🏝️ Online Travel: AI is Coming
AI agents could bring the ultimate personalization
Welcome to the Tuesday edition of How They Make Money.
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In case you missed it:
Travel is on the cusp of a new era of tech disruption.
The global online travel market could reach $1.5 trillion by 2030, growing at a compound annual growth rate of nearly 13%.1
By now, you’ve probably heard of one of the prominent use cases for artificial intelligence: AI agents. Of all the industries historically reliant on agents, tourism is ripe for AI disruption, with companies leveraging first-party data for hyper-personalized recommendations.
Online Travel Agencies (OTAs) have already revolutionized how we book trips. AI agents are the next frontier, providing the curation and customer service previously impossible with a simple search bar.
AI could disrupt the entire discovery model, where optimizing for LLMs like Gemini or Travel GPTs becomes the new SEO.
Glenn Fogel, CEO of Booking Holdings, envisions a future where AI-powered "connected trips" seamlessly orchestrate every aspect of a traveler's journey, from recommendations to real-time problem-solving.
It's crucial to understand the key players and the metrics that define their success:
Gross Bookings: The total value of travel services booked through a platform, revealing its overall reach and influence.
Nights Booked: The number of nights booked for accommodations is a vital indicator of a platform's popularity.
Average Daily Rate (ADR): The average price per night, reflecting pricing power and market trends.
Revenue per Available Room (RevPAR): A key performance metric for hotels, combining occupancy rates and ADR to measure overall revenue.
Customer Acquisition Cost (CAC): The average cost of acquiring a new customer, crucial for understanding marketing efficiency and profitability.
Let’s visualize the largest travel companies and their latest quarter, from OTAs to short-term rentals and traditional hotel chains.
Today at a glance:
🛫 Booking Holdings: Connected Trips.
🛖 Airbnb: Mobile Surge.
✈️ Expedia: Choppy Waters.
🧳 Marriott: Search with AI.
🏨 Hilton: Personalization Push.
1. 🛫 Booking Holdings: Connected Trips.
Booking Holdings has transitioned from an Agency to a Merchant model in the past few years.
Agency model: The customer pays the final price to the hotel (either at the time of the booking or at the check-in). After the check-out month, the hotel pays the agreed commission to the OTA.
Merchant model: The customer pays the final price to the OTA (not to the hotel). After the check-in date, the OTA pays the net price (final price less agreed commission) to the hotel.
Gross Bookings: $43.5 billion (+10% Y/Y).
Room Nights Booked: 297 million (+9% Y/Y).
Revenue: $4.4 billion (+17% Y/Y), a $160 million beat.
Adjusted EPS: $20.39 (vs. $14.06 expected)
What to make of all this?
Booking Holdings exceeded expectations in Q1 FY24—robust international travel demand, particularly in Europe, more than offset the moderation in domestic US travel.
🤖 Connected trips: Single bookings that include multiple travel elements (flights, accommodations, car rentals, and so on) grew more than 50% year-over-year from a small base. They now make up a high single-digit percentage of transactions. CEO Glenn Fogel envisions AI enhancing these trips, but he warned it would take time.
🌍 Europe's Revival: The performance above expectations in European markets signals a continued appetite for travel despite economic concerns.
🏡 Alternative Surge: Vacation rentals and apartments continue to outpace traditional hotels, reflecting evolving traveler preferences. Alternative accommodation listings grew 11% year-over-year to 7.4 million at the end of Q1. For context, Airbnb had 7.7 million active listings at the end of 2023, up 18% year-over-year.
📈 Profitability and Buybacks: Operating margin expanded, primarily thanks to lower marketing spend. The company continues to buy back shares aggressively ($1.9 billion during the quarter, compared to $2.2 billion in the previous year).
🚧 Challenges Ahead: Despite a strong Q1, Booking issued softer guidance for Q2, citing geopolitical tensions in the Middle East. In addition, increasing competition remains a concern.
Booking Holdings is a dominant force in online travel, bolstered by its strong international presence, diverse portfolio of brands, and Genius loyalty program. Connected trips offer a clear path to upselling customers, but it’s unclear whether AI will be a growth tailwind or a competitive headwind. The company's ability to adapt to changing market dynamics is critical, as with alternative accommodations, a category where Airbnb remains the leader.
2. 🛖 Airbnb: Mobile Surge.
While travel has become commoditized, Airbnb thrives through its unique stays and one-of-a-kind activities. Its business model focused on hosts makes it fundamentally different.