Tripadvisor is the latest online player to announce a swathe of staff cuts and efficiency moves, in a bid to reduce its losses in a stalled market.
Meanwhile rivals shuffle their offerings as they seek to both reduce running costs in the short term, and position themselves for a profitable return to business in the coming months, in a travel market likely to be more concerned with keeping safe, than saving the last penny.
At Tripadvisor, CEO Steve Kaufer announced 900 redundancies, effectively dropping the staff role at the company by 25%. Two thirds of those reductions will be in the US and Canada. The move came as part of a third phase of actions at the group, to counter the effects of coronavirus on the business. The company had previously cut expenditures, reduced executive salaries and furloughed staff.
Alongside the cull of headcount, Kaufer announced a four day week, and commensurate salary reduction, for those remaining in post. Two offices, in San Francisco and downtown Boston will be permanently closed down, with the aim of further reducing company offices globally.
Operational streamlining will see the flights, cars and cruises teams combined, while the B2B restaurants and accommodation teams will also become a single unit. While Cruise Critic will continue, Smarter Travel will be dissolved. And advertising sales organisations will be merged.
Looking ahead, Kaufer says the company will aim to make more of its SaaS (software as a service) offerings, such as reputation management and menu distribution. He also committed to grow restaurant offering TheFork, and its experiences OTA, Viator, saying: “There remains a significant global market opportunity for both TheFork and Viator in the days ahead as pent up demand for dining out and enjoying amazing experiences is finally released.”
The company has agreed revised banking commitments, giving it two years of headroom, but at the company’s recent quarterly results presentation, CFO Ernst Teunissen was not sugaring the situation: “We are expecting a significant ebitda loss in Q2, and we believe this is likely to persist at least through Q3.”
Kaufer told analysts: “Our biggest challenge has been enabling people to plan the entire trip around it, so that we get not just a bite at when they’re looking for a hotel or a restaurant or attraction, but since every considered trip involves at the minimum of three components, how do we help the traveler and therefore monetize all those different components.” He added there would be “some new offering that’s going after newer revenue streams namely direct-to-consumer as potentially kind of opportunities ahead that we’ve never tapped into before.”
Airbnb has slashed a quarter of its workforce, letting more than 1,800 people go. In a memo, CEO Brian Chesky said: “Airbnb’s business has been hit hard, with revenue this year forecasted to be less than half of what we earned in 2019.” The company has already arranged an injection of cash and equity, plus an additional loan, giving it USD4bn of cash on hand.
Having allowed guests to cancel bookings during the coronavirus lockdown, Airbnb then suffered a backlash from out of pocket hosts. It has provided financial support to offset their losses, which will cost the company USD250m this year.
At Booking.com, two further clashes with the law suggested the company will have to modify its approach in coming months. In Hungary, regulators issued the company with a HUF2.5bn fine, having determined that its market behaviour was against the interests of consumers.
At issue were accusations of misleading advertisements, and unfair psychological tricks on the group’s websites. In its ruling, the country’s watchdog, the GVH, declared: “Booking.com B.V. has led unfair business practices by misleading advertisements claiming free cancellation for some accommodation as well as by exerting aggressive psychological pressure to facilitate faster bookings.”
It found that rooms offered with free cancellation did, in fact, have an additional fee built into the advertised price.
In response, the “disappointed” company noted: “Everything on our website, including how we display prices and payment policies as well as the availability and popularity of specific properties, among other features relevant to the customer booking experience, is intended to help customers.”
And in the USA, the company’s argument that it should be able to trademark “booking.com” was heard in one of the US Supreme Court’s first hearings to be conducted online – as a result of the coronavirus lockdown. The US Patent and Trademark Office already ruled that the company could not claim distinction or ownership of what it considered to be a generic term, rather than a piece of intellectual property; a decision that Booking.com appealed. A final decision from the highest court is expected in June.
In the UK, Oyo has made plans to lay off more than half of its 300 staff, with country head Rishabh Gupta acknowledging in a note: “We have come to a point, given the market conditions, where we need to acknowledge that the market will not rebound soon enough to allow us to meet the levels set by our business plan.”
HA Perspective [by Chris Bown]: With their commission-driven lifeblood lost to shutdowns, the third-party platforms are all bleeding cash, and being challenged with survival, as well as planning what they will meaningfully be on the other side.
As consumers look more and more for brands they can trust – notably around health and safety – where does that leave them?
And at Tripadvisor, the cull comes to a business already struggling to find its meaning in the mind of more consumers. Tripadvisor is still trying to find a way to get through as the all-in-one booking platform… but it’s already up against Airbnb trying to grab experiences. And those airlines that do survive, will be all-to-keen to upsell accommodation via holiday packages, once they are allowed back into the skies. With brokers marking Tripadvisor shares down again, it’s hard to imagine the secret sauce has yet been discovered.
Additional comment [by Andrew Sangster]: OTAs came to be the power they are today during downturns. After 9-11, the hotel sector had a flood of inventory it could not sell and it was grateful to be able to unload it for at least some money.
Back then it was Expedia, recently span-out of Microsoft, that led the way, making huge commissions 30%, 40% and sometimes more, on the merchant model, taking rooms on a sale or return basis in bulk form hotels. The huge profits made during this period enabled the online players to grow market share.
Booking.com came along a few years later and took Europe by storm via the agency model, charging a commission on a sale, thus giving hotels the opportunity to control their own pricing. But commissions were still 20% plus, justified because the online platforms could reach a huge swathe of customers that individual hotels and even big chains could not. And once the economy nosedived once more in 2008, the hotel industry was again on the back foot with regard to the tech-focused players.
Will this scene be repeated? Maybe. But maybe not. This downturn has been created by a supply crisis. There are no hotel rooms to sell. Both OTAs and hotels are feeling the same level of pain.
There have been dramatic drops in market capitalisation. Marriott has halved in value during the crisis, now standing at USD25bn. Booking has almost halved too, standing at USD55bn. Note that this is still more than twice the size of Marriott.
Despite enjoying huge success building their distribution business, OTAs have not been so successful building brands. The most successful OTA, Booking.com, still attracts around half of its customers via third-party sites, overwhelmingly Google. Expedia is even worse at getting punters directly to its sites although its brands are generally perceived to have more traction with consumers.
As hotels begin to open for business, the focus is going to be on domestic customers, a target market hotels do not need as much help reaching. The benefit of OTAs looks more marginal, with a clear fear for hoteliers that rather than incremental business, OTAs are bringing business they would have got anyway but now have to pay a commission on.
In addition to this focus on domestic business, in the current environment there is a much stronger emphasis on what the standard of the hotel room is like. Done correctly, hotels can reassure customers via their own websites and marketing channels rather than rely on distribution platforms. There is the opportunity for a reset and hotels need to seize it.
But seize what? The obvious move is to push ever harder at book direct, but the past failures at this demonstrate that a more balanced approach might be more sensible.
For the OTAs, to be relevant to both customers and suppliers, they have to become a better service provider. It can no longer be just about merchandising and providing a slighter quicker and more efficient buying experience.
With OTAs in a much weaker position than they have been for two decades, hotels are in a great position to reformulate the relationship so that business brought in is incremental rather than substitutional.