Online Travel Companies Make a Bundle Investing Customer Cash

Online Travel This Week

The longtime business models of online travel companies ranging from Airbnb to Expedia and Booking.com are getting increased scrutiny from the media and short-term rental hosts because these companies hold onto customer funds, and invest them for profits before disbursing them, sometimes months later.

My reaction to this — with one caveat that I will discuss further below — is so what. One reason they would be foolhardy to send the money to hosts and hotels at the time of booking, which might be months in advance of a stay, is because the trips might be cancelled and never take place. And these companies, which use some of these monies for cash flow purposes, would be fiscally irresponsible to shareholders and employees, for that matter, if they didn’t invest these customer monies, and make some dinero.

A Tuesday Wall Street Journal story detailed how Airbnb and Expedia Turn Customer Cash Into Profit, Aided by Rising Interest Rates. For that matter, so does Booking.com when it accepts prepaid bookings, as it’s been doing more of in recent years, as well as some major cruise lines, which sometimes accept a customer deposit on a cruise a year or more in advance.

During the third quarter, which ended September 30, Airbnb generated $58 million in interest income from its own cash, as well as from customers’ advance bookings, the Wall Street Journal reported. Expedia took in $20 million in interest income, taking advantage of rising interest rates, during the same period.

Although it wasn’t discussed in the Wall Street Journal piece, Carnival Corp. generated $74 million in interest income during fiscal year 2022, which ended November 30. Unlike Airbnb, Expedia and Booking, which forward a cut of these customer monies along to hosts and hotels around the time of the stay, Carnival generally pays travel agents when the sailing is paid in full regardless of the time of the departure date.

Not all of the cash the online travel companies are investing to take advantage of rising interest rates is customer money. The Wall Street Journal said “customer funds accounted for around 30 percent of the company’s [Airbnb’s] current assets.”

Nothing is really too much new in the business models of these companies as it pertains to their practice of banking customer monies prior to the stay other than interest rates are increasing, and they are seeing a greater benefit than in the recent past. Another wrinkle is that in recent years Booking.com has been doing a lot more of these prepaid bookings as it got heavier into short-term rentals. In its earlier years, Booking.com didn’t get heavily involved in payments, and most of its customers paid the hotels directly during their stays.

The Caveat

Airbnb hosts have been prolific writing social media posts or posting on forums complaints that the company not only holds onto their money too long, it sometimes doesn’t pay them what’s due. To the extent that Airbnb is taking customer money and generating investment income from it, and withholding it from hosts in a manner that violates its terms of service, then that would be egregious.

“In my opinion, treasury management is a very standard practice for any large corporation,” said Skift Research’s Seth Borko. “Placing consumer balances in risky investments would be irresponsible but investing in money markets and other low-risk cash management tools is standard.”

In Brief

AirAsia Drops Lifestyle Superapp Ambitions

AirAsia’s Tony Fernandes, who heads parent company Capital A, said it will no longer labor to become a lifestyle superapp, but it will focus on travel. Perhaps in a future phase the company will reverse its online travel agency ambitions and focus on being an airline. Isn’t that difficult enough? Skift

Former ITA Software Vets Took It Hard in Google Layoffs

Google Flights personnel, especially ITA Software alums, were particularly hard hit by the layoffs at Google. That could signal less Google investment in its business powering airline websites, and more focus on driving flights-related revenue from Google.com. Skift

India’s EaseMyTrip Takes Majority Stake in CheQin

India’s EaseMyTrip, looking to bolster its hotel-booking tech, took a majority stake in CheQin. This is part of the online travel agency’s bid to reduce its reliance on flight bookings. Skift