by Martin Kelly
You know something is up when six of the world’s biggest hotel groups join forces to create their own booking website to directly compete with online travel agents.
Choice Hotels International, Hilton Worldwide, Hyatt Hotels Corporation, InterContinental Hotels Group, Marriott International and Wyndham Hotel Group all own a piece of the new site – Roomkey.com.
It’s caused something of a stir in the tight-knit world of travel distribution though not the controversy it might generate in some other industries where suppliers would never set up shop to compete directly with retailers.
But the travel industry has seen it all before.
A recent example includes the oddly named Opodo, a European Online Travel Agent now owned by private equity, which was originally formed in 2000 as a joint venture between Aer Lingus, Air France, Alitalia, Austrian Airlines, British Airways, Finnair, Iberia, KLM and Lufthansa.
Their motivation, same as the Roomkey.com founders, was to cut travel agency distribution costs, which can be as high as 30 per cent.
The partner airlines figured they could sell their airfares at a reduced commission through their very own online co-operative, just like Roomkey.com
But it wasn’t that simple.
For a start, big commercial websites cost a lot of money to run and market – they eat cash, especially in the early formative years.
Then there’s the issue of ultimately funding what is essentially a competitor to your own branded site, which is not only a straight out conflict of interest but also undermines the cheapest distribution channel for any business.
So over time the original partners sold out to Amadeus, a global travel distribution system, which eventually divested it as a non-core asset to AXA Private Equity and Permira Funds for €500 million.
That works out at 11.7 earnings, which is pretty good money, though you’d have to think a lot had been spent along the way so it was probably a zero sum game.
It’s worth noting that when Opodo was started 12 years ago, the internet was all about potential – no-one was really making any money online.
But that quickly changed as global travel slumped in the aftermath of 911 and hoteliers turned to online travel agents to help sell heavily discounted rooms.
These days everyone buys travel on the web and online travel agents have matured into highly profitable businesses.
How profitable?
Let’s use Priceline.com, one of the fastest growing on international online travel agents, as an example.
In the third quarter alone, Priceline.com had a turnover of US$6.3 billion (up 56.2 per cent year on year), revenue of US$1.5 billion (up 45 per cent) and net income of US$469.5 million compared with US$223 million for the same period a year ago.
That’s a lot of money, and the growth rates remain astonishing, especially at a time when the hotel industry in many parts of the world is going through hard times.
Hence the hoteliers feel they are doing all the work but the online travel agents are making all the money for little effort.
An obvious question at this point is: why don’t the hotels just stop selling through online travel agents?
The answer is they can’t afford to. Online travel agents dominate the market and are still growing at a ferocious rate, as we can see from the Priceline.com example above.
This brings us back to where we started – Roomkey.com.
It’s a nice site – softer, prettier and simpler than its commercial rivals – but in my opinion Roomkey.com will have no meaningful impact on the online accommodation market.
The major reason is that hundreds of millions of dollars are required each year to gain the kind of profile and scale a site like this needs to be profitable.
And there is no way the partner companies have that kind of money to invest in a website that is 1) a potential competitor and 2) a non-core business.
Ultimately, Roomkey.com is expensive rhetoric.
No comments:
Post a Comment