The world’s two largest OTAs are boosting spending on
marketing while hotel lobbyists are calling for federal regulators to stop the
proposed merger of two of the most popular OTAs in the U.S., reflecting a
heightened battle between suppliers and intermediaries for a greater share of
travel spending.
Expedia Inc. and Priceline Group each ratcheted up
second-quarter marketing costs. Expedia did so as it made preparations for its
pending acquisition of smaller competitor Orbitz Worldwide, a deal that is
still being reviewed by the Justice Department. Orbitz also recorded higher
second-quarter costs.
The Expedia-Orbitz deal has drawn fire from the American
Hotel & Lodging Association (AH&LA). Earlier this month, the trade
group publicly opposed the $1.34 billion deal, first announced in February,
citing factors such as a narrowing choice of booking channels, higher costs for
smaller hotel chains and the higher probability of deceptive practices from
“rogue” OTAs.
A combined Expedia-Orbitz would control almost
three-quarters of the U.S. online market, while the AH&LA estimated that
Expedia, Orbitz and Priceline combines account for more than 95% of the OTA
market.
Meanwhile, some hoteliers are drawing their own fire for
their efforts to secure more bookings through direct channels.
Marriott International earlier this month launched a
marketing campaign promoting Marriott’s website as having the best rates on the
hotelier’s rooms. Ads concluded with the tagline “It pays to book direct.”
While that effort was likely geared to pull prospective
guests away from OTAs, ASTA last week termed the language “misleading” and
called for the hotelier to discontinue the campaign “immediately.”
Suppliers and their channels continue to battle over their
respective shares of the U.S. online hotel sector, where annual spending is
predicted to jump 55% between 2012 and 2016, to $58.1 billion, according to a
Phocuswright report released in November. OTAs have been gradually pulling some
of that spending away from hoteliers’ websites. Last year, OTAs accounted for
48% of online hotel spending in the U.S., up from 46% in 2012.
Hoteliers fear that a combined Expedia and Orbitz will
result in a further loss of booking dollars.
“We believe this transaction and the resulting consolidation
of the online travel marketplace will result in significant negative
consequences, particularly for consumers, but also for the large number of our
members who are small business owners and franchised properties,” AH&LA CEO
Katherine Lugar wrote in an Aug. 6 statement.
Meanwhile, Priceline and Expedia continue to ramp up
spending in their competition with each other, and those higher expenses were
reflected in both companies’ second-quarter financial results.
Expedia’s second-quarter selling and marketing costs jumped
19% from a year earlier, while general and administrative expenses surged 38%.
The company, which in May sold its 62.5% stake in China-based OTA eLong, also
reported that gross bookings excluding eLong rose 20% to $15.1 billion, while
room-night growth excluding eLong rose 35%.
Net income quadrupled from a year earlier, to $449.6
million, though that increase was largely the result of its $508.8 million gain
on the eLong sales. Revenue increased 11%, to $1.66 billion.
Priceline’s online advertising spend rose 21%, while sales
and marketing costs were up 26%, outpacing the company’s 7.4% revenue growth to
$2.09 billion. Gross bookings advanced 11%, to $15 billion, with international
bookings rising 30% while U.S. bookings remained flat.
Orbitz took a $4.25 million loss, compared with year-earlier
net income of $6.88 million. Revenue fell 3.4%, to $239.6 million. The cost of
revenue surged 34%, largely as a result of higher costs related to implementing
systems to stem fraudulent transactions. Gross bookings fell 8%, to $3.09
billion, as standalone air and vacation-package revenue were both down 14%.
Financial analysts appeared to be unconcerned about
Expedia’s higher spending, noting that it was appropriate for a company whose
recent acquisitions included Travelocity and Australia-based Wotif.
In an Aug. 9 note to clients, Deutsche Bank analyst Lloyd
Walmsley wrote, “We see a long runway for the company to continue to improve
its operations across its legacy assets and acquired businesses, with better
website conversion, increased hotel supply, deeper penetration of existing
hotel partners and improved marketing optimization.” Walmsley maintained his
“buy” rating on the stock.
And while Guggenheim Partners analyst Jake Fuller in an Aug.
6 note to clients classified Orbitz’s second-quarter performance as “weak,” he
maintained that many of the challenges were short term and typical for a
company on the verge of being acquired. He added that the recent performance of
Travelocity could hint at a better future for Orbitz, as well.
“We note that Travelocity appears to be ramping revenue post
acquisition as it benefits from a higher converting platform, access to more
hotel inventory and better marketing support,” Fuller wrote. “A weak
performance [by Orbitz] probably does not change the prospects for the deal.”