Whether he's taking advantage of a last-minute hotel deal or
planning a Disney vacation, Gennady Kupershteyn loyally books all
of his travel arrangements through Priceline.com or
"Priceline got me when I was able to rent a really nice car
for $20 a day for our trip to Florida. Ever since, I check them
first," Kupershteyn said in a Facebook chat. "Each site has a
learning curve to navigate, so once one site hooks you, who wants
to re-learn how to navigate a new one?"
Online travel agencies proved to be one of the hottest
destinations on the
this year. IBD's 11-stock Leisure-Travel Booking industry
group -- includingExpedia (
) andTripAdvisor (
) -- collectively rallied 81% in the past year vs. 28% for the
are betting on rapid growth in mobile bookings,
underpenetrated emerging markets and an explosion in metasearch
-- searches across multiple search engines -- to drive future
The Last-Minute Market
Smartphone transactions offer boundless growth potential, as
more than one in five people on Earth own a smartphone. Yet only
one in four travelers uses the devices to book airline tickets,
hotels, cruises and car rentals, according to an
Ipsos MediaCT poll commissioned by
), released in November.
Mobile devices accounted for 12% of online travel agency (OTA)
sales this year. They're projected to climb to nearly 30% --
worth $39.5 billion -- by 2015, according to PhoCusWright. Mobile
gross bookings more than doubled to $5.5 billion in 2013 from
$2.7 billion in 2012.
A big part of this year's jump in mobile bookings was a rise
in last-minute, same-day bookings -- territory in which OTAs have
the first-mover advantage, said Cindy Henn Olsen, an analyst at
Franklin Equity Group. Her firm owns about $235 million in shares
of Priceline along with stakes in TripAdvisor, Expedia and
She says last-minute booking is "not a core competency for the
Mobile bookings could drive increased customer loyalty.
Customers are most likely to use just two or three favorite
travel apps, research suggests, unlike Web browsers with easy
access to countless choices.
"More direct traffic through travel apps and less competition
for search traffic could also lower customer acquisition costs,"
Goldman Sachs analysts wrote in a Nov. 20 client note. The shift
to mobile should benefit Priceline, and smaller screens could
lead to more clicks on paid search ads in the native browser, the
In November, Priceline rolled out a beta version of its iPad
app that combines booking and travel research. The Norwalk,
Conn.-based firm has not released data about its mobile apps
Apps All Over The Map
OTAs are prioritizing mobile app development to gain traffic,
process transactions and app downloads. HomeAway, a service that
connects owners of vacation rentals to prospective renters,
reported 400,000 downloads of its new mobile app.
Mobile is a key focus for TripAdvisor. The site, which
publishes travel information and reviews, says mobile business
accounts for 40% of its total traffic, with 69 million mobile app
downloads and 108 million monthly active mobile users.
Expedia's mobile apps have been downloaded nearly 80 million
times, with downloads occurring at a rate of 200 per minute,
according to spokesperson Mallory Seubert.
Rapid growth in the mobile market has spawned startups that
offer mobile-only rates and local, last-minute booking.
HotelTonight, founded in 2010, offers mobile-only booking and
last-minute deals on hotels. As of mid-November, it's counted
more than 7 million customers in North America and Europe. Some
wary hotels avoid such last-minute services, for fear of training
customers to book last minute and dragging down room rates.
In many emerging markets, mobile phones are the primary source
of Internet access. For OTAs, that opens the door to millions of
newly wired potential customers, said Douglas Quinby, vice
president of research at PhoCusWright.
Online penetration, as a percentage of the total travel
market, has only reached 24% in Asia, 21% in Latin America, 19%
in Eastern Europe and 18% in the Middle East, said Quinby. In the
U.S. and Europe, penetration rates hover near 40%.
The number of visitors from Asia to the U.S. is projected to
jump 9% in 2014 and nearly 60% between 2012 and 2018, the
Department of Commerce
said in a report Nov. 26. Visits from South American
residents are seen climbing 65% over the same periods, Eastern
Europe 56%, and the Middle East 60%. By contrast the number of
tourists from Europe is expected to rise only 14%.
Expedia is making inroads to China via its Elong.com unit.
Priceline is aggressively pursuing expansion in Asia. It bought
Agoda, an online travel company specializing in discount hotel
bookings in Asia, in November 2008. It formed a partnership with
Chinese travel portal Ctrip.com in August 2012. Goldman Sachs
forecasts Priceline's Asia bookings to increase at a compounded
annual growth rate of 14% between 2013 and 2016 while Latin
America enjoys a CAGR of 19% over the same periods.
HomeAway in early December acquired Australia-based Stayz.com
for $198 million, which nearly doubles its Asia-Pacific region
listings. The deal could also add $22 million to $25 million in
revenue in 2014, according to Deutsche Bank. HomeAway also bought
a 55% stake in Bookabach of New Zealand.
TripAdvisor recently unveiled four new local sites in Spanish,
serving Peru, Colombia, Chile and Venezuela. It continues to
invest heavily and operates at a loss in China with the DaoDao
and Kuxun brands, the company said its
third-quarter SEC filing
The Metasearch Surge
Metasearch sites are the fastest-growing channel of the travel
industry. OTAs are heavily investing in this technology, used by
an increasing number of airlines and hotels, which allows users
to search for deals from numerous OTAs and travel providers at
the same time.
"This fast-growing category cuts into OTAs' biggest advantage
-- the ability to offer travelers multi-carrier shopping,"
TripAdvisor launched a hotel metasearch this year. Expedia
paid $632 million for a majority stake in German metasearch
leader Trivago in March. In May, Priceline completed its
acquisition of Kayak Software, which accounts for 90% for
domestic airlines' metasearch traffic. Some 36% of online
travelers use metasearch tools for leisure travel, up from 28% in
2010, according to PhoCusWright.
The knife fight for page views and commissions is fierce in a
commoditized market with low barriers to entry.
"Competition for customers is driving customer acquisition
costs higher," Tom Vandeventer, portfolio manager of Tocqueville
Opportunity , which owns Priceline shares, said in an email.
"Other risks include the potential for price wars and valuation,
because the stock prices have increased a lot this year and look
to be fairly valued."
Travel service providers -- hotels, airlines, car rental
agencies and others -- are wooing customers with loyalty rewards
programs and posting deals on their social media pages and on
daily deal sites.
"Suppliers are retaining greater control over their
inventories, putting the OTAs at a disadvantage," Michael Souers,
analyst at S&P Capital IQ, wrote in a note about Expedia Nov.
In Expedia's Q3 conference call Mark Okerstrom, chief
financial officer, said revenue per room night dropped 7% in the
quarter because of growth from chain hotel partners, growth in
loyalty programs and various customer incentives. He expects that
trend to continue. Expedia is so far making up for it with volume
In 2012, hotel chains Choice Hotels, Hilton Worldwide, Hyatt,
Intercontinental, Wyndham and Marriott joined forces to develop
their own rate aggregation site called Roomkey.com.
Google rolled out Hotel Finder in summer 2011 and launched a
mobile app in November through which users can book hotel rooms.
The metasearch service results often appear at the top of
hotel-related searches. Apple has received a patent for the
iTravel mobile app that would allow it to enter the online
"If any of these new services are successful, we may
experience less demand for our services and are likely to face
more competition for access to the limited supply of discounted
hotel room rates," Priceline stated in its third-quarter