Booking Holdings (NASDAQ:BKNG) is one of the world's largest online travel agencies (OTAs), and the hotel industry has provided no small portion of the company's growth for years. Yet there's a risk in this relationship that investors should consider. In a discussion on Motley Fool Live with fellow Fool.com contributor Brian Feroldi and Fool analyst Auri Hughes, Asit Sharma explains how some of the biggest global hotel franchisors are weighing the use of OTAs versus strengthening bookings through their own direct channels.
A full transcript follows the video, which was recorded on July 13, 2020.
Asit Sharma: Brian, I want to just mention one more risk really briefly, and that is the risk from the hotel industry. Marriott acquired Starwood, now, what, three, four years ago? The reason behind that merger, Marriott is the biggest global hotel franchise, was that the Starwood Group had this amazing loyalty program and amazingly loyal customers, especially on the corporate side. Marriott really wasn't necessarily after all its properties so much as that database of customers. It's since merged its own loyalty program with the Starwood program, now it's been renamed Marriott Bonvoy.
Those of you who have used any of their numerous properties now may be members of that. But again, this is very popular with corporate travelers. Before COVID-19 hit, this was last year and I've written about this a couple of times, the CEO of Marriott, and he's not alone in this industry, started talking about on conference calls his desire to recapture customers' business in a direct way. When you use the OTAs, it [cuts into] your own revenue, so Marriott is having to pay the referral to get the business. With this new loyalty program, what they're trying to do is market it to an even wider group, and every time they acquire another hotel property, they roll in that loyalty program.
Marriott's objective is to decrease its dependence on third parties to bring in traffic to its hotels. It now wants to market to you directly through the app. I get emails now because I visit the Fool and we always stay in a property that's under that brand there, which is close by The Motley Fool. I noticed they're pretty savvy at marketing on a regular basis, like, "Hey, we've got a special for you this weekend." Not that I can ever afford to take one of those, but maybe one day. I think this is a longer-term threat in that the hotel industry, at least the upper tiers, is waking up to the fact that we would like control over those corporate customers. We want to deal with them directly. We want them to just use their app.
One of the things I've already seen a question on this queue that is harder to see in this industry is the fact that so much of this over time has migrated in the business world from a few people in one part of a company using the online travel agencies. As companies have become more savvy with this, they mostly have internal departments that handle travel if you're a big Fortune 500 company. That is not necessarily a group of people that's just going to search for the best deal on the Web and land on a property that's owned by Booking.com. They may have just direct relationships and all types of ways to book the travel.
So I think there's a little bit of a headwind on the corporate side of business, which is the most lucrative side of the business for online travel agencies. But it doesn't really change the overall investment case. I think I'm agreeing with you, Brian, that over the long term, we're going to see, I think, another year of just tough [sledding] for this company. But it might be an opportunity for some to add to their positions and maybe realize some nice gains in a few years.