Dara Khosrowshahi, the Expedia Inc. president and CEO, was getting downright philosophical about the crisis the company faced a year or so ago, the situation that led to its fee-cutting frenzy.
“I think it was [White House Chief-of-Staff] Rahm Emanuel who said, ‘Never let a good crisis go to waste,’” Khosrowshahi says, drawing some laughs from the crowd at Citi’s 20th Annual Global Entertainment, Media & Telecommunications Conference in San Francisco Jan. 5.
The end result was Expedia eliminated air and reduced hotel booking fees and took a pretty good whack at Orbitz and Travelocity. As Khosrowshahi describes it: “I do think that from a philosophical standpoint, as we scale, we do want, to some extent, to take the air out of the competition. Our cutting air fees hurt some of our competititive brethren in Orbitz or Travelocity a heck of a lot more than it hurt us because of our scale, because of our hotel business. And that allowed us, we think, to gain scale pretty significantly, at least on the hotel side of the business.”
The Expedia CEO provided a lot more color than I’ve heard him give before on what led to the decisions.
Prior to the fee cuts, Khosrowshahi explains, air capacity had come out of the system and there were no assurances that it would expand in the future. Thus, Expedia was losing share to airline websites in a contracting market.
And, although losing share in a growing market might not be great, dropping share in a declining market was “unacceptable,” Khosrowshahi says.
The product wasn’t good enough, he says, in part because of the fees, and the strategy wasn’t working.
Thus, Expedia had to spend more on marketing to get consumers to buy airline tickets and book hotels, and at the same time, with the economy hitting the skids, consumers were getting more price sensitive, he adds.
At the same time, as Expedia was mulling its options, it knew that its competitors’ balance sheets were weak and that eliminating or reducing fees would hurt them more than Expedia, Khosrowshahi says.
So Expedia cut its fees, and is still in the process of trimming more internationally, and dealt a setback to its rivals.
But, it is also taking steps to limit future competitors.
“From a philosophy standpoint,” Khosrowshahi says, “I do think that we have a management team that is very focused on building a business that leverages, that scales and makes entrĂ©e into this business on a scale basis very, very difficult.”
Expedia has rolled out a series of fee cuts and that’s in line with its new-found philosophy, he says.
The company wants to eliminate any impediment — any “friction,” as Khosrowshahi calls it — that gets in the way of consumers completing a transaction.
And, he vows Expedia will get there by any means necessary, including by eliminating costs or changing the business model.
Flexibility — and hardball — apparently rule the day.
