Specialist
Former Managing Director at Expedia Group Inc
Agenda
- Impact of regional travel restrictions on Booking (NASDAQ: BKNG) and Expedia's (NASDAQ: EXPE) Q3 2020 volumes
- Q4 outlook and 2021 recovery potential
- Acquisition cost trends through the pandemic
- OTA distribution strategy and channel mix through a recovery
- Evolution of booking characteristics including lead times, duration trends, refundable bookings, independent vs branded vs vacation rental mix and ADRs (average daily rates)
Questions
1.
What are your expectations for Q3 2020 booking volume trends for Expedia and Booking? I believe Booking disclosed -35% volumes YoY at the end of July 2020. All things considered, the company seems to have performed relatively well – it was actually positive YoY on domestic intra-country travel.
2.
To what extent does your pessimistic commentary on overall Q3 results and the incoming coronavirus restrictions across Europe temper your outlook for Q4? OTAs and other travel players were guiding a continued recovery through summer into Q4 back in March and April. How significantly could the European restrictions impact travel demand in Q4 vs the lesser restrictions in the US?
3.
What proportion of volumes would France, the UK and Germany normally account for in Europe, either domestically or people from any of those three markets travelling internationally into Spain, Italy or southern Europe generally?
4.
How do you think about Expedia and Booking’s relative performances in the current context?
5.
Could Booking’s agency-led model make it less exposed to refund impacts on its working capital than Expedia under its merchant model? How would you flag the potential impact of refunds across both businesses?
6.
Presumably, there is an immediate cash impact on Expedia from the merchant bookings that were made pre-pandemic and that are being cancelled periodically throughout the year, with customers seeking refunds. How could that play out over the next couple of months? Do you think this has largely been worked through?
7.
Could you estimate the share of merchant bookings vs agency bookings at Expedia going into the pandemic? Was the company overweighted to merchant bookings?
8.
Do you think the weighting will have shifted to agency bookings where the traveller pays at the hotel across Expedia and Booking?
9.
Do you think Expedia’s loyalty programme can offset the risk of being left stranded without a refund, if you go down the non-refundable merchant route?
10.
Expedia’s June balance sheet quotes 4.6bn [sic] in deferred merchant bookings, which is travel to happen at some point in the future that the customers have paid for. Do you think that the majority of that is a refundable rate now? Could there still be a component of pre-pandemic bookings that haven’t been refunded for whatever reason? How do you think about the composition of those deferrals?
11.
My understanding is that Expedia’s policy as of June was to phase the refunds so they were available within 30 days of a traveller’s departure, allowing the company to manage the impact progressively. Could that number potentially unwind as Expedia issues refunds for travellers? As you said, there would have been a lot of pre-pandemic bookings for July and August, as well as for the winter and spring.
12.
How important do you imagine alternative accommodations will be for Expedia and Booking?
13.
Would you say there are any differences in booking characteristics between domestic and international travellers? Do they pay different average rates, or opt for branded vs independent hotels at different rates? Do international travellers stay slightly longer on average, and do they come through a different acquisition channel?
14.
What could be the gross margin implications of a long period with a higher share of domestic bookings? Would a larger portion of domestic travellers in 2021-22 make bookings relatively more expensive to acquire? I presume individual hotels’ websites have slightly more brand power in local markets vs the OTAs, so how could that affect OTA gross margins through the recovery?
15.
How would you say the conversion rates differ between domestic and international bookings under normal circumstances?
16.
Would you say the absolute dollar cost for an OTA to acquire a domestic booking differs from that to acquire an international booking?
17.
What percentage of revenue do you think an OTA would spend on domestic vs international acquisition?
18.
How could Expedia and Booking evolve their marketing strategies if volumes will be mainly domestic into next year? How do you optimise for that traveller?
19.
Could the ADRs [average daily rates] resulting from the destination-specific searches justify the potentially higher cost per acquisition, given every other OTA and travel agent would be pouring money into Google paid ads for a particular destination as well as Booking?
20.
Could you estimate the penetration of business travellers across the OTAs? I presume these travellers convert at a much higher percentage, and pay a higher ADR, so are they the most profitable customers for OTAs?
21.
How much higher would you expect the ADRs to be for an average business traveller vs leisure traveller? Is that a function of the standard of accommodation they stay at and the lead time with which they’re booking, as well as the destination?
22.
Do you think there will be enough domestic demand to support reasonable ADRs in the market next year, given the lack of business travel? Do you expect ADRs generally to be favourable when customers are able to travel? Would you predict hotels discounting their room rates to drive up occupancy in the absence of normal volumes, including business traveller volumes?
23.
How could relationships and bargaining power shift between OTAs and branded hotels that skew towards business travellers? Could OTAs drive up take rates if business travel takes a long time to recover vs leisure, or perhaps if it never recovers due to increased comfort with remote working?
24.
Where do you think hotels might push direct-to-leisure marketing efforts more aggressively vs work more closely with OTAs to drive volumes?
25.
Do you predict OTAs becoming a more significant share of branded hotel distribution through the recovery? It’s already high for independents.
26.
How frequently are the rates reviewed between OTAs and hotels?
27.
Are there any circumstances under which a hotel pays escalators above the rack rate it agreed with the OTA?
28.
Could the unit economics for alternative accommodations net out on a comparable basis with hotel stays for the OTAs? Is there anything we should monitor around those bookings vs traditional hotel bookings?
