Expedia on Travelocity, GDS and Spiralling S&M Costs

Expedia’s first quarter results  revealed it is actively poaching hotels from GDS providers, while the online travel conglomerate’s sales and marketing costs climbed to a massive USD618m, or 51.5% of revenue, with further increases inevitable.

Meanwhile, Expedia has virtually about finished the migration of the Travelocity website to its tech and transaction platform.

The outcome is that the former arch-rival is now making a significant contribution to Expedia’s bottom line, adding 3% to global room night growth and about 18% to air ticket growth.

CEO Dara Khosrowshahi told analysts: “We often see our big GDS producers. We’re able to go to them and offer up much stronger merchandising capabilities, packaging capabilities, et cetera.

“So very often, we’re moving them over from the GDS over to our systems. And it’s a big win for the hotels, and obviously, it’s a big win for us.”

The advantage of this strategy is that it dramatically increases commission margins.

And that’s necessary when you’re spending so much money on sales and marketing.

“You can see that in general, our sales and marketing spend overall was up significantly on a year-on-year basis,” Mr Khosrowshahi said.

“In general, all of our brands are aggressively marketing in the variable channels. We’re growing our brand marketing as well.

“All that sales and marketing activity, we think, is net profitable overall.

“And we have also talked about the financial model, where we use the leverage of our fixed costs, et cetera, to be able to deliver profit growth, even as we’re aggressively investing in sales and marketing.

“So that formula continues at least for the first quarter of the year. And hopefully, it’s something that we can deliver for you for the foreseeable future.”

Mr Khosrowshahi said the Travelocity partnership – in which Expedia is powering the Travelcity website – is working well for both partners.

He clarified that “Travelocity is very much an independent entity as it relates to their marketing spend. We have very little visibility into what their marketing strategy is.

“Obviously, we talk to them. But it is a real third-party relationship.

“And so we see the effects of their marketing spend after-the-fact. After they spend it, we’ll see more visitors, we’ll see more transactions or not.”

Therefore Expedia can’t make any future prediction on Travelocity sales.

He also made some comments on Expedia’s relationship with Google.

“I’d say the greatest worry that we have with Google in general is not specific to hotel product finder, but it’s in general, with the amount of space that they give to other third-party such as ourselves, both on paid and unpaid basis relative to the amount of space that they give internally.

“And in markets where they’re dominant, which are many markets, this can be a real issue for any one — any website that really wants to have any kind of share on the Web.

“That said, we have a partnership with them. We build our partnership with them. They are — and as they make changes, we adjust.

“And because of the status of our technology, et cetera, we’re able to adjust back faster.”

Share and Enjoy: