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For travelers looking to book a flight or hotel room, Booking.com and Expedia.com look a lot alike. Yet the two fared very differently when the coronavirus pandemic shut down travel, thanks to different strategies behind their websites.
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Revenue has plunged at both Booking Holdings Inc. and Expedia Group Inc. this year. Each company moved quickly to raise about $4 billion in the spring to navigate the crisis. Expedia ended the third quarter with double the debt it started the year with, while Booking wound up with a bigger cash cushion.
The cash imbalance illustrates how differently the two rivals operated their online travel services. Expedia often collected cash upfront from hotel travelers, and when those customers canceled, the company had to pay them back. By contrast, Booking didn't charge upfront as often for hotel stays, so had less to refund when cancellations occurred.
|BKNG||BOOKING HOLDINGS INC.||1,992.77||-18.20||-0.91%|
|EXPE||EXPEDIA GROUP, INC.||119.90||-4.06||-3.28%|
Revenue has plunged at both Booking Holdings Inc. and Expedia Group Inc. this year. (Gabby Jones/Bloomberg via Getty Images)
PRINCESS CRUISES CANCELS WEEKLONG (AND LONGER) US VOYAGES THROUGH NOVEMBER 2021
Expedia ended the third quarter with about $5.1 billion in cash, roughly what it held in the first quarter — but significantly more debt. Where Booking's net debt — or total debt minus cash and cash equivalents — has decreased by almost half over that time, Expedia's net debt rose by 73%.
"We knew that things were bad. We didn't know how long they'd be bad for, " Expedia Chief Executive Peter Kern said in an interview. "We just wanted to make sure we had ample capital to sustain ourselves through whatever we could imagine at the time."
Booking operates mainly with an agency model, which means the company collects a commission from the hotel, which it records as revenue, only after the customer checks out. While Expedia conducts some business that way, it gets much of its revenue under the merchant model, where customers pay up front. On average, it holds cash for 50 days, analysts say, adding to its reserves and working capital.
When customers started canceling their plans and asking for refunds during March and April, Expedia burned through about $2.8 billion of cash, according to Cowen analyst Kevin Kopelman. "A combination of that cash outflow from returns and the fact that they were holding on to less excess cash meant that they were definitely more cash strapped," Mr. Kopelman said.