Social Media and Marketing

Online travel agencies (OTAs) continue to combat challenges. In such a taxing environment, OTAs, especially the top ones, have taken decisive initiatives over the past few months.

Published: 12 Aug 2009

Online travel agencies (OTAs) continue to combat challenges. In such a taxing environment, OTAs, especially the top ones, have taken decisive initiatives over the past few months.

And, to an extent, they have also proved their worth to the industry at a stage when weak demand, particularly for business travel and groups, and lower yields have led to declines in important revenue metrics.

Late last year, OTAs decided to drastically cut their operating costs. Even then, they asserted that they are somewhat counter-cyclical and can be a force in stimulating travel demand.

After almost three quarters, a company like priceline emphatically says online travel companies are helping to mitigate weak demand by pouring resources into marketing, promotions, and offering value pricing to the leisure traveller.

“And there is evidence that the downward trend in unit pricing may be starting to stabilise, at least in the near term,” Jeffery H. Boyd, president and CEO of priceline, said as the company shared its second quarter results.

Benefiting from OTAs marketing spend

During priceline’s second quarter earnings call (posted on Seeking Alpha), Boyd said, the online travel distribution channel has played a valuable role in promoting consumer demand in a vacation season that looked at the outset to pose considerable challenge to the supplier community.

“Our industry spent well over $150 million in the second quarter advertising and marketing the great travel deals available and the result was better-than-expected leisure demand,” he said.

Efficiency

Companies have been re-examining every aspect of their business.

As OTAs scour for opportunities to enhance operating efficiency, they have significantly restructured their approach to online marketing.

For instance, Orbitz has rationalised its approach to e-marketing, ensuring that various distribution partnerships achieved a spend ratio targets. Even if this means sacrificing some top line growth. The online travel company has stepped up its focus on generating cost effective traffic by search engine optimisation and CRM.

“Marketing processes and initiatives on the Internet are undergoing rapid change,” says David Clarke, managing director of Australian company Webjet Limited.

As part of a deliberate strategic policy, Webjet’s reliance on paid search and affiliate marketing is being progressively reduced.

“As our brand footprint expands and product content widens with consequential upgrading of natural search results we have been able from 1 July to eliminate affiliate marketing which we consider, given the maturity of our brand position, to be margin dilutionary and unnecessary,” Clarke said.

Earlier this month, Clarke’s company said it has defied the “comprehensively media-reported downturn in the travel industry” to deliver a 15 percent increase in net profit after tax. The year ended 30 June 2009 has produced a profit before tax of $10.8 million (2008: $9.5 million) and net profit after tax of $7.7 million (2008 $9.4 million).

Among others, Ctrip’s sales and marketing expenses for the second quarter of 2009 increased by 21 percent to $12 million, from the same period in 2008 and by 17 percent from the previous quarter, primarily due to the increase in sales and marketing activities and personnel.

Expedia reduced its marketing spend per transaction by 23 percent in the second quarter.

Expedia says it has seen a pullback in search marketing spend by some of its competitors, which is giving it a leg-up on search results placement. According to the company, course conversion benefits when your products are priced more favourably, as Expedia has witnessed after fee actions and with lower ADRs and average ticket prices.

For OTAs, comparing online advertising expense and gross profit, the unit gross profit per hotel room night sold might have come down because of ADR. Other way to look at would be while spend is down across many of their points of sale, traffic is up and conversion is generally holding steady. Overall, the cost of online advertising is lower and each click in online marketing costs less than it did last year.

Focus

There can be several considerations at this stage when it comes to planning and executing a marketing campaign. It can be related to coping with potentially weaker demand and boosting the consumer spend or even competitive considerations considering that some players have cut on price.

For priceline, which is expanding its operations, Boyd says, “We do not find ourselves spending up dramatically because we think the competition is spending. We are opening up a lot of new markets and that takes investment on the marketing front too.”

“We are just going to continue to aggressively invest in building up the brands and we think that there’s really an opportunity for us while many of our competition are reigning in their marketing spend in order to deal with the loss of operating margin resulting from having to forego processing fees. That’s not an issue for us,” he said.

priceline is planning to open offices in places like Sao Paolo, Capetown, South Africa and also in the Middle East.

The company expects Q3 revenue to grow year-over-year by approximately 19 - 23 percent and gross profit dollars to grow by approximately 23 – 27 percent. As for Q3 operating expenses, the company is targeting consolidated advertising expenses of approximately $122 million to $125 million, with approximately 94 percent of that amount being spent on online advertising. It expects sales and marketing expense to be between $24.5 million and $25.5 million.

Opportunity

Barney Harford, president and CEO of Orbitz Worldwide, says the global hotel market is huge. Yet the online hotel distribution landscape is still very immature. It is still very complicated for consumers to compare all the different options.

“It is remarkable that it’s 2009 the online travel industry is been around for over 10 years. Yet now consumers still have to click, click through and select their hotel before knowing how it’s going to cost.”

Whilst the online hotel market in 2009 is expected to be impacted by economic pressures it will still increase in value. But it is expected to record the lowest actual growth rate in the review period – an annual growth of 3.7 percent, according to EyeforTravel Research’s North America Online Travel Report 2009.

EyeforTravel Research’s North America Online Travel Report 2009

For more info, contact:

Amy Scarth
+44(0)207 3757545
or info@eyefortravelresearch.com