With booking levels increasing, all eyes are now on the extent to which private rentals have shifted their share of the accommodation marketplace, as a result of the pandemic.
OTA platforms Expedia and Booking reported strong demand for home rentals, while others are pushing hard into the market niche. Marriott is looking for stronger business from its Homes & Villas portfolio. And from France, hotel group Relais & Chateaux has entered the space by launching a new curated collection of luxury home rentals.
“Vrbo is clearly, and vacation rentals in general are clearly, in very positive territory, and that is helping bring up all our numbers, no doubt,” said Expedia CEO Peter Kern, on a quarterly earnings call. “I’ve said publicly that I believe, in general, the trends of the past will continue. But one of the trends of the past was that people were getting more and more into the use case of vacation rentals.”
Kern said Vrbo was seeing plenty of first time bookers, “and in general, I think the data suggests they are going back to it more frequently.” The company is pushing hard to chase more inventory, with a new Fast Start programme that allows renters to exploit a positive review history from other listing sites.
“So we’ve ramped up our investment in marketing and attracting Vrbo hosts. It has been successful, we are driving it as fast as we can.” And he asserted: “Vrbo hosts on balance make more than Airbnb hosts on average. It’s a great opportunity for people to monetize their assets – and we think owners of properties are increasingly becoming aware of that as our brand becomes more ubiquitous and as people become more used to the products.”
Booking Holdings, too, sees growing demand from its non-hotel accommodation listings. But with half of its business in largely locked down Europe, the trends are visible in forward bookings, rather than growing current demand.
“Europe is where we have our highest mix of alternative accommodations, and Europe was the slowest growing region in the first quarter,” said CFO David Goulden. “We continue to see positive summer booking trends – across all of Western Europe, gross bookings for the summer period are now within 30% of where they were at the same time in 2019. And for the UK, they’re now at about the same level as we were at the same time in 2019.” But, he warned, most summer bookings are cancelable, should covid-19 return.
And CEO Glenn Fogel wondered about the long term impact: “Covid created a step-functional change where people who may never have thought about an alternative accommodations. Now having tried that, the question is, will people go back to their former habits of some people going to hotels, some people go home, will it be going to be a more gradual increase and will it be a drop back first and then back up? I don’t think anybody really knows. But I would make the guess that people having tried the alternative accommodations during the pandemic, will forever have it in their consideration set.”
At Expedia, the big news was of a disposal of its Egencia business unit, to American Express Business Travel. The Egencia sale will see Expedia retain a 14% stake in the combined business, with an enterprise value of USD750m. The deal comes with a 10 year supply agreement, generating an expected USD60m ebitda per year. Kern explained: “We felt that putting Egencia together with Amex GBT created a great new combined corporate enterprise that could focus entirely on the corporate customer. And our ownership in that company, we’re very excited to have. Secondly, we signed a long-term lodging supply and tech agreement with the company. So this deal …. just gives us more throughput to continue to innovate, both on the supply and technology side to provide great services to the entire travel ecosystem.”
Marriott, meanwhile has lit the touchpaper under its Homes & Villas portfolio, by offering it across a broader range of channels. A “Channel Connectivity Program” will allow property management companies direct access to its API, promising not only more bookings of existing properties. There is also the potential to add some of their existing stock to Marriott’s platform, enhancing the breadth of offering Marriott can deliver.
Homes & Villas vice president Jennifer Hsieh said the move “enables us to meaningfully scale our inventory to meet demand. This will also provide property management companies with personalized support and service, ensuring their homes are presented to our customers, including members of Marriott Bonvoy, in the best light possible.”
And Relais & Chateaux, previously known as a network of 580 hotels and restaurants, has expanded its brand offering by launching a portfolio of 500 villas. The properties, located across 30 countries, aim to provide a similar high end service enjoyed at Relais & Chateaux hotels, including support from chefs, housekeeping and babysitting services. Group president Philippe Gombert said the new offering “is an essential component of our ability to evolve and thrive as we being to think beyond the pandemic.”
HA Perspective [by Chris Bown]: Another market trend accelerated by the pandemic, it seems, as home rentals become a more mainstream part of the accommodation space. But once the driver for more home rentals – the security of a private front door, away from other travellers – becomes less of an issue with the pandemic fading, hotels will surely come back, and at the least cause the home rental sector’s growth to plateau.
For one thing, as we recently noted, hotels are already moving to price advantage. And, as Expedia’s Kern noted: “Increasingly, as more people are vaccinated, they are willing and happy to stay in resorts and in conventional lodging. And I would say, some portion of them would actually prefer it that way.”
The OTAs have not infrequently pointed out that home rentals get far lower utilisation than hotel rooms. Now, it seems, Marriott has discovered the same, and has opted to open up booking access more broadly, in the hope of improving occupancy numbers.
Additional comment [by Andrew Sangster]: Big tech would like you to believe that the pandemic has changed consumer attitudes and they are now preferring to book vacation rentals over hotels. It won’t be long until the vacation rental sector outgrows hotels.
Not quite. There are at least a couple of things wrong with this narrative. The first is that in many territories, including most of Europe, hotels have been shut. This somewhat hampers bookings.
The other issue is more nuanced: It is that the definition of a vacation rental is more and more overlapping with properties that look like hotels. Repaying the compliment, many of the newest hotel concepts are self-contained accommodation – or more like self-contained accommodation – rather than traditional hotels.
Vacation rentals are undoubtedly enjoying their day(s) in the sun but the key thing to work out is whether consumers are less inclined to use online intermediaries. The data here is more mixed and one that does not suit the OTA narrative.
A cynic might suggest that in a classic KGB tactic, they are shouting about something else to distract attention away from some fundamental challenges to their business models.
And a quick remark about big tech: OTAs are, given their market caps, not really that big tech compared to the real monsters out there. These are Alphabet, Facebook, Amazon and Apple.
To get into this illustrious company, your market cap needs to be a trillion USD or thereabouts. This scale gives this group of companies a God-like status, allowing them to hover above the fray. And Alphabet, through subsidiary Google, does just that in travel. Bernstein, in a note to clients in early May, pointed out that Expedia had pulled back from spend on Google but had simultaneously increased spend on Alphabet-owned YouTube. As Bernstein commented: “The house always wins”.
There are positive and negative reasons for the OTA focus on vacation rentals. The positive is that this is a faster growing market than hotels, at least for OTAs. How much of this growth is vacation rentals suddenly becoming “visible” by being online, and how much is new inventory, remains unclear.
The negative reason for the OTA focus on vacation rentals is that they are having a much tougher time with hotels, mainly because the big hotel brand companies are finally getting it together. And the vacation rental market is highly fragmented with few scale players.
Of scale in Europe there is Awaze, the former Wyndham vacation rental offerings headed by former Expedia executive Henrik Kjellberg, and Pierre et Vacances, the owner of Center Parcs in continental Europe and Adagio (in a JV with Accor).
Also in Europe there is Club Med, Sykes and OYO. [Readers interested in this market should take a look at Hotel Analyst’s latest publication: The European Short-Stay Accommodation Investment Report].
It is by no means a done deal that hotel companies have caught up with OTAs. Hotel companies are still not investing sufficiently in tech and even elementary things – table stakes – are sometimes weak. Not having a sufficiently responsive website or easily bookable rooms is a huge flaw that remains an issue for some of the biggest hotel company brand sites.
But, generally, the hotel brand company tech offer is good enough to take on the OTAs. Throw in the advantage of being able to offer room keys, book-you-own-room and similar services via the loyalty scheme, and hotel brand companies are beginning to look like they have the edge for the first time since the internet came of age.
Just as the lines between vacation rentals and traditional hotels are blurring, so too are the lines between OTAs and hotel brand companies. And this is where the new potential threat could come from: OTAs moving into the hotel branding space.
Bernstein is a contrarian bear on Booking, putting forward a thesis that revenue growth is going to slow from a 16% seven-year CAGR to just 6% long-term. Such a dramatic fall in revenue growth would transform the perception of a company that is currently not paying dividends (and, incidentally, still on a “start-up” rate of corporation tax in its main Dutch base).
Booking is taking on Expedia in the US, both for hotel bookings and for flights, and it is taking on Airbnb globally in vacation rentals. If it doesn’t get cut-through in either, perhaps both, then the Bernstein thesis about slow growth is likely to come true. And the Booking share price will then come back down to earth to reflect its new lower-growth reality.
Hotels remain the most lucrative fishing ground for OTAs. Bernstein, in a note last November, said the potential OTA commission pool for hotels stands at USD92bn. This compares to USD56bn for airlines; USD48bn for experiences; USD47bn for hotel metasearch; USD42bn for restaurants; and just USD27bn for vacation rentals. Cruise and car hire barely made the cut.
If OTAs are to retain their top spots as travel’s biggest players, it is in the hotel space that they need to win. The next few years are going to determine whether hotel brand companies or OTAs are the future kings of travel. And it is hotels, not vacation rentals (or home rentals or private rentals etc), that matter the most.