Expedia CEO says hotels need to debundle, act more like airlines

Expedia CEO Dara Khosrowshahi, at right, discussed the evolution of OTAs during IHIF.

BERLIN, Germany — Dara Khosrowshahi, the CEO of Expedia, Inc., walking into the International Hotel Investment Forum is a lot like Daniel in the lions' den—and just like Daniel, he escapes alive, and often on top. 

That's pretty much been accurate of the online travel agency community. Expedia, Inc., with a market cap close to $19 billion and whose brands include Expedia, Hotwire and Trivago, spends some $3-billion-plus each year on marketing alone, far besting what hotel companies spend. And with a business model that includes no property assets or hotel operational concerns, it has the freedom to concentrate the majority of its spend cajoling consumers to book via their distribution portals.

Khosrowshahi is not apologetic, but understands that without hotel supply, OTAs like his would not be operating. 

"We wouldn’t be in business without our hotel partners," he said during an interview at IHIF on the evolution of OTAs. "We don’t have the people in the field doing the hard work."

Yet still, wherever he goes, he is assailed by hoteliers angered by what they perceive to be exorbitant commissions. It's a charge Khosrowshahi bats away. "We have brought the cost down over the years. As our business grows and scales, we can scale our fixed costs. We need to pass those onto hotels and we’ve taken them down over last 10 years," he said.

To him, the biggest problem facing the hotel industry is its pricing structure. "The hotel industry hasn't adapted to the new Internet model," he told the audience.

Khosrowshahi commented that hotels need to "de-bundle," like the airlines are doing by offering such levels as basic economy fares, "that are cheaper and with fewer amenities," he said.

"The hotel industry hasn’t made that transition," he continued. "Its pricing structure is still bundled and franchise pricing in the long run needs to be debundled."

On addressing Google, Khosrowshahi made the ironic comment that he tries to convert customers to book direct with them—the same ploy hoteliers have been making to ween customers off OTAs so they book directly with them at brand.com.

"Google is a marketing platform, but they are an expensive distribution channel," Khosrowshahi said, comparing Google to your friend's large yacht that he charges you to use.

"They are not into services. They are a giant customer acquisition platform for us."

On the theme of consolidation, Khosrowshahi said its about economies of scale in the face of mounting technology costs, as the technology bar gets higher and more expensive.

"We are not a website, but a platform company," he said. "We used to be just website, but now its about mobile, 'Alexa,' etc. In order to defray costs, we try and bring in more volume.

In 2015, Expedia acquired home-sharing platform HomeAway for $3.9 billion and in 2012 acquired a majority stake in Trivago. Those two acquisitions, Khosrowshahi said, "were about expansion of supply and audience and into alternative lodging, which will be a powerful factor over the next five to 10 years. It will be professionalized.

"With 350,000 global hotels now, our business has become more international and more fragmented. HomeAway is a threat and opportunity. When you add supply, pricing will be pressured. But as you introduce a new generation of travelers, you bring pricing down. So the travel growth rate accelerates."

Khosrowshahi concluded his discussion by remarking that society used to be about accumulating stuff, but is now about amassing experiences. "The opportunity for brands is significant and brands do belong in alternative lodging. They are important as customers know they’ll get a certain standard," he said.

He couldn't get off stage without fielding a question about President Trump and his now revised executive order on travel. The Iran-born Khosrowshahi was measured with his words. "The fact is the ban is not based on facts—that's the issue that worries me the most," he said. "The travel business is a force for good and economic benefit to the U.S. To the extend [Trump] wants the U.S. to be a beacon, I'm hoping he is measured more in his activity. This [order] is more measured, but we need to collectively speak up."

Follow IHIF 2017 on Twitter @IHIF_News and use #IHIF2017 to stay up to date with the latest news from the leading annual meeting place for the industry. Also find us on Facebook and join our LinkedIn group for industry insight and discussion.