali: But does spending 60 percent … What’s the number? Can we put up that slide about the marketing expenditure for Expedia versus others? Some 60 percent of revenues, or 55 percent, you spend on Google. Expedia, this is key one number, 53.9 percent, 1.76. That doesn’t help …
Kern: Yeah, marketing spend.
Ali: How does that help or distract from creating this direct relationship with the consumer?
Kern: Well, look, I think we all do it because we’re trying to bring traffic in. The question is, how good are we, any of us, at turning that traffic into longterm customers? We’ve talked a good game for years. Everyone said-
Ali: Actually, Dara used to say shame on us if we don’t …
Kern: Yeah, I know, we got to get rid of Google. And still shame on us. But now I would say the One Key loyalty program, our focus on member benefits, all our brand marketing.
Ali: You guys haven’t actually been … Expedia, I’ll say this, has been the best ad brand marketing for years. The TV ads. You were early way more than anybody else in the online travel world, so you’ve been very focused on brand marketing for Expedia. And obviously hotels.com as well.
Kern: Well, again, it’s not just about the marketing. You can bring in people, we can have the best ads, and we have the best ad team, marketing team, in the business. We have the best ads in the world. But if we’re not promoting the right things, if we’re not promoting people to use the benefits, if when you get in the product it’s not clear why you want to take certain actions and what the benefits are, then shame on us. Then we haven’t done a good job of getting customers to experience the real benefit of being with us.
Today, we are getting way more people that come through the funnel to turn into members, to turn into app users, than we did two years ago. That, to us, is really exciting, because these people have gotten the benefits, seen what the value is, and now we believe they’re going to be much stickier and they’re going to be longterm customers. That is the journey we are on. And that is before we’ve gotten most of the technology improvements, we’ve been building the one loyalty program, all of these other pieces that are going to fall into line. So for us it’s a constant drive to do that.
And I think it’s not just about marketing, nor is it about making that number lower per se. We believe that we’ll be able to drive more customers into longterm relationships and that therefore we may well be able to spend more money, because it’ll be more valuable every time the customer hits our product than it used to be.
Ali: So speaking of app, you mentioned Vrbo was one of the top apps through the pandemic. Vrbo has been just a breakout, not that it was a new company, but it was a breakout for you. You made a big bet on changing the name right before the pandemic. I still thought HomeAway was such a great name, but personally that’s just me.
Kern: Can’t go back, sorry.
Ali: Can’t come back. But Vrbo did amazingly well through the pandemic. Where is it now? Obviously cities are back, Vrbo has not been that strong in the cities historically, full homes, et cetera. So give a quick update on the state of Vrbo today.
Kern: Vrbo continues to do really well. And even in 22, with cities back opened and Europe busy and everything else, Vrbo has done terrific. I think two things happened, which is we had the tailwind of the pandemic and people like the idea of a whole home dedicated to just their little bubble of people, whoever that was. And we were a great beneficiary of that. But the benefit is not only that people did it and we made some money, the benefit is people experienced the product, which is great, people downloaded the apps, people explored it, and people got to know the name. I often say to our team, when I saw Vrbo in a New York Times crossword puzzle, I felt like we had made it.
And now all those, being number one in downloads, now lots and lots of you, and people around the world, have that app. They dream on it. They look for their next trip. And we think that’s a great opportunity. So we basically got a step function adoption change, if you will, to the brand, to the product, and that pays longterm dividends, because people have great experiences with the product.
And again, not to belabor the point, next year when they become part of our overall loyalty program, which no other player in alternative accommodations has.
That will be another added benefit of why you want Vrbo and why you want a whole home and the benefits of that. Now other players have more inventory in New York or other cities, and we’ll see how that evolves.
Ali: So you will continue to not have cities as the main focus?
Kern: We have plenty of product in cities.
Ali: In cities.
Kern: But we don’t have as much. We don’t have shared accommodations. There’s things we don’t do, and that’s because our brand proposition is really the whole home experience and we want to be pretty rigid around that. We think it’s a great product. So again, it’s not going to be like all these markets, it’s not going to be a winner take all. We’re super strong in beaches, mountain destinations, resort destinations.Would it be nice to be big in New York? Yeah, but not if it was a product that wasn’t consistent with our other products. So we’ll see where it evolves to, but we like where we are.
Ali: Okay, so let’s get to some audience questions and address the elephant in the room, Barry.
Kern: He’s not in the room.
Ali: Elephant. His comments hang here in the ether. We love Barry.
Kern: Love Barry.
Ali: How can you not love Barry? And obviously he’s earned the right to say whatever the fuck he wants.
Kern: Absolutely right.
Ali: It’s true. And so the question is, how does Barry’s comments help Expedia with recruiting? I have a more specific question, which is that he said the work from home is crock, is the word he used. That was our headline. Why wouldn’t it be? And so you just opened a campus, this campus was commissioned before you became the CEO. You were obviously part of the board, you probably approved it as well. Beautiful campus, gorgeous grounds, et cetera. Dennis has been there as well. What’s your views on … I’m guessing your left of Barry, left of Jamie Diamond, on this.
Kern: Yeah, I don’t know if there’s a left or right, but I think, yeah, listen, I share Barry’s belief that being together creates a lot of energy, a lot of innovation, a lot of ideas. We are trying to foster it. And we’ve said 50% of the time or more you need to be in the office for that very thing. But on the other hand, we’ve been a global company for a long time with teams working across time zones, people working at night and mornings, from home. So we’ve adopted over a long period of time to different practices to accommodate that. Now, hybrid work’s hard. We’re all trying to figure it out. I don’t think there’s-
Ali: What do you do personally?
Kern: Anytime I’m in a city that has an office, I’m in the office. I travel all over the place. We have an office here, I was there yesterday, I’ll be there later today. When I’m in Seattle, I do the same thing. When I’m in London, I do the same thing. When I’m in Austin, I do the same thing. But that’s why I’m there, I’m going to see people, I’m going to meet with people, et cetera. I’m not coding by myself and need quiet time to code.
We have many different job classes. We have people in commercial jobs that are in sales. They’re off on the road talking to hotels, talking to airlines, talking to potential business partners all the time. We don’t want them in the office all the time. So I think it’s very job dependent and it’s very company dependent and we’re all going to learn a lot.
I think the biggest problem with hybrid work is the onus on managers to be really good about still getting production out of people. And we’ve got to educate them and help train them, and that’s a new set of skills that we didn’t all have to have five years ago. But I think there’s clear evidence that it can work, but we got to make it work. And if we don’t make it work, then Barry’s right, then we should all be back in the office if we can’t make it work. But we’re making it work and we believe we can drive the best outcome with a hybrid model.
Ali: So the campus stays. I guess you own it now.
Kern: We own it. Come visit.
Ali: We will.
Kern: You can all come, there’s plenty of space.
Ali: There’s plenty of space, turns out. He also said that all the ESG efforts are… What was the phrase he used? Not crock, but something along those lines.
Kern: I think he said something about empty calories.
Ali: Empty calories. He said something. Obviously, you do not believe in it. Well, you do not believe in it to the extent that he said. But you also came out with a release three days ago about social responsibility, inclusiveness, and environmental. This was part of your open world plan as well. Quick overview, your sense of sustainability and how much can a player like Expedia, which doesn’t actually own these assets, do?
Kern: Well, I would say two things. What he said was, which I don’t disagree with, is it has to mean something, right? It can’t just be throw away, trite comments about platitudes, about social responsibility is good. I mean he does more social good than all of us combined. He personally. So it’s not that he doesn’t believe in it, it’s that he doesn’t want it to be a waste. And we feel the same way, which is the things we announced either are relevant to our business or relevant to our industry. And what we announced was sustainability, the ability to get more underserved groups into entrepreneurship and travel, which is totally consistent with the product suite we’re rolling out, and get more people who haven’t had the opportunity to travel, travel. Because we believe that travel is a force for good and more people traveling and experiencing it is good. That’s all super relevant to what we do.
As far as sustainability goes, we don’t provide hotel rooms, we don’t clean sheets, we don’t fly planes, but we provide information to consumers. And I think the more and better information we can provide to consumers, the more able they are to vote with their wallets and drive the outcomes we all hope they want to drive.
Now, there’s lots of research, you have a lot about people’s interests in sustainable travel. People don’t always make the trade you think for money over sustainability, but we want to put them in the best position to do it. And one of the challenges has been the quality of the information. And that’s evolving and it will get better, but the biggest challenge has been there’s a lot of self reporting, things a lot of things in sustainable numbers that are not hard math, if you will, so what we want to be is a conduit for information.
We want to allow customers to see what their flights going to mean, what their hotel choice are from a sustainable standpoint. The issues just over time the information has to get better, because right now we’re all trying as hard as we can, we’re doing the best we can, but there’s lots of legislation in the US, and around the world, about companies having to report on carbon footprints and other things.
Ali: Right, that’s coming.
Kern: That’s coming. All of that will help get us better data to provide to customers so they can make good choices.
Ali: Last very quick comment. Will the business travel spend at Expedia, this is your own company, come back to what it was pre-pandemic?
Kern: Well, we have many fewer people, so I doubt it will come back to what it was before. But we are traveling. I mean, as soon as things opened up and we went back to the office in April, our people have been traveling. We’ve got many here. I’m on the road all the time. I mean, our people are traveling. So I think there were comments about what’s looming, a recession or not, or other things from Seth. I think we’ll see how that all goes. But we’re very bullish on our position. The economy, the macro world may get tighter, tougher, but we have so much opportunity in what we’re building, we don’t think that’s a big issue. And we’re invested in driving it, so we’re going to keep building, keep traveling. And that looks like most of the corporate world to me for now. We’ll see what the banks do. There’ll be some pinch points and corporate travel may feel it a little more macro than maybe consumer travel, but I’m not worried about corporate travel long-term.
Ali: The good news is all of you … Expedia will keep coming to Skift conferences.
Kern: We’ll keep coming to Skift.
Ali: Let’s end it there.
Kern: All right.
Ali: Let’s end it there. Thank you, Peter. Appreciate it.
Kern: Thanks. Thank you.
Have a confidential tip for Skift? Get in touch
Photo credit: Expedia Group CEO Peter Kern speaking at Skift Global Forum in New York City on September 21. Neil van Niekerk / Skift