This guide highlights the key performance indicators for the online travel industry and where investors should look to find an investment edge. While this guide is not a fully integrated travel & tourism industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the online travel industry. This guide will aid market participants in identifying industry trends and the potential future performance of online travel companies.
Online travel agencies (OTAs) generate revenue from a variety of sources, including commissions on bookings, advertising, subscriptions, and other ancillary services such as travel insurance, airport transfers, tours, or activities. OTAs rely on commissions earned from bookings made through the hotel and airline industry, earning a percentage of revenue from each transaction facilitated for hotels, airlines, and other service providers.
Total revenue for companies in the industry can be derived as the sum of revenue from bookings on rooms, air tickets, bus tickets, advertising, and other services, depending on which of these services the OTA offers. To determine the total revenue from room bookings, we consider factors such as the volume of bookings, average daily room rate (ADR), gross booking amount, and take rate. The formula for calculating total room revenue is as follows:
Similarly, analysts calculate the total revenue from air and bus tickets. The formula for calculating total air and bus ticket revenue is as follows:
Here, booking volume is the total number of room bookings made through the OTA’s platform during a specific period. It represents the volume or quantity of bookings. Gross booking refers to the total value of all the room bookings made through the OTA’s platform. It includes the price paid by the customer for the room, any additional charges, and taxes. This represents the total value of all the transactions before deducting the OTA’s commission or markup. And lastly, the take rate is the percentage or proportion of the gross booking that the OTA retains as revenue. It represents the OTA’s share of the total transaction value. Take rate is typically expressed as a percentage.
Average daily room rate (ADR) is a common metric used in the hotel industry to measure the average price or rate that a hotel earns for each room rented out per day. For OTAs, ADR refers to the average rate they receive from hotels or other lodging partners for each booking made through their platform. Average selling price (ASP) measures the average price at which OTAs sell air and bus tickets on their platform.
Online travel agencies like Expedia and Bookings.com operate using the agency and merchant business models. For these companies, total revenue is calculated as the sum of total agency revenue and total merchant revenue.
In the agency model, revenue is generated based on a per-room basis. The property owner sets the prices for the rooms and is solely responsible for maintaining the rooms and providing customer service. After the guest checks out of the hotel, the property owner pays a commission to the online travel agency.
In the merchant model, transactions occur between the property owner and the online travel agency. In this model, the property owner sells the rooms to the online travel agency at a discounted price compared to the standard rate. The online travel agency then sells the rooms to customers and earns revenue from the price difference. This model focuses on selling rooms in large quantities without considering any standardization of the guest profile.
Another approach to calculating the total revenue for OTAs is using gross bookings and take rate. The formula is as follows:
Advertising revenue is also an important component of revenue for OTAs. Online travel agencies often engage in advertising partnerships and generate revenue by displaying ads on their websites and/or mobile apps.
A major expense for online travel agencies lies in marketing and advertising. OTAs invest heavily in marketing and advertising through search engines like Google to attract customers to their platforms. This includes digital marketing campaigns, search engine advertising, social media promotion, affiliate marketing, and other advertising channels. Another important expense for these players consists of technology and infrastructure expenses to support their platforms, manage bookings, process payments, and ensure a smooth user experience.
Some major expenses for online travel agencies include:
To evaluate the profitability of companies in this industry, analysts focus on the EBITDA margin.
Other ratios that are key to this industry include:
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Key performance indicators (KPIs) are an industry’s most important business metrics. When understanding market expectations for the online travel industry, whether at a company or industry level, some KPIs to consider include:
To understand market expectations for the online travel industry, sell-side analyst estimates and consensus forecast data are key information sources. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of July 10, 2023
Visible Alpha offers six travel & tourism-related comp tables, comparing forecasts for key financial and operating metrics to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
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Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Take Rate
Take rate refers to the percentage or commission that OTAs earn from the total booking value or revenue generated through their platform. It represents the portion of the transaction that the OTA retains as its commission or fee for facilitating the booking.
Booking Volume
Booking volume refers to the total number of bookings or reservations made through an online travel platform within a specific period. It represents the quantity or count of transactions processed by an OTA for various travel-related services, including hotel rooms, flight reservations, and other travel products.
Gross Bookings
Gross bookings are the total value of all bookings made through an online travel platform within a specific time frame. It represents the overall revenue generated by the OTA from the various travel-related services it offers, such as hotel bookings, flight reservations, and other travel products.
Average Daily Room Rate (ADR)
Average daily room rate (ADR) is the average price at which hotel rooms are sold daily. ADR is commonly used in the hotel industry as a KPI to measure the average rate at which rooms are booked. When referring to the average daily room rate for OTAs, it typically denotes the average price at which hotel rooms are sold through online travel agency platforms.
Average Selling Price (ASP)
Average selling price (ASP) for OTAs is the average price at which hotel rooms or travel services are sold through online travel agency platforms.
Merchant Revenue
Merchant revenue is generated when travelers make payments for services rendered, typically at the time of booking. These revenues consist of several components, including travel reservation commissions, net transaction revenue, ancillary fees, credit card processing rebates, and customer processing fees.
Net transaction revenue reflects the amount charged to travelers minus the amount owed to OTAs. It represents the revenue earned by companies providing merchant reservation services. Ancillary fees, such as those related to travel insurance and certain booking fees from Global Distribution Systems (GDS), are also included in merchant revenue.
Agency Revenue
Agency revenue refers to the total revenue earned by an OTA through its various agency services and operations. It represents the income generated by the OTA from facilitating bookings and providing travel-related services to customers through its platform.
EBITDA Margin
EBITDA (earning before interest, tax, and depreciation) margin measures a company’s operating profit (before depreciation) as a percentage of revenue.
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This guide highlights the key performance indicators for the online travel industry and where investors should look to find an investment edge, including:
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