Sunday, June 27, 2010

Australian Online Market for Short-Lets and Holiday Rentals: Interview with joint-CEO Justin Butterworth Part 1

A war is brewing in the alternative accommodation sector in Australia. It is a war that generates a lot less press and pundit attention than the OTA and online hotel battles that consume so much of my time. But the battle for supremacy in online distribution of holiday homes, short term rentals and B&Bs is getting exciting. The latest salvo was the announcement that online corporate/short term rental specialist and holiday rental merchant TakeABreak merged to form

I had lunch recently with former boss and now Occupancy joint-CEO Justin Butterworth (pictured)to talk through the deal, the market and what's next for the online accommodation industry. In part 1 of this post I will share with you our discussions on the online market for short-let/holiday rentals in Australia. In part 2 we will look into the deal and what’s next.

The online short let/holiday rental market

It is a gross but reasonable generalisation that the online accom market is broken up into three sectors. Three sectors that overlap in sharing customers and suppliers but are distinct enough in their offering to be treated differently:

  1. Mainstream Online Hotels Market: Led by Wotif but with HotelClub/Orbtizdisclosure), Expedia, Agoda/Bookings and Chain supplier direct sites making for a very competitive business. Online hotels market in Australia is between $1.5-2 billion a year and growing 15-30% (depending on the research firm);
  2. The Holiday Park market (please don't call us trailer parks, you wont like us when we are angry): This market is dominated by supplier sites. Big4 is an example. Late to online we have heard claims of 25% of the business is online but no research on market size; and
  3. The Holiday Rental sector: After this deal there are now four major players in Australia competing in a $500mm market (see below). The newly formed Occupancy group, the Fairfax owned Stayz . the (REA.AX) owned and (at the listing level) the Yahoo7! owned

The short let/holiday rental market is dramatically fragmented compared to the hotel market – goes without saying. Butterworth mentioned that a BIS Shrapnel report on the Holiday Home market in Australia which estimated 500,000 holiday home properties in Australia. Around 200,000 of those are available for regular short let. The rest being private holiday homes that are not regularly rented out.

Butterworth and I tried to figure out the size of online short let/holiday rental market. From our lunch time back of the envelope work we put the size of the Australia online holiday rental/short let market at between $450-500mm. This makes it a quarter to a third the size of the online hotel market. I have arrived at this number through combining two calculation methods – top down and bottom up.

Top downstart with the size of the total market and work downwards

We started with the 200,000 in available stock and assumed an average weekly rent of $1,000 and occupancy at 50%. This sets the full market size based on inventory story is $5.2 billion. Butterworth thought that around 10% of the market is online making a market for short let/holiday rentals of around $500 million.

Bottom up – start with the bookings generated/referred by the major players and work up

Here is what we know about the top players. I had to make a series of assumptions but I think the range is reasonable.


Bookings Generated For Listed Properties

Source/Calculation (Fairfax)


At NoVacancy told us they were generating 160k bookings per year (assuming $1,000 per booking). In 2008 told us $100mm



Occupancy joint-CEO told me they are generating $300mm in enquiries to properties per year but is not disclosing the percentage that are confirmed. Will assume 50%. (REA/News)


Real holidays is 1% of REA’s AU revenue (pdf). AU revenue ~$150mm per year (pdf). Therefore Realholidays revenue $1.5m per year. If this was a hotel business, $1.5mm in revenue would mean $15mm in bookings generated. Sounds low so times 3.

In 2009 claimed 359 paid subscribers and 22,304 listings (pdf)

Others including TotalTravel (Yahoo7!)


Assume top 3 have 80% of the market

Total bottom up estimate


Combining the top down and bottom up approaches gives us an online short let/holiday rental market size in Australia of $450-500. With the merger putting’ estimated $150mm year putting them at #2 in the market to Stayz’s $160mm but not by much. Butterworth told me that Hitwise traffic data would put Stayz further ahead of Occupancy than my booking estimates would argue. He believes that Stayz has a lower conversion rates from enquiries. This would make sense as Stayz is likely to get much more unqualified traffic than Occupancy due to the referral of traffic from Fairfax Digital properties.

Much like online hotels, there are different models in the short let/holiday rental sector. The Stayz model is the listing model. Properties pay to be listed on the site. operating on a booking fee model. collects net rates and grosses up by the booking fee. Guests can process payment with Occupancy or pay the property direct (who remit booking fees to It is clear that the vast majority of the bookings are being paid offline with the property.

The market sizing proves that the online short let/holiday market in Australia is a substantive and growing market. The Occupancy merger puts a lot of pressure on Stayz as the combined volume has closed the gap to Stayz. But Fairfax, News Corp and Yahoo7! are tough competitors. I am looking forward to seeing how they respond. If the war wasn’t intense already, foreign players also have their eye on the market. US giant HomeAway (more on them here) have put up an Australian holding page at – a clear indication of a push into the market. Expedia’s TripAdvisor have bought another holiday rental firm (Holiday Lettings) to add to Flipkey (already in their stable). No surprises. With a $500mm market to fight for, it is to be expected that many more companies will join Occupancy in this battle for short-let/holiday rental customers.


craig Hewett said...

A very smart move by the founders of both companies to merge, as it will streamline the work load for property owners and the combined traffic from merger will ensure that they remain relevant with property owners

News & Fairfax entered into a distribution deal for & so that dealerships will be able to have a single point of contact for both sites and their combined business would mean that they could remain relevant to advertisers who are used to spending disproportionally on

Good luck to both companies as its great to see independent businesses taking risks to get an edge.


Craig Hewett

Tim Hughes said...

@Craig - nice one - thanks