Expedia’s CEO Gets a $95 Million Payday — But is the Travel Booking Giant About to Fall?

Think it’s lucrative to get fired as United’s CEO?

Staying on is even better if you’re Expedia’s CEO – in place since 2004 – who got $94.6 million in 2015 including “2.7 million stock options valued at $83.6 million that vest over five-and-a-half years”

40% of the options though require boosting the company’s stock price nearly 50% over the next 4.5 years. That’s actually modest growth, but while conventional wisdom paints the consolidating online booking industry as a success engine it’s actually incredibly vulnerable.

Expedia was started by Microsoft in 1996. It was first the airlines that took on the online travel agency business by forming their own: Orbitz. Microsoft no longer owns Expedia, and the major US airlines no longer own Orbitz… Expedia does.

Hyatt, Hilton, and Marriott offer discounts to loyalty members booking on their own websites. But those discounts are modest, generally less than AAA. And they’re focused on loyalty program members who already book direct if they want to earn points.

The challenge is that most customers aren’t ‘clicking around’ for the best price on a specific hotel, they’re clicking around to learn what their hotel options are in the first place. Someone who knows they want to book Hilton is well-served by a discount on Hilton hotels. But until and unless you know that’s the hotel you want, you go to a comparison site.

    Hilton’s commercials tell you that booking direct is so alluring!

It’s interesting that Expedia has a rewards program, but it’s truly weak sauce and devalued multiple times. (Orbitz launched one a bit richer, but that was before their acquisition by Expedia).

Their business model isn’t frequent travelers, although they certainly have heavy use customers, as much as it is infrequent travelers. Those are the people who need to compare across brands rather than knowing what they want to book. Frequent guests may even use third party sites to compare pricing and discover options but then book direct.

There’s no real barrier to entry in the online travel booking space. The two determinants of success are better helping consumers to find what they’re most looking for quickly and easily and eyeballs. The first is a necessary but not sufficient condition for the second, which also requires marketing. (And while Expedia advertises offline, it devotes a lot to online search — where it’s especially vulnerable to changing algorithms, for instance its Trivago subsidiary was crushed by Google two years ago.)

Expedia is easy to use but seems more interested in monetizing eyeballs than serving them since Expedia now lets hotels bid to have higher placement in search displays.

Expedia’s advantage is that they have a lot of people searching. People go there, they’re likely to book, and that audience is worth something. So Expedia seems to have moved from doing its best to find customers the best deal, to a model where they’re selling customer eyeballs to advertisers (hotels). And their customer service can be really challenging as well.

Expedia Dancers Don’t Provide Customer Service. Flickr: Juggernautco

Hotel chains are consolidating, and they’re paying less in commissions than they were 5 and 8 years ago. Booking sites are trying to figure out ways to extract revenue as their income per booking is declining and as they face new competition from Google and from other potential competitors in mobile.

Online travel agencies, though consolidating, are vulnerable. The answer isn’t providing members-only discounts for booking direct. The answer is to do the best job showing consumers the product that best meets their needs, at the best available price, and give them the best user experience to book it. In other words, the way to beat the “OTAs” is to become a better OTA.

If Expedia’s CEO receives comp worth ‘only’ $60 million I won’t feel badly for him. But the task ahead is harder than it seems, the OTAs have fewer advantages than it seems, they’re really banking on travel providers not doing a better job for customers. Although that’s always a pretty safe bet.

  • There are no real barriers to entry in the space
  • Hotel sites aren’t a threat to Expedia
  • Long-term Google is the biggest known threat to Expedia. They have scale and the data about consumers’ preferences to guide people quickly to make the best choices.
  • But Google certainly isn’t anywhere close today.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. “And their customer service can be really challenging as well.”

    That’s the understatement of the year. The first and only time I booked through Expedia, I experienced extremely long wait times, repeated phone disconnects, consistently inconsistent information and extremely incompetent phone reps (including supervisors). All for basic questions and a change that Finnair (the airline on which I was ticketed) could have handled in one easy call if I’d simply booked directly through the airline.

    Lesson: Stay away from Expedia.

  2. I’m not sure that customers are being ill-served by the consolidation in online travel agencies — like they seem quite willing to give back their exorbitant commissions with discount codes to savvy travelers — but the situation seems bad for the small hotel operators who are getting hit with crazy commissions. A standard hotel commission used to be 10%, but now it’s often 2x that for small hotel operators. It certainly seems like there needs to be more competition in that space, and with the meta search engines being owned by the big guys, I’m not sure how easy it is to launch a new online agency.

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