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October 2018, Las Vegas

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Travel’s big guns end 2017 with a whimper

With revenue growth slowing and rising competition from all corners, Sally White finds there is not much to raise a glass to this December

Out not with a bang, but a whimper has been the closing 2017 experience for the major online travel agents. Not even their now vast stock market values could save them from a fall from favour. Competition is soaring, marketing bills are rising, growth rates have slowed and margins are being pinched.

Priceline, Expedia and TripAdvisor all saw any good news on recent trading ignored, as analysts decided they did not like what was being said about 2018.

Online sites are facing increasing competition from each other, as well as from the tough marketing tactics at major hotel chains such as Marriott and Hilton and at Airbnb. Hotels are driving harder bargains in negotiations on commissions for third-party sites. So, OTA marketing spend must rise.

Other concerns, in the graphic words of a New York trader, include that “Google is eating their lunch”: travel industry estimates put Google’s travel business at around $100 billion, which is more than Priceline’s. And CEO changes at both Priceline and Expedia “have made investors skittish,” say analysts at New York-based dealer Zacks. Unfamiliar with new management, the analysts are unsure how to read board comments on moves and projections. 

However, it was fear that a ‘new normal’ would be slower revenue growth over the next few quarters that caused the most panic. 

Fear that a ‘new normal’ would be slower revenue growth over the next few quarters caused the most panic

Priceline’s announced double digit growth for Q3 2017 on a year ago for sales and profits, but its guidance on future trading was seen as indicating trade would be ‘weak’, for example. Additionally, it faces higher costs as, to name just one move, it expands television ads for Booking.com from 12 to 30 countries.

Expedia’s sales and profits performance undershot expectations and it tipped off analysts to halve their growth forecast. “Increased investment in the business, increasing competition across geographies and discounts offered by larger chain hotels can make margin expansion difficult,” warned New York-based research house Zacks.

Unhappiness with TripAdvisor’s performance was based on the fact that Q3 hotel revenues, which form 71% of the group’s revenues, declined by 3%. This was despite a whopping $42 million spend on TV ads and continued the 2016’s downward trend. Lastly, and by no means least, an increasing number of new customers are coming from mobiles, where monetisation rates are lower than those from desktop users. 

The current uncertainty in travel will be as nothing…if Amazon, as is rumoured, should decide to re-enter the market in 2018

All that, and better performances by TripAdvisor’s rivals (Expedia and Priceline, but especially China’s Ctrip), outweighed the good news that its non-hotel revenues grew a strong 26%. And to put the lid on it, the board actually said that profits would be “flat or down” in 2017 as a whole, which led analysts to forecast falls well into the summer. So “strong sell” is their current thumbs-down view on TripAdvisor. 

The current uncertainty in travel will be as nothing when it comes to disruption if Amazon, as is rumoured, should decide to re-enter the market in 2018. The online retailer, which is expected to have around 50% of US online retail sales in five years' time, has taken a new step into an OTA market. From last month, customers in some US states can order take-outs from local restaurants directly through the Amazon app. Hard-pressed OTAs have joined in the universal refrain of: “How do we keep Amazon from taking over the world!”

To preview and buy EyeforTravel’s Expedia report, click here, or here for the Priceline report. These are part of the Future of the Online Giants series, which will cover Expedia, Priceline, TripAdvisor, Ctrip and Google. Keep a look out through EyeforTravel On Demand for the rest of these reports. 

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