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Trip.com Group’s acquisition of Travix hints at appeal of smaller OTA

05/22/2020| 11:50:33 AM| 中文

Trip.com Group may have decided that it was easier to acquire Travix, which has loyal customers in niche segments, than to compete with Travix via its Trip brand.

Trip.com Group bought online travel agency group Travix from corporate travel giant BCD Travel in December. Regulators okayed the sale last month, though only Dutch media noticed. The companies didn’t disclose the price of the transaction.

The deal gave the Chinese travel titan an Amsterdam-based set of brands, including Vayama, Vliegwinkel, and CheapTickets.nl.

Trip.com Group is coy about why it bought the company. Here’s a look at some likely rationales. Plus, we’ll consider which other European companies might be targets for mergers and acquisitions by online travel giants and private equity firms.

One rationale for Trip.com’s interest in Travix may be the Dutch company’s approach to selling plane tickets.

Trip.com Group may have other reasons for wanting Travix, of course.

It may believe Travix is better at making use of data than the average small online travel agency group.

Data savvy matters for agencies. Flight sales are low margin. So upselling and packaging deliver most of the profits. Yet agencies often struggle to tease out data to learn how to upsell effectively.

A “winner take most” ad game in niche markets

Mastering customer acquisition through ad spending is a scale game. Google’s ad auctions favor, meaning they accept lower winning bids, from companies whose ads deserve, in its view, a high “quality score.” The quality score sounds like a consumer-friendly feature. Google is giving prominence to ads consumers are more likely to click on. But it advantages the travel giants.

A smaller agency can compete by developing a loyal customer base within a niche, such as the Dutch-speaking market for intra-European leisure flight bookings. When you have more repeat customers who seek out your brand, you boost your Google ad quality score relative to the giants and thus lower your cost of acquiring new customers online.

Trip.com Group may have decided that it was easier to acquire Travix, which has loyal customers in niche segments, than to compete with Travix via its Trip brand. Travix has several years’ head start in building culturally relevant brands and on-the-ground relationships with suppliers.

Flight-first agencies

Several other agencies also focus on geographic markets where locals prefer customer service in their native language. These agencies also may try ways of presenting or selling fares that stand out from what the global giants offer. Plus, they may strive to offer locally popular payment methods, such as ones with regional banks, and advertise using locally relevant marketing campaigns.

Adding to the list of potential dance partners is the online travel agency group Otravo. The company includes brands like Travelgenio, Vliegtickets.nl, and VakantieDiscounter, and has a turnover of about $2 billion (nearly €2 billion). The group is a roll-up of travel brands done by Waterland, a Dutch private equity firm.

Scale as a driving force for mergers

Online travel agencies that heavily sell flights are a category where it’s hard to be smarter than your dumbest competitor. You might create a profitable business. Still, the model is too easy to copy, leading to too much competition.

When a small company gains an edge, private equity firms can sometimes inject the cash needed to help that company get an actual leg up over its competitors until it becomes an acquisition target by the global giants.

Small companies can gain an edge over peers despite being in the shadow of giants. But ultimately, scale matters. Several studies by Google and other tech giants have reported that the quality of predictions made by artificial intelligence is tied more to the amount of data used to train the models than any other factor. In other words, the more data you have, the better you get.

The need for scale gives a vital incentive for online travel companies to merge. So expect more deals soon, as the pandemic has reduced many company valuations to attractive levels.

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TAGS: Trip.com | Travix | upselling | niche market
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