Expedia: Loyalty focus is beginning to pay off

Expedia spent the equivalent of over half its quarterly revenue on marketing in the last three months of 2022, as it looks to tap into rising travel demand.

Source: Shutterstock

Online travel group Expedia is beginning to see its decision to focus on retaining higher-value consumers pay off, it claims.

Chief executive Peter Kern told investors on a call yesterday (9 February) that the company would be continuing its strategy of investing its marketing spend in channels that “attract desirable long-term customers rather than just chasing short-term transactions”.

Expedia reported it entered 2023 with 10% more active loyalty users than any other year. In the last three months of the year, the number of new customers who became loyalty members increased by 60% versus the same period in 2019, it said.

The business claims its loyalty members drive double the gross profit and repeat business compared to non-members.

“We have clearly proven the bet of attracting and retaining the right customers and increasingly, our P&L will reflect that,” Kern claimed.

We continue to see that people are prioritising travel over just about everything.

John Kern, Expedia

However, the longer-term nature of Expedia’s marketing spend means it is seeing less immediate return on investment.

“Spend is less closely correlated to demand within any given quarter,” chief financial officer Julie Whalen said.

In the final three months of 2022, it invested $1.2bn (£992m) in its direct sales and marketing. This represented a 20% increase on 2019 levels and was to support the accelerated growth it was seeing in the period, Expedia said.

However, adverse weather in the US meant it “did not fully realise the anticipated return of [its] marketing spend”, Whalen claimed.

In the fourth quarter of 2022, Expedia spent $1.37bn (£1.13bn) on its direct and indirect marketing combined. This means the spend was more than half of the revenues made in that period.

Whalen told investors this spend was already becoming more efficient for the group as it proceeds with its loyalty strategy. She pointed to the company’s US business, which is further ahead with rolling out loyalty strategies. It is seeing significantly more “high value” customers in this business, which is translating into “really strong revenue”, she said.

In future new customers will “become a somewhat smaller piece of the overall pie”, Kern said. He added the company is “very focused” on lowering churn to retain high-value, repeat customers.

Some investors are reportedly unhappy with the return on marketing investment, as Morningstar Inc senior analyst Dan Wasiolek told Reuters.

“They said last quarter that they’re seeing evidence that they’re getting better marketing ROI-wise, but it’s not coming through in the numbers for us,” he said.

Strong demand

The business claimed it had its “most profitable” year in 2022. It reduced its debt by $2.2bn during the year. Perhaps unsurprisingly given the recovery from the pandemic, its revenues were up 36% from 2021 levels to $11.67bn (£9.65bn).

However, it did see a negative impact from US storms in the fourth quarter. The company saw revenues in the fourth quarter of $2.62bn (£2.32bn), an increase of 15% from the same period in 2021. However, this missed the average analyst’s estimate of $2.7bn (£2.39bn).

The travel business said it is “really pleased” with how 2023 is starting. It has seen lodging bookings in January increase by over 20% compared to 2019 levels, for example.

‘Bounce back’ or damp squib: What does the cost of living crisis mean for travel brands?

“We continue to see that people are prioritising travel over just about everything,” Kern said. “Rates are still very high. Demand is high. Planes are full.”

He added he believes Expedia is “doing a good job of capturing that demand”.

In order to capitalise on this demand it will be investing more in its loyalty programme in 2023, he said, but this doesn’t necessarily mean the overall marketing spend will rise.

“We don’t expect the all-up cost of that to be expanding over the course of the year. It might shift between buckets. We believe we can underwrite [the loyalty focus] with the total spend we already have,” Kern added.