Insider: Expedia CEO talks about his company, travel demand, high prices, and his compensation

Online travel agency Expedia Group is benefitting as Americans continue to make up for trips they skipped during the worst of the pandemic, and Wall Street expects it to post a solidly profitable 2023 after a money-losing first quarter.

The Seattle-based company has been restructuring operations, and next month it will launch a rewards program that will tie together its disparate brands including Expedia, Hotels.com and Vrbo, which competes with Airbnb.

CEO Peter Kern talked with The Associated Press about the company, demand for travel, whether consumers can tolerate higher prices, and his management style. The answers have been edited for length and clarity.

Q: The question of the moment in the travel industry is whether demand is going to remain strong. What do you see?

A: We see macro demand pretty strong. It depends where you are in the world, but by and large demand has remained robust, and it’s going to be a busy summer for sure.

Q: Are high prices having any effect on travel spending?

A: We’ve seen travel demand remain quite robust notwithstanding all the economic indicators in the world, and as far as we can tell it’s really that people are prioritizing travel over everything else. Even though travel is somewhat more expensive than it used to be, it’s still the thing that people miss the most and the thing people still want the most in terms of how they spend their money.

Q: Despite record revenue, Expedia still lost money in the first quarter. What happened?

A: That’s not unusual for us in the first quarter. Lots and lots of bookings take place, which means we spend a lot of money in marketing, but a much smaller percentage actually stay (in hotels or vacation rentals) in the first quarter. So you end up with this typical mismatch of lots of bookings, lots of marketing spend, but not that much actual revenue because revenue is really when people stay.

Q: Expedia has suggested that margins will increase. Why should investors believe that will happen?

A: We have given the market some guidance in terms of what we expect on the year, and that does mathematically pencil out to further expansion of margins and growth. We haven’t set very specific numbers around that, but we’ve been investing … in buying the right customers, investing in the long-term value of customers, and we’ve also been improving the product a lot. We’ve talked about all of the work we’ve done on technology to re-platform the whole company. Those are things you have to pay for in the short term, but they pay off in the longer term.

Q: You just reported long-term debt of around $6.3 billion. Do you plan to reduce that in the near term? Or will that have to wait?

A: We signaled to the market that our intent was to get to around two times leverage. (The company reported in May that leverage, or debt divided by EBITDA, was 2.7 times.) We may reduce debt if we feel like it makes sense to get to our goals, but that goal is not that we need to be there by September per se. It’s just a goal we want to get to. And of course, we’re buying back our own equity in a significant way because we believe our equity is very cheap.

Q: You’re launching a new loyalty program next month that combines the Expedia and Hotels.com programs and adds Vrbo. How big a boost will you get from One Key?

A: We think it’s a big game-changer long-term in terms of just the customer experience. Now customers who rent a Vrbo will be able to use their points, their One Key cash, to buy an airline ticket or stay in a hotel or a cruise. We’ve had a lot of different brands over a long period of time. They were very discrete. They often have different loyalty programs or no loyalty programs. And what we’re trying to say is like, we want our customers to get the benefit of all our capabilities and stay in our ecosystem. So we think the benefit of that is substantial.

Q: Speaking of Vrbo, Airbnb is putting new focus into renting individual rooms. Could they steal price-conscious customers from Vrbo?

A: They skew to lower ADRs (average daily rates) than we do, partly because we do whole apartments or villas and they do shared spaces, which we have not wanted to get into. Depending on the mix of business, that may benefit them or us at any given time depending on where demand is moving.

Q: Did Vrbo gain business from the complaints about Airbnb’s cleaning fees, and even lists of chores for their guests?

A: Those are funny stories, we enjoy those, but it’s hard to detect those little bits of noise. It’s a big marketplace for both of us.

Q: Your 2021 compensation was eye-popping: The company valued it — with all the stock awards and options — at $296 million if the company does well. Is anyone worth that much?

A: I can’t say if anybody’s worth a number or not worth a number. All of my economics are tied up in the success of the business. So whether I end up making that or less or more is entirely a function of how the business performs. I think a CEO should be closely tied to the performance of the company.

Q: Before this job, you were CEO of Tribune Media until it was taken over by Nexstar. Are you happy to be out of the media business?

A: The exciting thing about where I am now is we are a growth company, we service a $2 trillion-and-growing industry. It was very different in media. My friends there now are doing the not-so-fun part of the job, which is spending all their time worrying about costs and how to try to turn a business that appears to be slowly shrinking into something else.

Q: How would you describe your management style?

A: I try to put a great team in place and empower them and give them what they need to succeed. That’s what we’ve been doing. You’re never going to see me write a management book.