Airbnb and Booking Keep the Cash Flowing

Major online travel agencies feel a ton of competitive pressures, but one thing is clear: They throw off a ton of cash.

And they can use that cash wad for things like acquisitions, product development, and share repurchases.

We took at a look at free cash flow conversion for Airbnb, Booking Holdings and Expedia Group for the 12 months that ended June 30, 2023. Free cash flow conversion is a measure of how efficiently companies turn revenue into free cash flow after interest payments.

Among these three online travel agencies, Airbnb’s was at the top at 31%, followed by Booking Holdings at 28%, and Expedia Group at 19%. As a much larger company, Booking generated nearly twice the free cash flow as Airbnb, but Airbnb did it more efficiently.

Online Travel Agencies’ Free Cash Flow ($ billions) for 12 Months Ending June 30, 2023

One factor behind this trio of companies notching attractive free cash flow conversion numbers is that they are all asset light businesses, meaning they don’t own the hotels or short-term rentals that they offer and which generates much of their revenue. Airbnb doesn’t offer flights, cruises or car rentals; Booking and Expedia do, but don’t own any commercial aircraft, ships, or vehicles, either.

When comparing the free cash flow conversion percentages to asset heavier businesses, Delta’s equivalent figure was 2% and hotelier Accor was 8%. Accor owns more of its properties than does Hilton, which had a free cash flow conversion of 42%.

Free cash flow gives companies like Airbnb, Booking, and Hilton lots of flexibility in returning value to shareholders and for strategic moves. After all, Hilton obviously needs another hotel brand.

“And because of our strong cash flow and balance sheet, we’ve been able to repurchase $2.5 billion of our stock in the last 12 months, which has more than offset the impact of share dilution,” Airbnb CEO Brian Chesky told analysts earlier this month.

It might also position Airbnb to make acquisitions, perhaps an AI startup if that is its bent.

That’s not to underestimate the challenges that online travel agencies face.

In a December 2021 podcast, below, Skift Research’s Seth Borko and I discussed how the pandemic recovery would be more muted for online travel agencies than their robust 9/11 bounce back.

Booking Holdings Chief Financial Officer David Goulden said during the company’s August 3 earnings call that the it would not revert to pre-pandemic margins because it is getting bigger in relatively low-margin businesses like flights and payments.

With hotels managing to maintain the integrity of their rates — ensuring they have the lowest rates on their own websites — to a larger degree than in years’ past, online travel agencies such as Expedia and Booking tend to no longer be the place that travelers can rely on as the source for the lowest discounted prices.

That’s why online travel agencies such as Booking.com, Expedia, Hopper, MakeMyTrip and eDreams Odigeo are focusing more on funding their own discounts to undercut competitors’ rates.

Still, the online travel agencies’ ability to churn out cash gives them lots of options.