Priceline Partners With NYC Tourism Website In U.S. Push

September 27th, 2013 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Through the acquisition of booking.com in 2005, Priceline (NASDAQ:PCLN) gained access to 18,000 properties in Europe. Since then booking.com has been aggressively expanding in the region as well as internationally. The travel booking site now covers over 330,000 hotels and accommodations. It has 47% share of online travel agency (OTA) gross bookings in Europe and accounts for over 60% of Priceline’s total gross bookings.

After building a phenomenal presence in Europe, Priceline decided to take on the world’s largest travel market, the U.S. The company faced intense competition from Expedia (NASDAQ:EXPE) in the U.S. where the latter has close to 45% share of OTA gross bookings. Priceline launched its first ad campaign for booking.com in the country toward the start of the year. [1] Through the ad campaign, booking.com gained popularity among American travelers. In May 2013, it managed to surpass Expedia’s Hotels.com in the list of leading travel sites in the U.S. [2] However, Expedia still remains the preferred OTA in the U.S.

To further close in on Expedia, Booking.com recently entered into a partnership with NYC and Co., New York City’s marketing and tourism organization. Booking.com’s hotel booking engine now powers the city’s official tourism website. Features of the integration include full booking.com functionality, access to verified user ratings and reviews, and latest hotel pricing and availability information. [3] In this article we talk about booking.com’s success strategy and how the website could benefit from the deal with NYC and Co.

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See our complete analysis for Priceline

What’s The Recipe Behind Booking.com’s Success?

The reason behind booking.com’s spectacular growth in Europe is the rapid adoption of the agency model. Under the model, guests pay the hotel post their stay on which the OTA simply earns a commission. On the contrary, the merchant model offers OTAs the scope to earn higher margins as users bid for services and the booking process is completed on the OTA’s website itself.

While most other OTAs operated under the merchant model, booking.com followed the agency model. This pleased European hoteliers as they paid less than 15% commission to booking.com, compared to 25%-30% charged by other OTAs. Guests staying at the hotels also showed preference for the agency model as it allowed them to make payments after their stay. Booking.com grew strongly in Europe as its competitors were slow to embrace the agency model. [4]

What’s The Potential Opportunity For Booking.com In The NYC Market?

New York City is the number one big city tourist destination in the U.S. Over 50 million travelers visit the city every year. It averages 30-35 million room night sales per year via the 98,000 hotel rooms that exist in the city. The number is expected to rise to 110,000 by 2016. Booking.com caters to over 250 hotels in NYC, which is equivalent to about 65,000 hotel rooms. [3] However, its share of bookings made for these rooms is not as significant as its share for rooms in Europe. We believe the website’s hotel inventory will gain higher visibility in NYC’s hotel industry through the partnership with the city’s official marketing and tourism organization, thus generating incremental bookings for the company.

Additionally, booking.com could generate incremental revenue by facilitating international bookings to the city since its websites are available in 41 languages across the globe. NYC has about one-third share of all overseas travel to the U.S. Although international travelers constitute only 20% of the city’s visitor volume, they account for close to 50% of total spending by visitors. [5]

Our price estimate of $642 for Priceline is at a slight discount of about 35% to the current market price.

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Notes:
  1. Hotel booking giant Booking.com flexes muscle  in US, NBC News, January 2013 [↩]
  2. Booking.com crawls towards TripAdvisor – Top US travel websites, April 2013, Tnooz, May 2013 [↩]
  3. Booking.com powering hotel reservations at New York tourism website, HotelMarketing.com, September 2013 [↩] [↩]
  4. How Booking.com turned the other OTAs into converts, Skift, June 2012 [↩]
  5. Booking.com powering hotel reservations at New York tourism website, HotelMarketing.com, September 2013 [↩]