European Online Travel Agencies
With solid growth of 8.2% in a year when the total market declined by 11%, European Online Travel Agencies are clearly the fastest-growing distribution channel in Europe. This strong growth, coupled with imminent market maturity in the U.S., has generated an intense focus on Europe among OTAs and investors. The large and fragmented lodging sector in particular offers tremendous opportunity that is still largely untapped. By nature of the large portion of independent hotels in Europe, the need for aggregation is stronger than in the U.S. OTAs would assuredly command a larger share of the total market in Europe than they do in the U.S. eventually. However, they are not the only aggregators in town.
Tour operators are powerful incumbent intermediaries in Europe, and they are not about to surrender the online world to OTAs. And while tour operators booked substantially less online (€8.9 billion) in 2009 compared to OTAs (€23.6 billion), total tour operator gross bookings represented €49 billion in 2009. Tour operators are therefore more than twice the size of OTAs. But the ratio of tour operators to OTAs is declining every year. In 2006, tour operators were 3.6 times the size of European online travel agencies; by 2012, the multiple will drop to 1.6.
Looking at European Online Travel Agencies Compare from a Global Perspective
In the U.S., the ratio is entirely different: OTAs will be roughly 3.5 times the size of tour operators in 2010. Will the European landscape ever get to that extreme? It may eventually, but not within the next five years. Even still, the OTA focus on Europe is well-aimed. Over the next few years, OTAs and tour operators will sell about 20% of total U.S. travel bookings; in Europe, that portion will be 30%. Ultimately, the opportunity for intermediaries is larger in Europe, both in terms of actual size and in the percentage of total bookings.
While comparison between OTAs and tour operators is valuable when considering the very broad strategic landscape, on the day-to-day, OTAs and tour operators do not compete so directly. Today, OTAs are generally the go-to source for individual travel components and familiar destinations, whereas tour operators specialize in more complex and long-haul trips. Recessionary trends plainly favor the former versus the latter, and OTAs are expected to continue receiving a countercyclical boost through 2010 and into 2011. Moreover, hotels – not packages – are where OTA growth is concentrated.
The main beneficiary, and perhaps driver, of OTA hotel growth is Priceline’s Booking.com. In 2008, Booking.com represented 27% of the share among pan-European OTAs. In 2009, it pulled ahead of Expedia to take the top spot, capturing an additional six points of share from the others to reach 33%. Booking.com’s share winnings were a result of extraordinary 37% growth over 2008, and it does not appear to be losing steam. In the first half of 2010, priceline’s non-U.S. bookings (the vast majority of which is Booking.com) skyrocketed another 69%. Booking.com’s combination of a very broad range of properties, a simplistic website interface, and aggressive online marketing is proving to be unbeatable for other European online travel agencies, at least for now.