How Does Expedia Make Money? Business Model of Expedia


How Does Expedia Make Money

Expedia is a global online travel company that owns a large number of websites that help people plan their travel.

Expedia primarily makes money from selling travel bookings directly as a merchant. The company also makes money from its business-to-business (B2B) booking services, travel agency portals, advertisements, and booking and referral fees when retail customers use their websites to book travel.

Expedia has a storied corporate past. The company was originally founded in 1996 by Rich Barton as a division of Microsoft. In 1999, Expedia was spun off into a public company. However, in 2003 it was purchased by InterActiveCorp (IAC). IAC then spun off the company into a separate security which was distributed among IAC shareholders. The Expedia Group (EXPE) currently trades on the NASDAQ exchange.

The company is known for its travel fare aggregator websites that customers use to find deals on travel bookings. Expedia owns Expedia.com, VRBO, Hotels.com, Hotwire.com, Orbitz, Travelocity, Trivago, and CarRentals.com.

What is Expedia & How Does It Work?

Expedia owns a number of popular websites focused on helping individuals search aggregated travel listings to find deals and quickly book their travel. Expedia’s suite of sites receive over 750 million monthly visitors, and the company has over 30 million Expedia Reward members.

Expedia operates in 70 different countries providing services in a number of different languages. Customers can book travel reservations at over 2.9 million hotels and properties and over 500 airlines.[1] There are over 210,000 travel activities that users can book across Expedia platforms.[2]

Travel aggregator sites like Expedia and the companies in its portfolio allow travelers to quickly see what travel options they have so that they can book the best option for them based on their travel schedule, price, convenience, and the travel experience they’re looking to have.

Using an aggregator site can mean accessing cheaper fares and rates or just not having to spend hours researching different options.

Individual customers simply input their travel details into the search engine and include things like the dates of travel, the destination, and how many people are traveling together. The company then returns search results for travel options that fit their criteria.

On many sites, customers can also specify what kinds of travel they are looking to book. For example, some people might only need to book a flight, whereas others might be looking to book a flight, hotel, and a rental car. Often users can access larger discounts by booking more than one kind of travel at a site like Expedia.

Once the traveler decides on what bookings to choose, they can choose that booking and check out directly on the site. Expedia will then keep a record of their booking and can help them make changes if needed.

Ultimately, many of these sites act like self-serve online travel agencies. They allow customers the convenience of being able to search for and book a reservation at travel destinations around the world with just a few clicks.

Expedia also offers a number of travel packages that it creates by booking blocks of room and airline reservations and putting together the packages. They use their size to get discounts from operators and then pass those discounts onto consumers.

Expedia also partners with companies like Visa and financial institutions to provide booking options for their credit card rewards programs.

Since the company runs a number of different websites, the customer experience and value proposition can be slightly different. For example, VRBO is a website similar to Airbnb where individual vacation rental property owners can create listings of their properties and upload them to the site where travelers can book them.

Like many in the travel industry, Expedia experienced considerable difficulties during the COVID-19 pandemic. The company saw their revenue go from $12 billion in 2019 to just $5.1 billion in 2020. Expedia recovered somewhat in 2021 with revenue increasing to $8.5 billion.[3]

 

Business Model of Expedia

Expedia’s business model revolves around offering travel platforms where travelers can search for flights and other travel reservations. By aggregating travel options in one place, the company encourages a critical mass of travelers to use their site to quickly and conveniently book travel.

The company also sometimes offers deals and discounts on flights or hotel rooms compared to booking them directly with the provider. The company makes money in three different ways: by operating as a merchant, a travel agency, and as an advertising site.

Their merchant business model is different than many other travel sites, including that of Booking.com, the industry leader. The company directly buys blocks of rooms, flights, and rental cars in order to resell them. Because they are a big organization, they are able to buy large blocks of rooms and offer them to customers either separately or as part of an all-inclusive vacation package at a lower rate than if the traveler bought the travel options directly.

This incentivizes people to buy from Expedia and to also book all aspects of their trip with Expedia because then they are usually able to save more. For example, Expedia might be able to buy a block of $150 a night hotel rooms for $100 a night and then pair that with flights that they can similarly get a discount. They then make money on the markup between what they paid and what travelers pay them.

Expedia has negotiated a right to return many of these reservations 24 hours before the due date in order to reduce the potential loss they might experience should no one book those travel options. The challenge is that this business model can be capital intensive as they need to pay for the inventory before they sell it. For this reason, Expedia likely has higher working capital needs than other travel site companies.

This may or may not ultimately offer the company a competitive advantage over companies with other business models. While some people want to buy travel in packages for the discount and convenience, many people go to travel sites to buy individual travel deals. Expedia doesn’t make as much money off their sales of those travel options.

However, Expedia also makes money in ways that are similar to other travel sites. It earns revenue based on commissions and booking fees associated with a travel reservation similar to a travel agency. They also get paid merchant or referral fees when travelers book reservations with their travel partners.

Expedia has robust B2B travel services, including partnering with companies that issue rewards cards in order to allow their customers to easily book travel online. They also offer a Travel Agent Affiliate Program, which is a ready-built agent platform that travel agencies around the world can use to quickly and efficiently book travel for their clients.

These partnerships are expected to drive significant revenue and growth for the company. They provide enhanced services as part of these partnerships and bulk discounts on the cost of travel in return for consistent business. This segment, however, has not always made money. In 2021, their partnership program lost $4 million. However, revenue is growing significantly in that segment. In 2021, it was up 113% year-over-year.[4]

The sheer volume of customers that go to travel sites looking to purchase travel means that travel sites also often make money through advertising. Many travel companies want to connect with people while they’re booking their travel and making purchases, and advertising and travel search aggregators is a great way to do that.

Perhaps one of the most interesting things about travel booking site companies is how aggressive they tend to be around acquisitions. Expedia and many of its competitors often own multiple sites that are offering very similar services. There are many reasons for doing this.

Primarily, the goal is to reduce competition. The travel bookings industry requires significant investments in advertising in order to stay top of mind when people are looking for travel options. Other travel companies threaten to eat at a company’s market share. Many travel search companies buy up companies in order to reduce their need to advertise to win over their competition.

They might also do so to expand into slightly different selling markets, expand into new geographic reasons, achieve economies of scale, or grow their revenue via acquisitions.

In recent years, Expedia has been selling off some of its travel assets in order to reduce their operating costs and focus on subsidiaries that are generating more revenue for the company. In 2021, Expedia sold both Classic Vacations and Egencia.

Expedia has a number of competitors including Booking Holdings, which owns Booking.com, and a number of other popular travel companies.

Expedia had $4.2 billion in marketing and selling expenses on $8.5 billion in total revenue in 2021.[5] That represents 49.1% of the company’s total expenses. Other costs related to Expedia’s business model include personnel costs of $404 million and direct costs of running their site of $1.1 billion.[6]

 

How Does Expedia Make Money?

Expedia makes money in four different ways. These revenue streams are selling travel packages they purchased as a merchant, travel agent portals, B2B travel programs, commissions and booking fees, and advertising fees.

The company had travel gross bookings of $72.4 billion flow through its site in 2021. Expedia’s profit margin was 11.9% with a total revenue of $8.5 billion that year.[7]

The company breaks down its revenue in a number of different ways but not at the level of different revenue streams. For example, they break down how much money they make from different service types. In 2021, the company made this much from the following service types:

  • Lodging: $6.4 billion
  • Air: $254 million
  • Advertising and other media: $603 million
  • Other: $1.2 billion[8]

They also break down their revenue by business model:

  • Merchant: $5.3 billion
  • Agency: $2.3 billion
  • Advertising, media, and other: $754 million[9]

While that gives a better idea of how the company makes money, it doesn’t give particular figures for how much is made from individual revenue streams.

Selling Bookings as a Merchant

Expedia has a unique business model where they buy blocks of rooms, flights, and car rentals to create travel packages. They are able to get a large discount by buying in bulk and have been able to negotiate the ability to return unused bookings for a refund. They then pass the savings onto customers directly.

They sometimes do this by putting together travel packages or by selling individual hotel bookings. This is done across many of the company’s platforms like Expedia and Trivago. They primarily make money on sales of hotel rooms in this way. They’re able to mark the rooms up from what they pay and they earn the difference as income.

This is the largest part of Expedia’s revenue mix. It’s also something that many other travel companies don’t do. The downside of this model is that it requires much more working capital on hand for Expedia to pre-purchase all those travel bookings.

 

Travel Agent Portals

Expedia runs a Travel Agent Affiliate Program (TAAP). The company markets itself to agents by promising that they will earn great commissions, get access to a global travel supply network, get impressive rates for their clients, and access bookings that have last-minute availability.

While the company doesn’t make money from agents directly, they leverage agents via this portal to generate more bookings and earn more money off travel bookings made directly with agents. This is one way the company tries to capture a larger portion of the travel booking market.

 

B2B Travel Services

Expedia enters into partnerships with companies that are providing travel rewards programs via things like credit card or loyalty rewards. Customers of those clients can then use a customized Expedia portal or the partner’s website with an integrated Expedia API to book travel via Expedia.

This helps simplify travel booking for many of these reward providers while also offering more options and a more seamless booking experience for their customers. The rewards providers benefit since they can negotiate a discount directly with Expedia rather than having to separately negotiate discounts with hundreds of travel partners or book at commercial rates.

The company has decided to invest heavily into this segment as they see it as an area of potential growth. In 2021, they made just $110 million after expenses from this segment, but they hope to grow their revenue from this in the future.[10] Some of their partners include companies like Chase and Delta.com.

 

Commissions, Referral, and Booking Fees

Like other travel sites, Expedia makes money when travelers make booking through their platforms. When Expedia isn’t operating as a merchant who has purchased the bookings in advance, the company makes money in the same way that travel agencies make money – by commissions, referrals, and booking fees.

These fees vary depending on the partnership the company has negotiated, the type of travel, and the volume of bookings. The company, for example, earns less on airline bookings than it does on hotel bookings.

 

Advertisements

Like many other travel search companies, Expedia makes money on advertising. They also offer access to their proprietary travel data to advertising partners. This is a data set created from consumer booking behavior designed to help companies better understand consumer travel behavior and trends so they know how to better market to them.

Companies can then leverage Expedia’s advertising options to create a media plan that reaches the right shoppers. Expedia sells advertising across all their sites in one place. That makes it easier for companies to create a marketing plan that will reach a number of different geographic regions and demographics.

 

Expedia Funding, Valuation & Revenue

Expedia Group (EXPE) is currently a public company on the NASDAQ exchange. After being founded as part of Microsoft, the company was spun off as a successful IPO in 1999.[11] before being bought by InterActiveCorp (IAC) in 2003 and trading as a subsidiary of that company.[12] In 2005, IAC then spun off Expedia again into a separate company.[13]

Both prior to going public and after, Expedia raised three funding rounds and garnered $3.3 billion in venture capital funding.[14] Their last funding round was in 2021. Notable investors include Apollo and Silver Lake.[15]

Expedia’s financial results have been relatively volatile in recent years due to COVID-19. The company went from making $12 billion in revenue in 2019 to just $5.1 billion in 2020 during the height of the pandemic-related travel restrictions.[16]

The company has also struggled to grow their net revenue or net operating income. They made only $903 million on $12 billion in revenue in 2019, lost $2.7 billion in 2020, and made just $186 million on $8.5 billion in revenue in 2021.[17]

DateTotal RevenueNet Operating Income
2019$12 billion$903 million
2020$5.1 billion($2.7 billion)
2021$8.5 billion$186 million

There is a chance that Expedia’s fortunes will shift as people continue to travel more now that there are fewer travel restrictions. The company might also benefit from shedding some of the subsidiaries they held by selling them off.

 

Is Expedia Profitable?

Expedia is currently profitable. The company made a profit of $186 million billion in 2021 on $8.5 billion in revenue. However, they lost $2.7 billion in 2020 during the downturn in travel due to the COVID-19 pandemic on just $5.1 billion in revenue. To absorb that financial loss, Expedia raised a post-IPO debt round of funding in 2021.

However, prior to the pandemic, Expedia made $12 billion in revenue and had a net income of $903 million. There is hope that as the travel industry improves, Expedia’s fortunes will also improve.

 

Conclusion

We hope you enjoyed this blog post on how Expedia makes money. We also hope that you gained some valuable insights into the business model of Expedia and how it is set up to succeed in the future.

Expedia’s success is a testament to their ability to adapt to the needs of customers and provide them with a service that meets those needs. That’s not something many companies can do—and it’s certainly not something every company can do well.

So if you’re looking for inspiration on how to improve your business model or make your customers happier, try taking some cues from Expedia.

655 Amazing Travel Agency Name Ideas Ever

160+ Unique Travel Agency Slogans and Taglines

28 Sustainable Tourism Statistics To Share The Goodness

22 Staycation Statistics That Will Get You Excited

27 Road Trip Statistics to Make You Hit the Open Road

Sources

  1. Expedia 
  2. Expedia 
  3. Expedia
  4. Skift
  5. Expedia
  6. Expedia
  7. Expedia
  8. Expedia
  9. Expedia
  10. Skift
  11. CNN
  12. Mergr
  13. Expedia
  14. Crunchbase
  15. Crunchbase
  16. Expedia
  17. Expedia