US: Despite announcing first quarter losses and a reduction in revenue, Expedia Group has offered cautious optimism for a market recovery in both the vacation rental and hotel segments post-pandemic.
In his first earnings call as CEO since being appointed to the role last month, Peter Kern said the group’s vacation rental brand Vrbo had seen a “markedly better performance” in May compared to late March and April as demand took a hit with the restrictions placed on global travel as a result of the coronavirus outbreak.
He added that the brand could be at the forefront of the market’s recovery due to its offering of whole homes in more rural, non-urban areas, which are seeing a surge in bookings from travellers who are longing for a vacation when the lockdown eases. This may not be dependent on the region or country where bookings are being made, he said, and Expedia was well-placed to lead a post-coronavirus uptake in both the vacation rental and hotel segments that it is pursuing.
During the first quarter of this year, Expedia Group announced a net loss of $1.3 billion, largely in part to the implementation of the global lockdown and restrictions on travel which brought bookings to a standstill. In the same time period, its revenue went down by 15 per cent to $2.2 billion.
It followed February’s announcement by long-serving chairman and major shareholder, Barry Diller, that the company would be downsizing Expedia’s workforce by up to 12 per cent, affecting up to 3000 employees. After a restructuring of the board in December which saw the then-CEO and CFO both depart, Diller called the organisation “bloated and sclerotic” at the time as he called for an immediate streamlining of its operations.
Kern’s appointment coincided with that of Eric Hart as chief financial officer, as well as a raise of $3.2 billion in incoming capital, made up of $2 billion in debt financing and $1.2 billion in equity investment, injected by Apollo Global Management and Silver Lake Partners. The CEO called it an opportunity to have a “far finer operation coming out of this crisis than going into it”.
In this earnings call, Kern made clear how Expedia Group would be enhancing its performance marketing strategies to help secure “attractive returns on investments” and ensure its brands were not competing each other in Google auctions, thus preventing the cost-per-click for websites not being driven up.
As Expedia announced a revenue growth decline in its Vrbo vacation rental division in November under previous CEO Mark Okerstrom’s tenure, Kern is seeking to rein in spending on performance marketing while helping the organisation to optimise the use of its customer data so it no longer has to use Google’s paid channels to drive traffic to its travel products.
Recently, Dave Sebastian in Private Equity News said that one of the reasons for the struggles at online travel agencies such as Expedia and Booking.com is that they have struggled to compete with Google’s search engine in travel booking. While Google has looked set to make a play for the vacation rental sector, the traditional players have been left somewhat behind and in a position of needing to be bailed out to weather the Covid-19 storm, as seen by Booking’s own injection of a $4 billion loan.
Following Expedia Group’s announcement, GlobalData travel and tourism analyst, Johanna Bonhill-Smith, told Hotel News Resource that the results showed vacation rentals may lead the path to the company’s recovery.
She said: “Vrbo, Expedia Group’s vacation rental business, has noted an uptick in bookings for May 2020 and this is not surprising. Vacation rentals offer travellers a wider array of options across more rural areas away from large groups of people and concentrated city centres.
“Hotel can also offer this but vacation rentals may have an upper hand. Social distancing and hygiene measures will be the game changers for the future travel industry leading to more independent travellers.
“Like all agencies, the balance sheet for Expedia Group took a substantial hit – net loss attributed to the Group climbed to US$1.3bn from US$103m in Q1 2019. Diluted loss per share was US$0.69 in Q1 2019 and stood at US$9.24 in Q1 2020.
“While it is clear there is still a long, winding road ahead for the spread of Covid-19, online travel agents [OTAs] are undoubtedly at an advantage over the traditional in-store travel agent; incorporating a variety of services for a range of customers provides the opportunity for a swifter recovery,” she added.
Earlier this month, Expedia Group Media Solutions added HomeAway to its global media portfolio of travel brands.