Exit Amazon, enter Softbank et al

Being a big name in online retail wasn’t enough for Amazon to conquer the highly competitive travel industry, but that’s not stopping other newcomers from entering the fray, writes Sally White

Travel’s revolving door is swinging. Amazon has quietly left and been replaced on the list of significant new OTA players by Japanese technology and investment group Softbank. Plenty of other newcomers are arriving, too, doing enough business to persuade stock market investors to back them.

Australian OTA AOT seems to be going ahead with plans to list on the Australian Stock Exchange, having hired broker Ord Minnett. From Abu Dhabi news is that a $1bn IPO is planned by Halalbooking.com, which operates in the Gulf’s halal tourism sector. The UK OTA On the Beach debuted in September. Hostelworld, the online hostel-booking platform, floated on the London and Irish Stock Exchanges last week, pricing its shares at 185p, but closing the day at 198p.

Amazon’s retreat was a bit of a surprise. It was only early this year that it started Amazon Destinations. That seems hardly enough time to discover much new. There are few industry secrets, after all.  And these don’t include just how tough this market is!

The trade certainly thought that there was plenty of hotel-booking business for Amazon to grab. It has the financial clout to tackle Expedia and Priceline, the two industry giants. The hotel groups are desperate for some competition to the Big-2. Plus, customers trust Amazon and it has a well-established reputation for good customer service.

No rush to do business

So, what happened? Amazon is a company of few words. In a rare comment made only to tech publisher TechCrunch, it had just this to say: “We have learned a lot and have decided to discontinue Amazon Destinations.” It has also, the brokers note, stopped doing flash-sales on hotels rooms via its local discount service Amazon Local.

So, the market is deducing that there was not the rush to do business with it that Amazon anticipated. In theory at least, Amazon’s advantages of scale and cross-selling made it a good competitor in the OTA space. Amazon was expected to thrive and become a tough competitor. Its ad costs would have been lower than those of regular OTAs and it also had the advantage of cross-selling across the different platforms.

It could be, however, that this was all a stretch too far from its historic business model when the going turned out to be tough. OTA margins are constantly shrinking.

Just how badly margins are being knocked by aggressive competition is confirmed by news that Priceline and TripAdvisor are getting together to form a strategic alliance

Just how badly margins are being knocked by aggressive competition is confirmed by news that Priceline and TripAdvisor are getting together to form a strategic alliance. Priceline’s online travel brands are participating in TripAdvisor’s instant-booking platform. Booking.com will be the first Priceline name to link into this partnership, but priceline.com and Agoda.com are expected to follow.

This looks like a winner all round – for travellers as well as Priceline and TripAdvisor. For the latter it is certainly a tremendous boost. (It sent the share price up 25%) Booking.com has over three-quarters of a million hotels and other accommodation in 220 countries and has around grown by 35 per cent over the last year.

For Priceline there is the risk that travellers will go straight to TripAdvisor and stay away from its travel platforms. (That’s why, until now, it has allied directly with hotels.) However, it is obviously hoping that the alliance will boost its sales.

The market is waiting to see how Expedia will tackle this increase in competition. However, it gets around just 9% from TripAdvisor, so the impact won’t be a killer. Brokers remain bullish on the stock and the company’s prospects of  increased European and US room bookings and accelerating new hotel additions.

Less unexpected moves

The Softbank move is less unexpected. It is targeting Chinese visitors to Japan with a new travel agency. This will list on Alitrip, the travel platform at e-commerce giant Alibaba (which is 32% owned by Softbank).

Japan is one of the most popular international destinations for Chinese outbound travellers and the upward trend in numbers is forecast to continue. Official figures show that 3.8 million Chinese visited Japan in the 12 months to September this year, up from 2.4 million in the same time in 2014. Behind this is the sharp decline in the yen that started in late 2012.

Softbank says that it is looking to attract visitors to areas of Japan other than the so-called “golden route” which takes in the major cities of Tokyo, Kyoto and Osaka. It is aiming at independent travellers rather than the traditional groups. Targeted sales are 20 billion yen ($165 million) by 2020, when Tokyo hosts the Olympic and Paralympic Games.

Apart from a starting date of  November 11, there are scant more details. Brokers say it is not clear where the hotels lists will be sourced. Softbank has just said that it has “sought expertise from Japan’s largest travel agency, JTB Corp” for the project. It is also not clear whether the agency will have an independent presence or if it will exist only as part of the Alitrip marketplace.

Yet no corner of the OTA market is free of competition. Softbank is not alone in spotting this opportunity. Among the other Japanese companies who have spotted the rise in Chinese travellers, market gossip says, is Rakuten Travel, the online tourism arm of Japanese e-commerce and Internet giant Rakuten. This is one of Japan’s largest OTA’s.

Rakuten has just bought Singapore-based tours and activities start-up Voyagin with the aim, say brokers, of  building up its Chinese business. Voyagin launched in 2012 as a platform to let locals and other non-professional tour guides offer tours. Since then, it has increasingly begun to offer standard tour services. Today it claims an inventory of about 1,800 tours. Currently it is Japanese traveller focused, providing a service in over eight countries and regions in Asia-Pacific, excluding China. However, word is that this is about to change. 

Deep pockets will be needed. When even one of the most ruthless global companies backs off, this is a sure signal of how tough the OTA market is.

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