Where do OTAs Stand in the Covid-19 Era?

March 30, 2020

Covid-19 (coronavirus disease/2019-nCoV) has impacted the airline and the overall travel industry in unprecedented ways. According to OAG, the number of scheduled flights is down 12% year-over-year compared to the third week of March in 2019. Given the force majeure nature of the situation, airlines have decreased capacities, withdrawn from routes, issued free cancellations and refunds to travelers, enacted flexible amendment policies to accommodate itinerary changes. However, these initiatives have also had negative impact on airlines’ operations and the balance sheets.

 

When one considers the distribution chain, online travel agencies (OTAs) are a prominent source of flight bookings. Over the last two decades, OTAs have evolved from a niche to a mainstream billion-dollar distribution channel. From Expedia to Booking.com to eDreams ODIGEO to Despegar to Ctrip to Webjet – OTAs are now a household brand, and often the first access point while flight shopping, subject to digital evolution across markets.

 

As airlines face a formidable test, OTAs had to brace for impact – being the merchant of sale in many cases. Unlike previous crisis, which curtailed domestic or regional travel, the Covid-19 outbreak has pulverized travel worldwide. Historically, OTAs would offer alternate destinations or flight options to its travelers in times of crisis – hoping to still put a sale on its books. This time around, it is different. With several travel advisories, quarantine measures, and lockdowns in effect, people are least likely to spend their disposable incomes on travel just as yet.

 

Hopefully this impact will be for a shorter term, and travel will eventually get back on track – perhaps even emerge as the fastest-growing industry – OTAs are no doubt heading for uncertain times ahead.

 

In this whitepaper, OAG explores what OTAs are doing to surf through these rough tides not only to service air travelers, but also to stay agile and nimble through the potentially weakest period of travel in decades. This analysis is based on interviews, press releases and media statements made by OTAs over the last few weeks.


Financial Impact

 

With air bookings being a sizable share of OTA business, there is no doubt that the full-impact of Covid-19 will be enormous. Beginning with the Chinese OTAs who faced cancelations during the Chinese New Year in January 2020. In its 4Q20 earnings call, Trip.com CEO Jane Sun, noted that there were “tens of millions of cancelations… totaling RMB 31 billion in gross bookings”[1] Trip.com also guided towards a 45-50% year-over-year decrease in company-wide net revenues for the first quarter of 2020.

 

As the virus spread across countries, several OTAs witnessed amendments and cancellations. In February 2020, Expedia’s acting CFO, Eric Hart, mentioned in an investor call that the outbreak could cost Expedia Group $30-40 million in 1Q20. For MakeMyTrip, cancelations as part of its international business, which is skewed towards Indians traveling to Southeast Asia and the Middle East, were up to 20%.[2] Given the uncertainty, several public OTAs have withdrawn their first quarter and full-year guidance.

 

Revaluating the Cost Structure

 

While OTAs pride themselves for seamless booking experiences and slick front-end UI and UX, they still have a considerable human force supporting its operations in the back-end. Besides, several technology licenses, performance marketing, ad-spend, payment processing charges, etc. mount up their expenditure. The sudden spike in cancellations and limited interest in future travels is surely putting OTAs through an uncomfortable patch. For Switzerland-based lm holding, which operates lastminute.com, Bravofly, Rumbo, among other brands – Italy accounted for 15.9% of the group’s turnover in 2019. Considering the weak booking period that is to follow, the group has decided to reduce its cost base, curtailing projects, reduce marketing, overheads and discretionary spend, freeze new hiring, deferring salary increases and waiving off management bonuses.

 

A similar course correction also applies to other OTAs, where variable spend to achieve sales will be culled in the absence of weak travel demand. In its fourth quarter 2019 earnings call, Booking Holdings CEO Glenn Fogel stated, “In 2020, we will further emphasize the need to make sure our expenses are appropriate for our revenue and we'll look at ways to streamline and make all aspects of our company more efficient.”

 

Putting the Customers First

 

OTAs realize that are no travelers without travel. The goodwill earned based on their actions during the ongoing crisis will likely pay off when the world bounces back and returns to traveling. In the last several weeks, OTAs have taken a variety of steps towards traveler safety and bookings:

 

  • In-Airport Initiatives: OTAs such as Indonesia’s Traveloka handed over face masks to travelers visiting the affected countries (until border lockdowns were announced). Several also shared best airport and in-flight hygiene practices with their customer base.

 

  • Ramping Up Call Center Support: OTAs have witnessed a tsunami of customer calls for assistance to amend or cancel flights (and other travel bookings). Operating calls come with attached overheads, and despite the scale of cancelations most OTAs are absorbing this as part of their customer service initiatives. OTAs, however (and obviously) are prioritizing their assistance based on travel dates.

 

  • Rolling Out Self-Service Tools: Most of us by now would be familiar with chatbots that serve basic pre- and post-booking queries. In order to balance the volume of traveler requests amid the crisis, a number of OTAs have rolled out self-service tools, including chatbots, to mitigate the pressure from call center operations and offer instant resolution to travelers’ needs. These (semi-) automated modules are found across OTA websites and apps, which allows travelers to either opt for OTA credit for future bookings or instant refunds (subject to the airline policy). Among OTAs, Kiwi.com has also rolled out an automated airline self-service for travelers to process refunds directly with select carriers, thus allowing them to bypass the OTAs in the process.

 

Bouncing Back

 

Airlines and OTAs may often have their commercial disagreements, but the latter’s ability to drive OTAs offer tremendous value not just to the airlines, but to other stakeholders of the industry – hotels, activity providers, ground transfer, local businesses, etc. – either directly or indirectly. With all the components now hurting, OTAs also have the unique position to revive growth in the industry.

 

On similar lines, Trip.com recently launched Travel Revival V Plan in China, the ground zero for Covid-19. Through the initiative, the OTA group aims to bring together hotels, tours, flights and attractions; and contribute over RMB 1 billion to boost measures for travel industry recovery. Being at the center of various suppliers, expect OTAs worldwide to pursue a similar approach. After all, if travel succeeds, so shall the OTAs.

 

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