Even before the final decision came down from European regulators to veto Booking Holdings‘ acquisition of Etraveli Group, the flight-focused company was preparing alternatives.
It had been a long road from signing the deal in late 2021 to the veto decision in late September 2023, following approval from both the United States and United Kingdom.
Booking
Holdings CEO Glenn Fogel reiterated
during the company’s earnings call last week that they still intend to
appeal the decision, and the two companies do have a partnership agreement
through 2028. But Etraveli is moving ahead.
In a Q&A with PhocusWire, Etraveli CEO Mathias Hedlund talked about what’s next for the company, growth opportunities and its focus on flights.
What was the immediate reaction to the decision by the EU to veto the deal? What do you tell the team?
First, we got the clearance in the U.S and the U.K., and the U.K. is not that easy to get acceptance; they have been the one stopping more things than the European Union. But then the EU took it to phase two, and that means you go into a very thorough investigation. When that was taking place I prepared the organization for both outcomes.
You have to do that because you’re not sure, and for a very long time it felt like a 50-50. So the decision itself was not drip-fed to the organization, but at the same when you work for something for very long, you believe you have something, and some external forces are stopping you, of course, that is a disappointment. Both Booking and ourselves would have liked the transaction to go through.
What was the alternative?
The good thing for us, and what made the work easier, is that the plan we are now starting to execute on is an amazing plan where we are planning for a consistent growth of about 20% annually with more than 20% margin. We’re operating now at 2.4 times bigger than we did before the pandemic. We have taken a lot of market share coming out of the pandemic, so the company position is extremely strong.
Also, in the way the flight tech platform that we operate has developed [in that time], it is a very capable platform that can be used in many more ways than it has been historically.
What are the main pillars of the current strategy?
We’re no longer an [online travel agency]. We see ourselves as a flight tech platform, and from that we operate where the customers are, which means that we are, to a very large extent a B2B operation. We supply Booking.com, TUI and we just got another household brand I can’t reveal yet.
Then we have our own brands, and they are growing and taking market share based on the competitiveness in our flight content. We have more flight content and better unit economics, which means we can either be cheaper or we can supply that to partners and there’s more money to share. So it’s really about the capability of the tech platform, which is driven by air content, unit economics and a lot of machine learning in many different areas — in pricing, in air content selection, in risk and fraud.
The new areas coming on top now are in using this platform for new applications. NokAir and virtual interlining [VI] for airlines is just the beginning, and we are now launching more airlines. It’s getting to be an interesting business line, where we are making a new channel for ourselves because we have never sold to airline.com before. The majority of flights are booked on an airline’s own websites, and if we can get there with our content and support the airlines to utilize their traffic, it’s very interesting for us because we increase our total addressable market.
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Another area, also in this strategic piece, is what we call quality fintech products. Where Hopper has had fintech products for a long time, we have focused on our own. But now we feel that, especially with our risk and fraud, we have superior APIs to everyone else we know of that others can take advantage of.
For example, in Booking.com we already handle risk and fraud for them when we are the merchant of record. But when they are merchant of record, they handle it. This is an opportunity for us to help them and others like airlines, OTAs, and a lot of different types of customers, where we can utilize our knowledge to really ensure that the acceptance rate is high, the cost is low and risk is low. So it’s an interesting area where we think we can get the B2B offering to really work.
Are there things you can do now that you wouldn’t have been able to had the deal gone through?
I wouldn’t say that, but we would have had different focuses. Right now Booking.com, in this strategy, is our most important growth driver and our highest priority. But if it we were owned by Booking.com, then, of course, we might not have done these initiatives.
How big is the opportunity? There’s Booking, there’s Expedia, there’s eDreams and there are lots of smaller ones.
If you look at these different areas I painted, our own brands, the classic B2B, the VI for airlines and the fintech etc., I will not say the B2B opportunity is endless because there are not so many out there that have those kind of volumes. So you have to see all of these four growth drivers together, or if you combine VI and fintech, there’s three.
I believe we are going to get more B2B customers for the classic offering, but I don’t foresee us having Booking.com, Expedia, Airbnb, all of those. That is not a realistic scenario, but the airline.com opportunity is huge, the fintech opportunity is huge. We can still take more market share with out own brands, and the Booking.com initiative is growing very rapidly. That’s why looking forward we can see consistent growth of more than 20%.
If you’re seeing yourself as the biggest player out there for flights, and you’re maintaining your focus on flights, where does differentiation come in?
When they scratch the surface, people believe that selling flights is just hook up to the GDS, make a few NDC integrations and then offer flights. It’s more complex than that. We have more connections to different air content sources than anyone else. We have our own air content company that does not do anything other than integration. Then we combine them in one single booking, so we can sell an itinerary that includes both an Amadeus, a Sabre, an NDC connection in one booking. That means we create new, more price-worthy options than if you only use one of them. The tech complexity of running this is very high.
Then comes the unit economics part of it, which means we create more headroom to price the ticket low or bring profit to ourselves. I described this to Booking.com in the beginning as a number of mountains to climb in order to develop a product like this, and they are so steep that, whoever is trying to do this might replicate one out of 50, but there are still 49 mountains to climb.
With the kind of growth you’ve seen since the pandemic, do you see any headwinds or challenges?
We hear that and more from the U.S. than elsewhere. So far we don’t see anything for us right here, right now. When there is lower demand, those that are best poised to take advantage are those with the highest margins. We have tended to see that that is a way for us to take market share, so unless there is something dramatic happening, we are very confident about our ability in those environments.
Some might say you were relatively unknown before the acquisition. So how will you continue to build on the momentum gained through the attention?
We have never been the ones banging the drum; we let our numbers talk, and we don’t want to change that. This has brought a little more attention to the company, which helps in some of the B2B efforts we are doing. But for us, it’s important to, long term, create value for our employees, partners, shareholders and customers. We’re playing a very long game.
If anything good came from EC process is that it has brought us and Booking.com even closer to each other. We’ve extended the partnership and commercial partnership.
Could that close relationship also be a risk?
I would not say risk, but, of course, if you only have Booking.com and nothing else it can be seen as a sensitivity. On the other hand, it’s an extremely long-term relationship, and I would like to think it’s forever. That’s the ambition of the two parties.
At the end of the day you are owned by private equity. Given what has happened, does that put any different pressures on you now? Do you still have to go out and find a new owner?
Eventually, yes. The whole idea of private equity is to buy and sell and create value in between. The good thing for us is that with our growth rates and profitability, we are creating more value for our owners, which means they are not in a hurry. Whenever you’re going to sell a company, people think that if you are to be sold you have to perform better in a certain year. The market is much smarter than that, and for whoever we sell to at whatever time we need to show we have a long-term profitable operation.
The strategy we have right now is a good strategy, whether we sell to someone next year or in three, four years from now. Booking will appeal, we will support that and we might end up with Booking, three, four years from now. That might well happen. So I wouldn’t say it’s a pressure.
When we talk in two years, what will the company milestones be?
First of all, we should be about 50% bigger on all metrics. Then I would hope that we have created with Booking.com flights a household name. I would like that to be more known to the average consumer. Then I would like to see that both VI for airlines and fintech are established business lines and both are showing rapid growth and profitability.
