May 11, 2010

Priceline Shifts Model in Asia Fixed-Price Bookings Grow Abroad, Where Name-Your-Own Price Doesn’t Fly

Filed under: Uncategorized — ktetaichinh @ 1:24 pm
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When Chaiwat Topitumatukhun opened his Postcard Resort in northern Thailand last year, he knew his best chance for success lay in tapping the Internet to market his boutique hotel to tourists around the world.

A former airline executive, Mr. Chaiwat listed his property on, a discount Asian hotel reservation site and a unit of online travel agent Inc. Bookings started coming in within two weeks. The five-unit hotel has hosted guests from other parts of Asia, Europe and the U.S.

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the Postcard Resort

Priceline is expanding in Asia, adding small hotels like the Postcard Resort in Thailand.

“It’s a cost savings to us, as opposed to relying only on travel agents on the street, and we can reach the world by using their system,” said Mr. Chaiwat, who has also set up a Web site for his property.

Agoda is Priceline’s effort to find new sources of growth in Asia as its U.S. and European business mature and face increased competition.

Although Priceline is best know in the U.S. for its name-your-own-pricing, much of its growth in recent years has come from fixed-price travel bookings outside the U.S. Citibank analysts estimate international bookings now represent roughly 60% of Priceline’s overall business, up from 20% in 2005. Much of those gains have come from its move into the hotel business in Europe with its site, where the company has signed up thousands of independent hotels.

Priceline, based in Norwalk, Conn., has grown rapidly since surviving the dot-com bust and the post-9/11 travel slump. The company doubled its bookings in two years to $9.3 billion in 2009, and its shares closed Tuesday at $244.41—more than tripling over the past year.

Now Priceline is sending Agoda employees to pound the pavement in Asia and calling on hoteliers there in an effort to get them to list on the site. Agoda’s services are offered in 30 languages and target customers in Thailand, Malaysia, Hong Kong and Singapore.

Like Priceline’s European business, Agoda offers fixed-price listings and takes a cut from each booking.

Priceline Chief Executive Jeffery Boyd said the “name-your-own-price” model is not as suitable for Asia and Europe as it is in the U.S., where well-known hotel chains and the widely used star rating system offer customers consistent and well-understood levels of quality.

The company in 2007 acquired Agoda, a Bangkok and Singapore-based start-up with about 200 employees, in a deal valued at around $158 million. Agoda, which had gross bookings of $36 million in the 10 months before Priceline bought it, had $244 million in bookings last year, or about 3% of Priceline’s total business.
[PRICELINE] the Postcard Resort

Priceline faces challenges in Asia, a hotel market that is fragmented and where it can still take 24 hours to confirm a hotel reservation over the phone.

“It’s a matter of getting them used to it, getting them used to the technology,” Mr. Boyd says of independent hoteliers. “But sometimes these habits die hard.”

Like other online travel agents in Asia, Priceline also must overcome issues including varying rates of credit-card use, cultural differences among markets, and a greater tendency toward packaged tours than in other regions.

Another issue has been the market clout of consolidators, travel management groups that buy airlines tickets, hotel inventory and cruises in bulk to sell to agents and individuals at discount prices.

“There has been a tremendous amount of enthusiasm about the Asian market, but there are still a lot of infrastructure hurdles,” said Douglas Quinby, senior director of research at travel industry research group PhoCusWright Inc.

Citibank estimates the Asia-Pacific online hotel and lodging market totaled more than $11 billion in bookings last year and is on track to reach almost $20 billion by 2012. That would compare with $33 billion in the U.S. and $16 billion in Western Europe in 2012.

Priceline’s success in Europe and it ambitions in Asia aren’t lost on rival Expedia Inc., which is still twice the size of Priceline and is also targeting Asian customers. Expedia also operates European hotel site and owns 60% of, which targets China. Expedia says it is focused on increasing the size of its global supply team, which is tasked with boosting inventory and finding the best deals for customers.

Eric Grosse, president of Expedia Worldwide, also says the company is taking steps to convert more shoppers into actual buyers. It is doing so by making the booking process on Expedia’s various properties simpler and adjusting its search algorithms so it can display more relevant listings based on a user’s location and personal history.

Another concern is that hotels might hold back inventory once the economy improves so they can sell rooms and airfares at higher prices on their own Web sites. Mr. Boyd argues that commissions on higher prices will offset any loss of inventory at Priceline.

William Maloney, chief executive of the American Society of Travel Agents, says higher prices could diminish Priceline’s ability to attract travelers. “He is still going to have the inventory. The question is: What discount is he going to be able to get for his customers?” asks Mr. Maloney.

Priceline executives have said progressively more challenging comparisons, as well as the sheer size of the business, make it likely that Priceline’s growth rates will decelerate throughout the year. But a spokesman says the company has seen good economies and bad, and “rising prices and a healthy appetite for travel only help our bottom line.”


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