Some of us can still remember the arduous process of planning a holiday trip before the advent of the internet. Back then, aspiring tourists needed traveller’s cheques, paper maps, guidebooks and brochures. It was against this backdrop that a website named Bookings.nl was formed in 1996 with the goal of making the difficult process of booking hotel rooms in foreign countries much simpler.
Fast-forward to today, and Booking.com has become the world’s largest online travel agency, offering 31-million accommodation room listings and handling 1.1-billion room night bookings in 2024 alone.
The business has been built on the key principle of always giving customers flexibility — from transacting in their own language and currency to filtering how much they’re willing to spend. As package holiday giants declined in popularity, Booking.com saw the future in allowing each customer to curate their own holiday by offering them any accommodation type they desired — from hotels to apartments and campsites, or even a glass-and-ice igloo in Finland.
The genius of the Booking.com model lies in its simplicity: it charges hotels a commission only when a sale is made. This zero-risk value proposition has made it the go-to partner for small independent hotels across the fragmented European and Asian markets that cannot afford their own robust marketing or booking systems. This creates a powerful network effect: more properties attract more travellers, which in turn attract even more properties.
Proof of its success lies in the fact that its gross bookings and profit margins far outstrip those of its rivals. In 2024, Booking.com handled a gross bookings value of US$166bn (about R2.9-trillion). It charged an average revenue commission of 14%, on which it earned a net profit margin of 24%, almost three times wider than its main competitor, Expedia.
These stellar profit margins are not only thanks to its offering but also the result of a culture of efficiency and cost control. Booking.com operates on a capital-light, commission-based model that makes it the most resilient and profitable player in the game
These stellar profit margins are not only thanks to its offering but also the result of a culture of efficiency and cost control. Booking.com operates on a capital-light, commission-based model that makes it the most resilient and profitable player in the game. Structuring its business around a variable-expenses model has created a safeguard during travel downturns, such as during the pandemic. The company has also built brand loyalty over time by leveraging its app and the associated direct customer revenue outside of Google’s paid search.
Booking.com has earned attractive returns over time, as well as paid healthy dividends to shareholders. From 2014 to 2024, it made US$148bn in revenue and US$43bn in operating profit. This translated into 100% free cash-flow conversion of US$43bn, which the company returned in full to shareholders via share buybacks and dividends.
In addition, Booking.com’s accounting practices are refreshingly conservative; it has a pristine balance sheet and it runs a structural net cash position. The company has actually become more efficient at marketing spend over time, in part by leveraging artificial intelligence (AI) algorithms to target customers better. It spent only 3.8% per gross booking on customer acquisition in 2024, compared with 5.1% in 2016.
Some analysts contend that because of Booking.com’s dominant market position and the threat of AI disruption, the share is now mature with few remaining growth prospects. But I believe that this argument misses the mark entirely.
For one thing, the company will continue to benefit from travel market leverage. When people achieve larger incomes, they spend incrementally more of that additional income on travel.
Another opportunity is incremental revenue growth. Future revenue growth could be underpinned by the ongoing shift from offline to online travel as the younger population replaces older tourists. Booking.com has also been taking a larger share of the alternative accommodation, US and Asia-Pacific markets, where it still lags.
Similarly, the widespread adoption of AI could help the business realise its long-held vision of the “connected trip”, providing travellers with a friction-free, personalised end-to-end experience and in this way capturing a larger share of travel wallets through the cross-selling of flights, tours, dining and travel experiences. Because Booking.com already knows from its bookings when a customer will be in a specific location, it can easily market a tour or activity that seamlessly fits into their itinerary, and AI will only make this more targeted and effective.
Booking.com’s battle cry is to make it easier for everyone to experience the world, converting lookers into bookers, and offering would-be travellers freedom of choice and the ability to travel within their stated budget. In addition to changing how we travel, during its rise Booking.com also turned all the other online travel agencies into converts, reshaping how they thought about (narrower) commissions and forcing them to add an option in many listings to cancel the booking with a full refund. With its connected trip vision, Booking.com is fighting off complacency by keeping its eye on the bigger prize.
• Petousis is portfolio manager at Allan Gray
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