Priceline Invests In Brazil’s Hotel Urbano, Shortly After Expedia’s Investment In Decolar: Why Is LATAM On The OTA Leaders’ Radars?

July 9th, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Shortly after Expedia‘s (NASDAQ:EXPE) investment in Latin American online travel agency (OTA), Decolar, Priceline (NASDAQ:PCLN) recently followed in tow by investing in Brazil’s Hotel Urbano. The world’s biggest OTAs seem to be suddenly focusing their attention on Latin America (LATAM). In this article, we first discuss the reasons why Priceline chose Hotel Urbano to expand its LATAM presence. Next, we discuss the reasons why LATAM provides attractive growth opportunities to the leading OTAs.

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Priceline And Expedia’s Recent Partnerships In LATAM

On July 6, Priceline invested $60 million to own a minority stake in the Brazil-based online travel agency (OTA), Hotel Urbano. The latter will henceforth exclusively use Priceline’s Booking.com to source hotels outside of LATAM. Priceline will also be the preferred distributor of Hotel Urbano’s vacation packages. Hotel Urbano’s valuation stood at $365 million, as of March 2014, and the company is growing at a 65% rate, year-on-year. [1]

Earlier in March, Priceline’s chief rival, Expedia, expanded its existing partnership (initiated in 2002) with Latin American Online Travel leader Decolar.com, Inc., which operates the Portuguese Decolar.com and Spanish Despegar.com branded websites. Expedia made a $270 million minority equity investment and gained access to Decolar’s hotel supplies in Latin America. [2] (Read details about the deal, here.)

Why Did The World’s Leading OTA, Priceline, Invest In Hotel Urbano?

  • Brazil’s Premier Hotel Provider: Brazil is the second-largest emerging economy in the world, and Hotel Urbano is the number one player in Brazil. It has a partner network of 8,000 hotels and almost 8,000 to 10,000 hotels in waiting to become its partners. The company has an inventory of 200,000 hotels worldwide. [3]
  • Understanding Local Needs: Hotel Urbano started as an e-commerce company in 2004 and by 2010 it was a deals-website. The management studied the Brazil market and found that there were around 35,000 hotels in Brazil and the number will almost double by 2016. This resulted in the birth of Hotel Urbano in 2011. The company’s insights on the local trends and understanding of the demand-supply dynamics provided it with the confidence that it could beat leaders such as Expedia and Priceline, in its home turf. [3]
  • Creating Demand In An Erstwhile ‘Reluctant’ Market Space: Hotel Urbano is one of the biggest travel brands to be advertised on Facebook with over 12 million likes. According to Hotel Urbano’s CEO, João Ricardo Mendes, the company takes advantage of the likes and shares of its followers on the social media website to track the popular trends driving the travel market space. This, in turn, helps the company in creating demand for people who weren’t regular travelers before. Hence, people who previously traveled once or twice a year are now traveling more than three times a year. The company’s average time between orders is 96 days, currently. [3]

Meanwhile, Hotel Urbano Stands To Gain, As Well

Hotel Urbano previously raised $75 million from Tiger Global and Insight Venture Partners. Priceline will provide Hotel Urbano with access to its 680,000 international hotel listings. This will help Hotel Urbano with its global expansion and will provide it with the technological boost to increase occupancy rates in the domestic front.  Outside Brazil’s major cities, the hotel occupancy rate in the rest of the country is still at a meager 35% on average. Hence, Hotel Urbano is tapping into the browsing and search trends of its 30 million users to create further demand for travel. Priceline’s funding will help Hotel Urbano in building up its Latin American presence. According to its CEO, the company aims to be the first Brazilian technology-based company to go public in the U.S. by the next three years. The partnership will provide consumers in LATAM with more access to accommodations via the Priceline network. [4]

 Why Is LATAM So Important For The Online Travel Leaders’ Business Growth?

Strengths

  • $100 Billion Travel Market: According to a report by Phocus Right, the Latin American travel market is estimated to approach $100 billion by 2016, growing at an average of 15% annually.
  • Leader In Online Travel Sales: By 2016, LATAM is predicted to be one of the leaders in global online travel sales growth. LATAM is estimated to have witnessed approximately a 25% year-on-year increase in online travel sales in 2014. [5]
  • Online Travel Sales Will Grow Further, With Rising Internet Penetration: Online travel sales are growing at a greater pace than total travel sales in LATAM. With an increasing rate of Internet penetration, the online travel sales are expected to rise further in the future. [5]

PCW1

 Opportunities For The OTAs To Grow Further

  • Create Distribution Channels: The internet penetration is still low, which implies that the OTAs can team up with suppliers to provide newer and more efficient distribution channels. [6]
  • Consolidate The Fragmented Market: The market is fragmented in most regions providing OTAs the opportunity to team up with local suppliers who are looking for bigger partners to distribute their products. [6] The OTAs, in turn, would get to consolidate their presence in LATAM.

Brazil–The Most Important Travel Market In LATAM

  • Among Top 5 Spenders In International Travel: Brazil is the fifth largest spender on international travel, just behind Saudi Arabia, Australia, China, and South Africa. Brazil spent $25 billion on international trips in 2013. [5]
  • Olympics Will Drive Tourism: Driven by the 2016 Olympics, the Brazilian travel market size is estimated to cross $34 billion in 2016. [7]
  • $10 Billion Online Travel Market Size: In 2016, Brazil’s online travel revenues are expected to reach $10 billion with an annual growth rate of 6%. [5]

In the emerging economies, the best way to expand for the leading online travel companies is through partnerships with the local market leaders. Recently, we’ve witnessed Priceline and Expedia vying for Ctrip‘s (NASDAQ:CTRP) attention in order to build their presence in China. By a similar logic, the same thing seems to be happening in LATAM.  As this evolves, we will see which emerging economy gains these leaders’ favors in the future.

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Notes:
  1. Battle for Latin America Booking Heats Up as Priceline Invests $60 million in Hotel Urbano, Skift, July 6, 2015 [↩]
  2. Expedia and Decolar.com Strengthen Partnership, Expedia Inc. Press Releases, March 10, 2015 [↩]
  3. Interview: Hotel Urban CEO on Using Big Data to Battle Booking Rivals, Skift, October 17, 2014 [↩] [↩] [↩]
  4. Priceline Pours $60 Million Into Brazil’s Hotel Urbano, Tech Crunch, July 6, 2015 [↩]
  5. Latin American Overview, European Travel Commission Digital Portal, 2014 [↩] [↩] [↩] [↩]
  6. Online travel in Latin America: A big, complicated opportunity,tnooz, December 11, 2014 [↩] [↩]
  7. Priceline Group books $60 million stake in with Hotel Urbano,tnooz, July 6, 2015 [↩]