World Domination – How many OTAs do we need?

World Domination – How many OTAs do we need?

Expedia has just purchased Travelocity from Sabre for $280 million in cash.  This comes after Sabre’s recent sale of lastminute.com to Bravofly Rumbo for $120 million.  Following the Travelocity deal, Sabre CEO and president, Tom Klein, said, “Our primary focus at Sabre is to provide mission-critical software solutions to our global airline, hospitality, and travel agency customers – and to help them support their customers every day.”  Sabre clearly was thinking differently when it founded Travelocity and made other OTA acquisitions.

Meanwhile, Bloomberg reported a few days ago that Orbitz is working with a financial adviser as it reaches out to potential buyers.  Orbitz is a US based OTA.  It was founded by a group of airlines in 2001.  It was acquired by Cendant in 2004.  When Cendant sold its GDS Travelport in 2006 to Blackstone, this included Orbitz.  The company operates a number of brands including ebookers which was originally founded in the UK by Dinesh Dhamija.

Take a look at the Orbitz website and you will see that it is just another OTA.  It is a sizeable business, though.  Its 2014 Q3 Investor Presentation reported 1,400 employees and the organisation was estimating to take $463 billion in online travel bookings in 2014.  Yet it is one of the smaller OTAs.

So, slowly but surely OTAs are consolidating.  This begs the question, “How many OTAs does the world need?”  After all, if you ask the typical traveller what are the differentiating characteristics between the major OTAs, I guess they wouldn’t have a clue.

Could the world manage with just one OTA?  Economic theory might well say “Yes.”  In perfect markets, there can only be one commodity provider that will be larger and more efficient than its competitors, driving them out of business.  The online world is not too far away from being a perfect market and travel is not too far away from being a commodity – all the OTAs seem to sell much the same product in the eyes of the consumer.

The world could manage with one OTA that dominates the world but this seems an unlikely scenario.  How might consolidation play out then?  Here are my thoughts:  The USA only needs one OTA.  However, competitive concerns will probably result in there being two.  These OTA will be so rich that they will have the financial muscle to move into Europe (as is happening now).  They will continue their expansion in Europe so that they both end up taking over the market here.  In theory, there is nothing to stop their expansion worldwide but I think regional factors will come into play.  The Big Two – as I will call them – will come up against local competition in China, possibly Russia and perhaps the Middle East.  These are the markets where I think consumers favour local businesses.  What will happen in the rest of APAC?  Could a South American OTA dominate that part of the continent or will it also become the domain of the Big Two?  What about Africa?

Lots of questions that bring me right back to the first one, “How many OTAs does the world need?”  I am guessing between four and six.  What do you think?

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Paul Richer is Senior Partner of Genesys, a management consultancy specialising in providing advice on technology for the travel, tourism and hospitality industries. Genesys has built a worldwide reputation for its knowledge and experience of new system procurement, online technology and strategies including website audits and online booking systems, reviewing and formulating companies’ IT strategies and more. Clients include many of the best known names in travel. Paul has co-authored several reports examining the impact of technology on the distribution of travel, including “Distribution Technology in the Travel Industry” originally published by Financial Times Retail and “Marketing Destinations Online – Strategies for the Information Age” published by the World Tourism Organisation. He has presented at and chaired many online travel conferences, is regularly quoted in the press and has also been invited to make several appearances on television to debate the subject. Prior to founding Genesys in 1994, Paul was Business Development Director of Finite Group plc and Head of the Group’s IT strategy consultancy. He holds an MBA from Cranfield School of Management, is a Fellow of the Institute of Travel & Tourism and Member of the Chartered Institute of Marketing. More information at http://www.genesys.net/

One comment

  1. WIKIHENRY says:

    I suppose one could say the same thing about automobiles; that is, one producer per country or even one producer per continent … however it doesn’t quite work that way.

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