Booking Holdings Business Model Was Slowing Things Down Pre-Covid

Online Travel This Week

Booking Holdings has an answer to critics, who over the last few years mused that its best days were behind it, and that online travel agencies generally would be hard-pressed to rekindle the growth of yesteryear.

It was the business model, stupid.

David Goulden, the Booking Holdings chief financial officer, said at an investor conference last month that the company’s business model was a major reason for its slowing growth leading up to the Covid-19 pandemic in early 2020.

After all, room night growth had progressively cooled from 28 percent year over year in 2016 to 11 percent in 2019. Gross bookings notched just 4 percent growth that year, and revenue’s uptick was a tad slower than that at 3.7 percent.

Goulden pointed to flagship brand Booking.com’s pay at the hotel, or agency, business model as one of the culprits behind the sluggish pre-Covid growth. Today, Booking.com has transitioned to doing much more business on a merchant model basis where guests pre-pay for accommodations, and it has expanded into flights.

“Booking.com, our biggest brand, we were almost entirely an accommodations focused business and entirely dependent upon the agency model where we did not touch customer money, right?,” Goulden said. “We basically made a booking, passed it on to the property partner and the booker, and the property partner managed the payment flow. Very scalable model, been very successful for us, but wasn’t quite as differentiated by the time we got to 2019 as it was in 2014. So that really explains the majority as to why things were slowing down.”

Fast forward to late 2022, and Booking.com processes 40 percent of its gross bookings through its home-grown payments platform. In other words, lots of guests pre-pay for their hotel and short-term rental stays, and Booking.com — and not the hotelier — handles the dinero.

“We relied entirely upon what we got from our property partners to give us great rate because it’s still primarily what we do, but we couldn’t participate in those more targeted pricing promotional activities, and now we can,” Goulden said.

Today, whether through its Genius loyalty program, which might tell members they unlocked a reward of $110 on their next accommodation booking or can “Get 10% back in Travel Credits,” Booking is actively engaged in merchandising, or peppering customers with various discount or cash back offers.

“So we have said and continue to say that coming out of the Covid, we expect to grow faster than we did going into Covid, faster on the top line, faster on the bottom line and, of course, the two have a level of connectivity,” he said.

In addition to the business model tweak and an enhanced ability to merchandise, Booking has built a flights business, which is operating in more than 40 countries and is attracting new customers as part of the company’s “connected trip strategy.” Regulatory approval of Booking’s proposed acquisition of Sweden’s eTraveli Group, announced in late 2021, which would further enhance its push into flights, is still pending.

Also in the plus column, Booking.com bulked up on short-term rental inventory — which the company still archaically refers to as “alternative accommodations” — to give customers more choice and to solve new use cases in the current era of travel for leisure, business and just living.

Booking’s overall strategy seems to be working. In contrast to sluggish gross booking, revenue and room night growth heading into 2020, in the third quarter of 2022, for example, Booking’s gross bookings (36 percent), revenue (29 percent) and room night growth (31 percent) leapfrogged year over year. Net income per diluted share soared 126 percent.

“All the things that we’ve done give us many more levers to grow the business,” Goulden said. “And that’s why we believe that with the additional capabilities, the additional tools in the toolkit we didn’t have before in 2019 that we have increasingly will build upon more in the future. They give us many more levers to grow the business.”

The European Union reported this week that short-term rental bookings in Europe on Airbnb, Booking, Expedia Group and Tripadvisor increased 24 percent to 251 million room nights in the third quarter of 2022, compared with a year earlier, and this amounted to a 9 percent recovery from pre-pandemic 2019.

Not that Booking Holdings is without major challenges, including its ability to build its brand and attract more direct traffic, whether its investments in the “connected trip” will pay off long-term (its success to date in flights and payments not withstanding), and concerns about a recession in 2023.

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