Reservation business: How to lead the online travel race, and can it seize the first opportunity in the AI travel market again?

Richard J. Clarke, FCA+44 20 7676 6850richard.clarke@bernsteinsg.com Global Hotels & Leisure Booking Holdings Inc Niall Mitchelson+44 20 7676 7144niall.mitchelson@bernsteinsg.com Rating Market-Perform Lasith Siriwardana+44 20 7550 2191lasith.siriwardana@bernsteinsg.com Price Target 188.00 USD BKNG Booking: How it won online travel & can it win AI travel? Sometimes we can appear to be a perma-bear on Booking, but we do appreciate over thelonger term the strength of the business. Since 2008 (the year after they acquired Agoda,their last major M&A) BKNG have grown room nights at a 22% CAGR, 5x industry growthand 3x Marriott & Expedia. This was no accident but the result of a focus on the best markets,the best channels and the best platform. Having built that scale, Booking then leveraged thethrall they had over the industry to extract ever better economics. The industry is now hooked How Booking got where we are?In 2000 the then named Priceline Group, presented itselfprimarily as an airline business, claiming 3% share of US domestic demand and seemedmore excited about moving into long distance telephone calls than lodging. Two acquisitionschanged this: Booking.nl (2005), and Agoda (2007) which gave them a Europe and Asiabeachhead respectively; and both focused on bringing a fragmented lodging market online.Having the deepest and broadest inventory then proved a key advantage as channelsevolved, notably giving Booking an advantage on Google, which rewarded scale in its search Does this hold in an AI world?Being the largest booking platform for hotels gives Bookingplenty of power in the AI age. It is as close to a one-stop-shop for travel as exists and hence isnormally in the list of first partners for any AI innovation. However, AI could change the natureof search - rewarding scale less and rewarding depth of information and deal mechanics(price, flexibility) etc. more. Hotels may in time change their behavior to offer the best deals toan AI customer not an OTA one. All this will take time and Booking has defenses in scale and Investment Implications We rate Booking Market-Perform, balancing a view on AI risk with a discounted valuation. Table Of Contents Booking - how it won travel?...............................................................................................................................................................................................5Stage 1 - build the biggest, broadest supply base.............................................................................................................................................. 5Stage 2 - leverage that scale advantage in the new funnel..............................................................................................................................7Stage 3 - suppliers became dependent on booking.........................................................................................................................................12Stage 4 - use that leverage to get better quality supply................................................................................................................................. 12Stage 5 - use all the above to convince the customer to come direct and stay loyal............................................................................ 18Stage 6 - wrap it all in great execution and maniacal attention to detail - and perpetuate................................................................. 21What Booking’s moat is not...............................................................................................................................................................................................23What could break the flywheel?.......................................................................................................................................................................................24Could anything disrupt Booking if AI didn't exist?............................................................................................................................................. 26Does the flywheel hold in an AI funnel?................................................................................................................................................................ 26What does hold?.............................................................................................................................................................................................................29What does Booking actually do today?......................................................................................................................................................................... 30 DETAILS BOOKING - HOW IT WON TRAVEL? "There is no such thing [as a dominant position] in travel. Every day, you're just a click away from getting a betterprice.”-Glenn Fogel at the Skift Global Forum in 2025. This may be true, but Booking.