Monday, March 26, 2007

"Expedia's Dead" Michael O'Leary

UPDATE 15 October 2008 - looks like the deal (described below) is dead

Back in November you will recall the announcement that needahotel and Ryanair had terminated their long standing hotel sales relationship under which needahotel powered Ryanair Hotels. I found this strange as even though Ryanair are renowned for being a hard and demanding client, the volumes were so significant that everyone wanted that account. It was especially strange given that Cendant's whole pre-Travelport days reason for buying needahotel was to gain this business. Needahotel itself was basically a reseller of Octopustravel. The greatest part of the story was that despite Ryanair's whole business and brand being based on being the cheapest there is, the needahotel/Ryanair Hotel prices were normally 6% plus more expensive than the rates on Octopus to enable three players to be fed from the commission available on a hotel booking.

That said Jeff Clarke of Travelport described the Ryanair relationship as an "under-performing affiliate" in the Q3 earnings call, so I assume that in the post-Cendant world the huge commission cheques to Ryanair could not longer be justified.

Not surprisingly there was a queue of suppliers lined up outside Dublin airport clamouring to take over the business - with Expedia's WWTE emerging as victorious. The question that arises from this is whether or not Expedia had to "drop their pants" for Ryanair. The struggle that most competitors had in trying to steal the business from the needahotel/Octopustravel combo was the huge commission that Octopus is able provide given its operator margin inventory. On a raw dollar for dollar basis Expedia does not have the margin to offer the same to Ryanair unless it effectively makes a loss. My interest is definitely piqued as to whether or not it was Expedia taking loss here to gain the volume or Ryanair took a hit and finally realised that the needahotel margins were unsustainable for all.

I am also reminded of a panel that I found myself on with Michael O'Leary (Ryanair CEO) back in boom time 1999 when I was working for Expedia. I spoke before Michael and in his opening moment he said words to the effect of
"There is no place in the world any more for travel agents....Expedia's Dead" (in a fantastic Irish accent)
I assume the Dead pay cash....

7 comments:

Anonymous said...

EXPEDIA's dead. Good news for travelers. Anyway, RyanAir and EXPEDIA is a fatal ombination for travelers. RyanAir has http://www.ryanaircampaign.org and EXPEDIA has http://www.victimsofexpedia.com

I would not feel comfortable using them.

Mike Potts said...

"Drop their pants", definately, although I would imagine that the packaging technology that they will be bringing to the table in 2008 (see the Ryanair press release on this) will be reducing commission payments to make this a worthwhile deal. This type of packaging of a WWTE partners inventory with Expedia hotels has worked really well previously with Eurostar, and my guess would be that this is the golden goose that makes this deal worthwhile on a commercial basis.
Additionally Expedia, as mentioned previously, are suffering from market share troubles in Europe, so a potentially high volumne deal like this will keep thier supply chain happy.

Guillaume said...

Interesting post Tim!

I am quite curious about why RyanAir hasn't chosen a commission model partner vs. merchant (apart from the fact that Ryanair wants the cash quickly and not later)...Surely not every customer of RyanAir wants to pay flight+hotels upfront...

Guillaume
Hotel-Blogs.com

Tim Hughes said...

I think it is all a question of dollars. The commission players do not have the margin strength to pay the amounts that Ryanair have been asking for. As you know the typical aggressive online affiliate relationship involves a 50:50 split on revenue and the typical commission player is enjoying at most 12-15%. 6-7.5% is nowhere near enough for Ryanair. Only a merchant player can give Ryanair the numbers they want.

Chyan said...

Expedia are paying a ridiculous guaranteed commission over the course of the deal. That's why everyone else dropped out.

Conny Vige said...
This comment has been removed by a blog administrator.
Sylvain said...

The dead pay cash? Not anymore... :)