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Would you believe it that I've never booked a hotel via an online travel agency site? Nor an airline ticket for that matter. If I book online, I always go directly to the source. So it was fascinating to talk to Johan Svanstrom, the VP and MD of Hotels.com in Asia Pacific, about this very competitive market segment that I've yet to test out.
Hotels.com has seen some amazing growth in the last 18-24 months. A division of Expedia, the company has placed a lot more focus on Asia, opening new sites, driving different market activities and the results have been impressive.
Although hotels.com has been around in Asia for quite some time – it's had a majority ownership in Elong in China since 2004 – the big gear shift happened only recently. During the financial crisis of 2008/2009, there had obviously been a bit of a consumer confidence dip but hotels.com saw great unit growth happening during that time. Even though price per transaction was down, it made inroads into the market by providing phenomenal discounts.
Why is Asia suddenly a priority? There has never been a shortage of opportunities in the two very large online travel markets, namely North America and Europe. Online travel penetration in the US is 50-60%, while in Europe it's about 30%.
However, it's the prospects of the Asia-Pacific market that are so thoroughly exciting for the company, said Johan. With the burgeoning economic growth in the region, the middle class rapidly expanding, discretionary income is on the rise which translates into people traveling more.
We talked at length about underlying factors in the market that hold promise for growth. For example, once consumers get online, once they have enough money to have a credit card, consumers feel empowered. With online bookings, they have access to information, there is full transparency, consumers can browse through reviews and chat to peers about their experiences and are in total control of their travel planning experience (or so they think).
The only question is how quickly the adoption will take place in different markets, which is enabled by underlying factors such as broadband penetration, credit card penetration, industry infrastructure, e-commerce, and the like.
Moreover, from the perspective of competitors and suppliers, there's a huge interest in Asia with multiple major investments taking place in the region. IATA recently reported that in 2009, 647 million flights were taken in Asia during that year. Why is this number so symbolic? Because it's the first time that any region in the world has overtaken the North American market in terms of number of flights.
The growth in the online travel industry in Asia has also in large part been driven by the advent of low cost carriers across the region. How you may ask? Reservations for LCC are primarily being done online, which is of tremendous help to the hotel online booking sites, for it's raising people's comfort level with online bookings.
Another trend that I'm way behind on, which I'm told is part of the generational shift occurring, is mobile bookings (done directly from your mobile phone). In countries such as Indonesia, where broadband infrastructure is sill not very advanced, the market is side-stepping the PC phase altogether, which the Western world has had for the past 15 years, and is going directly to internet access from a mobile device.
Even though the tendency today is to use your mobile connection for social media and content search, this behavior is rapidly changing in Asia, where consumers are becoming more and more comfortable in making mobile bookings. This is forcing online travel booking sites to adapt to the new market need.
Booking times are also becoming shorter. Another major shift in the industry is that with better technology and with mobile apps, we are starting to see a shift in terms of the booking window. People are making hotel bookings closer to the actual trip. Maybe even when they land. In China 40% of everyone who books a hotel books it on the very same day.
Given the rapidly changing market and the fierce competition, how does hotels.com stay ahead of the pack? Johan was quick to point out that one of the major success factors in this industry is scale. And that is something that hotels.com, being part of Expedia, has plenty of. Hotels.com has 70 different websites around the world, with 13 different websites in Asia, in eight different languages.
Localization of services is also something hotels.com takes very seriously. Providing a hotel at a good price is a fairly standard task, yet how do you search for that hotel, how do you compare products, how do you pay for the services, what kind of services do you expect online before, during and after the purchase – these are the questions that vary from market to market and are important for obtaining credibility from the customer.
Thus localization is extremely important. The motto of hotels.com is 'to become more local than the locals'. Granted, it's difficult to become more local than local sites from a linguistic and design perspective, yet it's what drives his team of 160 in Asia forward. Scale and localization.
There is also a renewed focus on corporate travelers. Although Expedia has a separate corporate travel division called Egencia, which operates in well over 20 countries in the world, including Asia, a lot of the smaller companies that are typically more price conscious are booking their hotels online, as well as flying with LCC. It's a growing segment and a big opportunity for hotels.com
There's an interesting challenge on the horizon. There is a lot of confidence coming back into the market. Corporate travelers are coming back, price points on ADR's and occupancy rates in big cities such as Singapore, Hong Kong and Sydney are back up. The problem is that there's been such a quick shift in the market, that until recently consumers were very used to seeing great discounts at all times. This is not going to return anytime soon. Thus expectations have to be carefully managed in the market, where a booming economy is inevitably going to push prices up.
Given all these market trends, is it possible to maintain 100% revenue growth at hotels.com, as has happened in the last year? Is it sustainable? Johan says definitely. Given the low online travel penetration in many Asian markets, with continuous investment and focus, revenue growth potential is still tremendous.
In the meantime, I better start catching up with the generational shift that is occurring, and start changing my online travel booking behavior, including mobile.
