Amazon’s online travel march continues and enviable lessons in how to do it from Japan

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The message boards have been having all sorts of fun! Is or isn’t Amazon making a challenge to the online travel booking market and what is Japanese counterpart Rakuten up to? Sally White investigates

Perhaps not a crucial world issue, but important enough to the shareholders of established players. Should the likes of Booking.com and Expedia be sweating?

Amazon could be a pretty formidable competitor. It has around 237 million customers and one of the largest global networks. Its margins are wafer thin and it has a strategy of low-balling competition. As stock market analysts Amigobulls pointed out, Amazon’s profits have been declining and its Q3 2015 margin was -2.3% while Priceline’s was 46.6%. Amazon is expansion not bottom-line focused.

As an indication of what a different investment animal Amazon is, its share price to historic earnings ratio (PER) is nearly 500 – a whopping growth story premium. (Average sales growth rate since 2004 is 30% per annum, although the income number is only 6%). By contrast Expedia’s PER is 34 and Priceline’s is 27.

According to stories going around the message boards, Amazon could just start by copying online travel agents like Expedia and Hotels.com by roping in independent hotels. By taking a 15% margin (or less) would be acceptable to Amazon and beneficial to the hotels. Expedia normally takes at least 25%.

Amazon’s gain would be data. Plus, hotel deals to add to the specials for its 20m members on Amazon Prime, undercutting prices offered by online travel agency sites.

This would, commentators argue, avoid the current system that bars hotels from giving specific online travel agencies special rates. Hotels are under the gun, pressured by the cost for Google, Facebook, etc, and the travel agents. So for them a tough competitor would be welcome.

Next step for Amazon, according to Max Rayner of consultants Hudson Rayner, could be one on from direct hotel relationships – the deeply discounted area of wholesaler and bed bank rates.

There was resounding silence from Amazon when the stories first started. OK, there were no denials, but there wasn’t any statement (on or off the record) either. What information there was came, apparently, from the large number of US hotels, like the luxury brand Viceroy, that was approached by Amazon. (And from its tell-tale sales manager job-ads.)

Then people started to notice that on local.Amazon in the US and UK hotel deals were being offered - a few per destination. “If you're looking for the best deals on weekend getaways, Amazon Local has great ways to save on your next vacation. From bed-and-breakfast escapes in New England and Virginia to boutique hotels in Los Angeles and Phoenix, we've got you covered with a huge selection of hotel deals,” says the US site. Discounts over 50% are common. UK ‘short breaks’ discounts are up to 69%.

Subsequently, Amazon has been tempted out. Using the classic story-killing ploy it says there is nothing new. It is not planning a competitor travel site, just ‘continuing to build’ on its existing (tiny) travel business offering hotels. But this is not its first go at the lucrative travel booking market. Back in 2001 it linked up with Expedia, but that did not work out. Then it tried again in 2006 with SideStep.

There is a great success story out there, however, of an ecommerce group moving into travel booking. Rakuten beats Amazon (and others) hands down in its native Japanese ecommerce market. Underway is a growing investment and M&A programme to turn it into a global player in travel as well as ecommerce.  Just out are analyst-forecast-beating Q3 2014 profits, up 21%. The shares have risen 38% over the last three months, leaving the historic PER at 43.

Rakuten Travel operates an on-line hotel reservation service in Japan and internationally, but has joint ventures with All Nippon Airways and AirAsia and is looking at India. The group sold out its stake in Ctrip and now has a JV in China with Baidu.

Jeff Bezos must be green!! But, punters should take note!

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