Make no mistake - the entry of Amazon into the online travel business could have far-reaching consequences, especially for the powerful online travel agency incumbents.
The e-commerce giant’s widely anticipated but as yet unseen move into the industry could give it a baseline $600 million profit on an annual basis.
In addition, Google could see its travel ambitions under threat from a range of tactics that could be deployed by a company that already has 300 million estimated and engaged customers.
These are some of the views of one of the leading finance houses, Morgan Stanley, in a report to investors last week.
Equity analyst Brian Novak says the travel industry has far “proven to be immune” from Amazon but, equally, the company has a track record of testing, struggling and learning what to do when attempting to throw its considerable weight behind a new venture (it eventually acquired Whole Foods, for example, to target food retail).
Its most recent attempt was the Amazon Destinations service, which opened and closed in the space of five months in 2015.
Morgan Stanley believes a combination of established scale in its customer base and an ability to disrupt the economics of the online travel business could give Amazon a “foundation to compete in online travel.”
The note estimates that ad efficiency is heavily weighted in Amazon's favor, with spend and transaction rates in the region of $0.75 at a “fraction” of what Expedia Group and Booking Holdings spend.
The two online travel agency groups spent a combined $10.6 billion on marketing and sales in 2018.
It would not be a simple home run to disruption for Amazon, despite an ability to mobilize its ingrained “focus on selection/service, pricing and friction-less payment that drive conversion and stronger user economics.”
Investment required upfront would not be on the scale that has been seen, say, in Amazon’s entertainment streaming division (around $6.4 billion), the investor note says.
And, it continues: “As we have seen with Booking Holdings and Expedia, this just requires sales and marketing teams and execution signing up hotels.”
But loyalty and repeat business in the travel sector is tougher due to lower levels of purchase frequency (compared to other consumer items that Amazon ordinarily sells) and the high transaction values of trips.
This is it what triggers the comparison market in travel that the likes of Google are looking to capitalize on.
Bringing a new Amazon online travel unit up to a serious competitor level would take time, especially getting hotel inventory volumes to comparable levels, but partnerships, affiliate deals or acquisitions could speed up the process.
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