Priceline, Expedia, and How a Travel Agent Can Still Enter the Online Travel Market

The competition in the travel industry is tough. Today’s consumer enjoys access to tons of options to book trips and accommodations. Mobile apps for flight and hotel booking have been questioning the role of traditional travel agents for a while now.

Online bookings through websites and mobile apps like Airbnb are increasing. To get in on the action, airlines, hotel chains, and car rental brands have been developing their own websites and apps. Brand loyalty programs try to convince customers that they have no reason to use an online travel agency (OTA) search engine to find the best deal.

In this environment, what can travel agencies do to survive? Putting up a website isn’t some magical success pill. Launching a new travel app or website would mean going up against Expedia, Booking.com, Kayak, Hipmunk, and a bunch of others. To survive this fierce competition, travel agencies must adapt and differentiate.

In this article, we’ll take a look at how the largest online travel brands operate and provide some recommendations for agents who want to adapt for the online generation.

Who rules the online travel market?

The worldwide online travel market is dominated by Expedia, Inc. and the Priceline Group. These two corporations own a number of websites and mobile applications: Booking.com and Kayak belong to Priceline, and Hotels.com, Trivago, and HomeAway belong to Expedia. While Expedia is more focused on the U.S. market, Priceline has a larger presence in Europe and the Asia Pacific region.

With the acquisition of Orbitz in 2015, Expedia became the largest OTA in the U.S. However, Priceline’s net income still outweighs Expedia’s due to its much larger international presence. As of 2016, Priceline saw about $10 billion in revenue, while Expedia only cleared around $8 billion.

Also, Booking.com is much stronger than Expedia in apartment and vacation rentals, which is by far the most lucrative market. To make up lost ground against Booking.com, Airbnb, TripAdvisor, and many others, Expedia recently acquired HomeAway.

The acquisition of smaller brands is standard practice for industry leaders like Expedia and Priceline in their battle for online supremacy.

[Expedia app. Image source: Geek.com]

Where do Expedia and Priceline source their inventory from?

Expedia’s entire database of hotels amounts for over 4 million listings. Large travel companies source their inventory by negotiating directly with hotels and by using multiple global distribution systems (GDS) such as Amadeus, Sabre, Worldspan, and Pegasus Solutions to book airline tickets, hotel reservations, car rentals, cruises, vacation packages, and various attractions and services.

Global distribution systems originated in earlier computer reservation systems, which were created by airlines themselves (e.g. Sabre was created by American Airlines all the way back in 1960). To make their reservation systems accessible to consumers through internet gateways, airlines eventually divested most of their direct holdings to dedicated GDS companies.

GDS systems can be very expensive to access, so online travel agencies tend not to get their inventory from GDS systems if they can avoid it. Online travel agencies only use GDS systems is they run out of inventory in a given city or need inventory in a market they haven’t independently sourced yet.

Independently sourced rooms are offered out of merchant inventory (in other words, inventory already rented out by an online travel agency), and give OTAs much higher margins than GDS-sourced rooms (20–25 percent vs 15 percent through a GDS). Travel agencies can buy rooms directly from hotels for lower rates than they can through a GDS system.

How do online travel agencies make money?

Online booking businesses provide customers a broad range of products and services including hotel bookings, airline tickets, car rentals, cruises and vacation packages.

Airline tickets are probably the most competitive of all these travel products, but airline tickets don’t net much money for agencies. In the past, travel apps like Expedia and Priceline used to charge a commision to airlines to offer tickets on their platforms. But then the majority of airlines started attracting customers by selling tickets directly on their own websites. Also, a lot of travellers search on booking websites or meta search apps like Kayak and then buy tickets directly from an airline.

The competition from individual airlines and fare aggregators eventually compelled online travel agencies like Expedia and Priceline to remove fees in excess of those charged by the airlines themselves. As of 2013, airline tickets accounted for only 1.7 percent of Priceline’s revenue.

The majority of profit in the industry is made by selling hotel reservations.

To monetize their products, online travel agencies use three business models: the agency model, the merchant model, and the advertising model.

Agency business model

Operating according to the agency business model, an OTA acts as a middleman between customers and industry operators, making a commission on every transaction. Expedia’s commission rates range from 20 to 25 percent. While this commission isn’t very attractive for hotels, getting exposure on Expedia can be the only way for some to increase occupancy.

Merchant business model

With the merchant business model, an online travel agency is the merchant of record. All bookings are completed on the agency’s own website or mobile app. To operate according to the merchant model, an online agency needs to buy up a large number of hotel rooms at a wholesale rate and then market these rooms to travelers at the agency’s rate.

Priceline sells hotel reservations primarily according to the agency model, while Expedia relies mostly on the merchant model, which offers higher margins.

Advertising business model

Advertising is the third way for flight and hotel booking apps to make money. Priceline earns only 0.3 percent of its revenue from advertising fees. But TripAdvisor, on the other hand, is driven by advertising.

Travel apps like Kayak and Hipmunk make money on flights and hotels by charging cost-per-click to OTA and supplier websites. In other words, Kayak and Hipmunk redirect customers looking for flights and hotels to airline websites, hotel websites, and other travel search websites, and get a few cents for each referral.

For a small travel agent looking to make a travel app or website, the advertising model is the most affordable. However, you need to attract a lot of traffic to your site to sustain it on advertising alone. Alternatively, you can make use of existing infrastructure and data to build new services on top of them and earn some money along the way.

Let’s talk about travel application development.

[Booking.com app. Image source: Pinterest]

Travel APIs you can use to start out as an online travel agent

If you own a travel agency that is looking to enter the online market, you can participate in affiliate programs with many online agencies and get a small commission on what you sell without having to negotiate directly with hotels. By integrating with Booking.com’s API, for example, your customers can get access to hotels all over the world. In this way you can expand your services while still selling your core products.

Hipmunk, for instance, used Orbitz’s API at launch. Later, they bought access to ITA Software’s QPX solution (which belongs to Google). ITA’s flight search engine API is available under a pay-as-you-go model, though it seems that you need to pay of one million dollars per year for access to this powerful API.

Using an API is a good start, and there are lots of options to choose from. Each affiliate program offers its own deals. Commissions on sales via affiliate programs can be a percentage of ticket prices or a fixed commission. The commercial model often depends on the volume of transactions going through the system. Let’s take a look at a few affiliate programs:

Affiliate programs

1. Booking.com’s affiliate program offers access to more than 23 million hotel rooms in more than one million locations.

2. Agoda’s affiliate program offers access to more than 925,000 properties and lets you earn up to 60 percent commission.

3. Expedia’s affiliate network API offers access to over 321,000 hotels and more than 400 airlines, but it’s only open to U.S. travel agencies.

4. Wego’s affiliate network offers meta search for flights and hotels.

5. Skyscanner’s affiliate program offers white label solutions for flight searches on your own website. Skyscanner supports flight bookings, hotel bookings, and rental car bookings.

6. ShareASale isn’t exactly an affiliate program, but rather a marketplace where you can find top affiliate programs in any niche. It’s a great source for your travel mobile app development.

You might also want to check out referral programs offered by popular apps such as Airbnb and Hotel Tonight.

Other travel APIs and open source content sites

If you want to provide guides in your application that are relevant for your travelers, you can take content from open source sites such as World66, Wikivoyage, Wikipedia, Open Street Maps, TouristEye, and Flickr.

There are also a number of APIs you can use to offer your users recommendations on places to visit, including:

• Google Places, which features 95 million businesses and points of interest. Google Places listing are frequently updated through owner-verified listings and user-moderated contributions.
• Factual’s Global Places data includes over 102 million local place records and points of interest in 50 countries. Factual’s key source of data is their partners who provide edits and updates. This service also offers location-based mobile personalization and ad-targeting solutions, data cleaning, and mapping services for business listings and points of interest.
• Facebook Places paves the way for venue searches through its Graph API, and uses data provided by Factual.
• Yelp’s API offers reviews and photos together with data listings. The Yelp API is a great choice for the U.S. market, where Yelp has a lot of coverage (though it is extending its services to international cities).
• CityGrid’s APIs contain more than 18 million local U.S. listings. CityGrid has a program for partners called Places that Pay. You can publish CityGrid place pages and get paid when your users engage with the content for certain places.
• Foursquare’s APIs allow you to search for places and access information about them for free and without user authentication.
• TripAdvisor’s API provides access to a huge database of user-generated content and makes available travelers’ photos, detailed reviews and ratings data for accommodations, attractions, and restaurants. If you consider developing a travel app that relies on TripAdvisor’s API, however, you will have to acquire a partner key to get access, as TripAdvisor’s API is not publicly available.

You can use any of the above-listed tools to build your own travel app. But these tools don’t give you an answer as to how you can enter the online space and survive the harsh competition. We believe that differentiation is the key to survival in the online booking market.

[The Hipmunk app. Image source: We design LA]

How can you differentiate your product offerings?

1. Go mobile

According to a recent survey published by Euromonitor International, the travel industry will have the highest percentage of mobile bookings of any retail industry by the year 2020.

But since the market for mobile travel apps is just as competitive as the same market for the web, we would suggest starting out with an app that targets your existing customers. An app can greatly increase your customer loyalty.

2. Tap into new and niche markets

North America, Western Europe, and the Asia-Pacific region are currently the largest markets for online bookings. Thus, offering another online travel service that sells tickets to Paris and New York isn’t the best strategy.

Eastern Europe, Northern Asia, and Africa can potentially present a solid business opportunity if these markets grow.

Priceline’s recent investment in Ctrip, a dominant player in China, as well as its acquisition of Singapore-based Agoda.com proves that going for untapped markets can be a good strategy for startups looking to make an exit.

Other than focusing on an underserved geographical area, travel agencies that don’t want to become endangered species can differentiate by catering to a niche market. Some areas where agents are still succeeding include the luxury and business niche where travelers value personal relationships and expertise over cost savings.

You might choose a niche to target based on interests (extreme sports, adventure, spirituality, wildlife, history), demographics (age, gender, marital status), special events (Olympics, festivals, rock concerts), or even themes (luxury, wellness, honeymoons, camping, city breaks, family).

3. Use technology to improve customer service

Online travel agencies like Expedia and Priceline cater to the mass market, which consists of young people who are used to getting instant information on the web and booking trips on their own. They don’t care as much about hotel or airline brands as they do about their budget.

If your agency still has a substantial amount of offline bookings, the audience you attract is probably not the same as the one that websites like Expedia target.

While online travel agencies offer a wide range of options, they don’t provide the customer service that clients of a traditional travel agency expect. Customer service is what traditional agencies are so good at!

Shopping around and looking for deals online takes time. Traditional agents search for flights and accommodations for their customers. Moreover, a traditional travel agency customizes and adjusts the entire trip without asking their clients to lift a finger. And if a customer has any questions before, during or after the trip, travel agents are always there to help.

These undeniable advantages of traditional travel agencies can only be improved with the use of technology. Agents who embrace technology to improve the client experience can definitely improve their chances of survival. You check out our article how to build an MVP right to get some recommendations for starters.

If you want to learn more how to develop your own travel app, feel free to contact us! We’ve got some travel app developers available.

The article is published to Yalantis blog.