While online travel retail sales are continuing their steady growth globally, consolidation is increasing among online travel agencies, with Expedia and Priceline strengthening their positions as the most successful and innovative companies and constantly gaining share in the category.
Priceline managed to record the sharpest growth over the 2004-2013 period, which allowed the company to stand beside Expedia at the top of the global online travel agency (OTA) and travel intermediary ranking in 2013. Competition between the two OTA giants is getting tougher in 2014, with Priceline continuing its sharp rise and Expedia also achieving a remarkable performance.
Healthy growth for online travel retail sales driven by Asia Pacific
Global online travel sales through intermediaries recorded another strong performance in 2013, when they grew by 9%. During the 2013-2018 period, growth is expected to stay steady, driven by the Asia Pacific region. Online travel retail sales are expected to grow at an 18% CAGR in Asia Pacific over 2013-2018, thanks to the increasing penetration of ecommerce, and especially mobile commerce, among growing affluent and middle classes in the region.
Online Travel Retail Sales by Region: 2008-2018
Source: Euromonitor International
Expedia and Priceline drive consolidation in the OTA sector
The sharp rise in online travel retail sales in the past 10 years has put Expedia and Priceline at the top of the ranking of travel intermediaries, ahead of traditional players such as Carlson Wagonlit Travel, TUI Travel, American Express and Thomas Cook.
The success of Expedia and Priceline is driving strong consolidation in the online travel agency category, with them well ahead of their competitors in terms of both sales and as engines of innovation. While both companies saw strong growth in terms of gross bookings in 2013, some of their main competitors suffered poor performances in the same year. In particular, the other two big US OTAs, Orbitz and Travelocity by Sabre, suffered stagnation and a strong decline in sales respectively.
Top Global Online Travel Agencies by Value Sales: 2012-2013
Source: Euromonitor International
Priceline reaches the top of the ranking in 2013
2013 was the year which saw Priceline reaching Expedia at the top of the OTA and travel intermediaries ranking, generating US$39 billion in terms of gross bookings. In spite of Expedia’s good performance during the year (+16%), the last of a long list of very strong performances by Priceline (+38%) allowed it to reach its rival in terms of gross bookings.
Competition gets tougher in 2014
Competition between the two OTA giants is getting tougher in 2014. Results for H1 2014 saw the two companies very close in terms of gross bookings, with Priceline generating US$25.8 billion (+34%) and Expedia standing at US$25.7 billion (+29%).
Priceline recovered much ground from Expedia over 2004-2013 thanks to its more flexible agency model, larger online advertising investments (mainly on Google paid search results) and stronger expansion in international markets, first with Booking.com in Europe and then with Agoda in Asia Pacific. The agency model allows customers to pay directly in hotels and to, generally, easily cancel their reservation, while the merchant model offers consumers less flexibility and requires prepayment to the OTA.
An improved performance for Expedia
However, the pattern of the first six months of 2014 seems a bit different, with robust growth in Expedia’s sales. A strong domestic performance has been driven by the migration of the US and Canadian Travelocity brand’s sales to the Expedia platform. Moreover, the launch of the Expedia Traveler Preference Program, allowing consumers to choose between prepayment and payment at the hotel, has made Expedia’s offer more flexible and better positioned to compete with Priceline’s agency model. The agency model accounted for 83% of Priceline’s sales in 2013, largely due to this model being used by its Booking.com subsidiary. Sales through the agency model drove Expedia’s sales growth in H1 2014, recording a 38% rise, while merchant model sales grew by a lower 18%.
If approved by the Australian Competition and Consumer Commission, the acquisition by Expedia of the leading Australian OTA, Wotif, will be another significant step towards strengthening the global position of the company.
In the second part of this article, we will analyse the possible future strategies of Expedia and Priceline in order to keep ahead of the competition, which include bold moves towards the mobile channel, personalised online marketing, B2B and in-destination services.