Why the OTAs trump travel agents, tour operators, hotel groups?

Who is sustainable enough to be here in 10 years?

It’s fascinating isn’t it? The world appears to have turned on its head. Those who have most seem to be worth the least.

Here’s the current situation with the big players in the global travel industry:

• IHG is one of the industry’s big players. The company has 350,000 workers, 800,000 rooms in 5,000 hotels and a turnover of around $2billion. The market values it at  $7 billion.
• TUI is the world’s biggest tour operator, it carries around 30 million passengers a year, employs 76,000 people and has a turnover of $22billion. The market values it at $8 billion.
• Tripadvisor started as a reviews site is now mainly an OTA. It has 3,000 employees, a turnover of $2billion. The market values it at $7billion.
• Airbnb is the ‘Sharing Economy’ OTA. It has up to 2,000 employees, its turnover is said to be around $1billion. The market values it at $30billion.
• Priceline is the ‘Big Daddy’ of all OTAs with Booking.com in its team. It has 15,000 employees and $7billion turnover. The market values it at a cool $73billion.

These figures pose one question – why are algorithms worth so much more than tangible assets like experienced people and hotels and airplanes?

Here is the simple answer – the absence of physical assets combined with enormous cash-flows and a working algorithm provide a trump card.

You could call it freedom, but actually it is power without responsibility – a fabulous opportunity that every Wall Street player wants to buy in to.

In the travel industry the key areas where this freedom works are –

• Expensive Rules and regulations like ATOL licences, bonding and local regulations that companies like TUI and IHG have to adhere to. And OTAs don’t.
• The costs of planning and creating programmes and promoting destinations on a long-term basis. That OTAs don’t have.
• The management of thousands of employees. No problem when you manage many fewer people – like the OTAs

Without these restraints to growth, the OTAs can fly. Buying companies, writing media releases, creating cool artworks – having a great time and enjoying themselves.

Provided only that they look after mum and dad-  Facebook and the Alphabet Corporation (AKA Google) require massive infusions of business – $billions and $billions each year to keep them at the top of their listings.

How long will this trump card last? Like everything in the travel industry, it will last as long as customers want it to.

In the striving for the lowest price, though, one issue is overlooked. Who deals with problems? Problems are expensive. Moreover without problems there is no need for a travel industry at all.

Tour operators and hoteliers have their long-term reputations to protect, not just their prices. They know that every problem solved buys a quality customer. And everyone knows that the travel industry is ultimately about developing secure, trusting relationships.

In ten years time, maybe the market will be realistically valued, maybe by then the OTAs will have bought enough physical assets to become trusted and vertically-integrated making them simply shop windows.

In the meantime they may be very powerful but, without a real tangible presence they are very exposed.

Travel agent? See also: Travel Agents – Airbnb gives you a massive disruptive opportunity

Valere Tjolle

@ValereTjolle