Booking Holdings’ CEO on building the world’s largest travel platform
Booking Holdings’ CEO on building the world’s largest travel platform
https://www.mckinsey.com/industries/travel/our-insights/booking-holdings-ceo-on-building-the-worlds-largest-travel-platform
Glenn Fogel explains how AI, personalization, and the “connected trip” could redefine value for travelers.
For Booking Holdings CEO Glenn Fogel, the future of travel is the “connected trip.” Everything is seamless, everything is easy, and everything updates automatically if conditions change—when, say, a flight is delayed or inclement weather postpones a city walking tour. Fogel believes AI holds the key to fully realizing this vision.
Booking Holdings provides online travel services in more than 220 countries. Its 2024 gross travel bookings were $166 billion (up 10 percent year over year), and its adjusted earnings totaled more than $8 billion (up 17 percent from the previous year). The company’s brands include Kayak, OpenTable, and Booking.com, one of the world’s leading accommodations websites. Fogel joined the parent company in 2000 and became its CEO and president in 2017. He is also CEO of Booking.com.
McKinsey Senior Partner Maurice Obeid recently spoke with Fogel in New York City, not far from Booking Holdings’ global headquarters, in Norwalk, Connecticut. Their discussion touches on Booking’s corporate strategy, the rapid innovation that technology is bringing to the travel industry, and the influence that personal challenges can have on building resilience and leadership skills. (Fogel himself suffered a severe stroke in high school before going on to graduate from the Wharton School of the University of Pennsylvania and Harvard Law School.)
The following is an edited transcript of their conversation.
An evolving model
Maurice Obeid: Booking went from being a small company to being the largest and most valuable travel company in the world. If you reflect back, what are some inflection points that set its trajectory?
Glenn Fogel: I became CEO of Booking Holdings, which is the company that holds all our brands, in 2017. At that time, we were almost entirely a single product. Hotel bookings made through Booking.com were about 90 percent of the business, and they were all done in the same manner—handled with an agency model. Customers had to enter a credit card to get a reservation for a hotel, but that was only so they could be charged a no-show fee in case they didn’t show up. The credit card wasn’t actually charged up front.
That was a great model at the time. And it was a differentiator for us from other services, where if you booked a hotel, they would take your money up front even though you might not use the room until many months later.
Our model is very different now. We are still predominantly doing hotels. But we don’t only use the agency model. Now, we will charge the credit card up front and pay the hotel later. That’s a change. And there’s an advantage in that, because we can do certain things that we couldn’t do before, like pricing adjustments.
Additionally, we’ve expanded to all parts of travel, including flights, ground transportation, and attractions. We don’t have as much awareness in the US, because Booking.com started in Europe. People might not realize how big we are. But we’re building up brand awareness and growing very rapidly.
Personalized journeys without the worry
Maurice Obeid: You’ve talked a lot about the connected trip. What does that mean, practically speaking? And where are you on that journey?
Glenn Fogel: People want their travel to be easy. They want it to have good value. They don’t want to have to worry about it.
But in travel, things happen. Weather is a big problem right off the bat. And then you can have mechanical issues with a flight, or there can be overbooking at a hotel. There are so many things that can go wrong in a travel experience. I believe we need to create a service that can help prevent and solve these problems and reduce the worry.
We should be able to use technology to greatly improve how things are done right now, because none of the systems currently talk to each other. There’s very little ability to go to one person, one system, or one service and get everything solved or planned.
The idea of the connected trip is to use technology personalization to make sure we are giving customers what they want and doing it in a way that provides the most value. And if, God forbid, anything goes wrong, then we can solve that problem quickly and easily and get them back on their way. Or, even better, we can solve the problem before a customer knows a problem is happening or is about to happen. By using AI, machine learning, and all the ways that one can be probabilistic about problems that could happen, we can build a better system. This will provide something that both consumers and our partners—the suppliers, hotels, airlines, and so forth—will like because we’ll provide more value to both sides.
We’re not there yet. We’re building it. It takes tremendous time. If it was easy, it would already have happened. But we are seeing benefits already in terms of how we are able to use AI to solve customer service problems more quickly, how we’re able to offer someone who books a flight with us the right ground transportation from the airport to the hotel, or how we’re able to offer the right hotel that matches people’s needs or to offer up attractions at the right time.
I’ll give you a great example that I love using. Let’s say you’re going to Amsterdam. You want to see the Rijksmuseum on Thursday and then take a canal tour on Friday. But we know the weather forecast says it’s going to be sunny on Thursday and rainy on Friday. We should be offering customers the option to switch their plans. The customer might not be paying attention to the weather forecast—they might be looking around at the tulips—so if we can give them information, give them the agency to make the decision, and provide an opportunity for them to do it, we think they will be happy we’ve done that.
AI travel agents?
Maurice Obeid: Booking sits between the traveler, the suppliers, and, increasingly, the AI systems supporting the traveler. I’ll illustrate a question through an example. If I am going to Barcelona for a weekend and I want to spend a maximum of $2,000, there’s a world where I just tell my AI agent that. Then the AI agent books directly with the suppliers. What is Booking’s role in that scenario, and what is the asset you want to double down on to make sure there will be a role?
Glenn Fogel: There are a lot of questions about the future role of the intermediary and what the intermediary’s advantage will be. We have that issue right now, actually, because people around the world overwhelmingly book directly with hotels rather than through us. People go to Google and type in their search parameters for a trip to Barcelona and then go directly to the hotel instead of us.
But as the largest travel player in the world, and with hundreds of millions of satisfied customers, why do people come to us at all when they could do those things instead? And in the future, why will they come to us?
It will always come down to whether you are providing higher value and better service. Even for simple things like booking a hotel for a weekend, we are able to provide much better service. For example, we can suggest experiences because nobody goes to the hotel just to sit in the room. We can help people get around and do things at the destination. There are issues around fintech—how you are handling payments and what sort of travel insurance you are getting—that are very important for many people. By bringing all these services together in one place at one time, I think we will continue to have an advantage. That’s why people use us now, and that’s why people will use us in the future. And whether the technology improves at a faster or slower rate, the same rule applies: We have to do it better and faster than our competitors do it.
Some people believe that everyone is going to do everything without using an intermediary. I don’t think that’s the way it’s going to go.
Maurice Obeid: The big LLMs [large language models] are interested in travel. What prevents travel booking from happening within an LLM portal? And is that a source of risk for Booking Holdings?
Glenn Fogel: There’s certainly always a risk. We know people are going to the large language models for travel information. And the question is, after they have gotten this travel information, will they go over to us at Booking.com, or will they somehow complete their transaction within the LLM ecosystem?
I spoke about the connected trip and all the added value in that. Right now, mid-60 percent of our customers come to us directly. Why? It always comes back to providing better service. It’s easy for people to trust that they are getting the best deals and the best service from us.
There is also incredible complexity in executing travel—the regulatory framework, the payment framework and all the regulations that go with it, and so forth. It’s a much more complicated industry than many people realize.
I think it will be a very long time before the LLMs will be able to crack the combination of execution and trust issues that are so important in the travel industry.
The leadership journey
Maurice Obeid: Let’s shift gears to the topic of leadership. What are some of the traits you think have been helpful for you in terms of being a leader?
Glenn Fogel: What is leadership, and how does one become a good leader? There are a lot of books written about that—shelves and shelves of libraries. And I’ve seen all different styles. And when you look at people who you admire as great leaders, they’re all different.
It varies by the individual—what works for you and what works for the organization that you are leading. I’ve been very fortunate, first of all, that I came in as CEO of a company that already had a lot of great leaders running the organization. I benefited from having experienced people there who were doing well.
The second thing that was very helpful is that because we are so global, it offers more perspective—recognizing that things are different in different places and that you have to adapt. Being able to adapt to a new situation is really important.
And then it’s curiosity. Not thinking that I know the right way, but instead letting you tell me what you think is the best way, and then hearing that and asking questions, back and forth, to bring out from the whole team what the best potential future path is.
Maurice Obeid: You’ve spoken publicly about your personal journey early in your life. How has that experience affected your professional life?
Glenn Fogel: Everybody is a product of the life that they have lived to get to where they are. For myself, I grew up with parents who did not have university degrees but who highly valued education, and that really instilled in me the need for education. So that’s something that gets one going in a certain direction.
Then toward the end of my high school time, I was doing very well and thinking about university. And then I unfortunately had a very severe stroke, and it wiped out all of my language abilities and paralyzed my right side. It took me some time to recover, without even knowing whether I would recover or not. And that creates a different perspective—working very hard to come back, overcoming it, and going forward and taking jobs.
And I’ve been fired. Before I came to Booking Holdings, I was fired as an investment banker at a company that was acquired by another bank, which got rid of most of the bankers but kept some. I couldn’t just say, oh well, they fired all the bankers—they made a choice. And that, of course, can be a very personal blow.
So many things affect everybody individually, and nobody escapes without some unfortunate events. The question is: How do you deal with these hardships or challenges? And does that make you stronger and better and more resilient? Does it give you a sense that if you work harder, you’re going to be able to recover? I’m very grateful for whatever was within me that enabled me in some very bad, dark times to be able to come back.
Maurice Obeid: How does this history of resilience affect you now? Does it mean you don’t take no for an answer? What are the day-to-day implications?
Glenn Fogel: There certainly is an element of pushing harder, even when it’s painful, and trying even more. But sometimes one does have to recognize that something is not going to work and change direction. That’s very important too. There is a point you can reach where just working harder is not going to get you there.
Then, toward the end of my high school time, I was doing very well and thinking about university. And then I unfortunately had a very severe stroke, and it wiped out all of my language abilities and paralyzed my right side. It took me some time to recover, without even knowing whether I would recover or not. And that creates a different perspective—working very hard to come back, overcoming it, and going forward and taking jobs.
And I’ve been fired. Before I came to Booking Holdings, I was fired as an investment banker at a company that was acquired by another bank, which got rid of most of the bankers but kept some. I couldn’t just say, oh well, they fired all the bankers—they made a choice. And that, of course, can be a very personal blow.
So many things affect everybody individually, and nobody escapes without some unfortunate events. The question is: How do you deal with these hardships or challenges? And does that make you stronger and better and more resilient? Does it give you a sense that if you work harder, you’re going to be able to recover? I’m very grateful for whatever was within me that enabled me in some very bad, dark times to be able to come back.
Maurice Obeid: How does this history of resilience affect you now? Does it mean you don’t take no for an answer? What are the day-to-day implications?
Glenn Fogel: There certainly is an element of pushing harder, even when it’s painful, and trying even more. But sometimes one does have to recognize that something is not going to work and change direction. That’s very important too. There is a point you can reach where just working harder is not going to get you there.
But I do believe that basic self-discipline is one of the ways to achieve success. And when I say success, there are many different ways to define that. But almost all of these definitions will incorporate an issue where an element of self-discipline will get you further.
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https://www.mckinsey.com/industries/travel/our-insights/the-economics-of-an-airline-flight?
Steve Saxon - Partner, London , Jaap Bouwer - Senior Knowledge Expert, Amsterdam
Have you ever considered exactly how much money an airline makes from a single flight?
Have you ever taken your airplane seat, looked around, and wondered exactly how much money the airline is making from your flight?
McKinsey’s Steve Saxon and Jaap Bouwer analyze a hypothetical one-way flight from London to New York City, laying out the sources of costs and revenues for the airline. Underneath the video, a detailed chart breaks out those precise cost and revenue drivers.
Next time you fly, you’ll have a better understanding of airline economics—and maybe have something interesting to chat about with your seatmate.
Steve Saxon: Have you ever taken your seat on an airplane, looked around you, and wondered, “Is the airline actually making any money?”
We’ll take one hypothetical flight and look at the revenues and the costs. The next time you’re taxiing toward takeoff, you may have a whole new view on the business of flying.
Jaap Bouwer: We’ll start with the revenue side of the ledger.
Steve Saxon: We’ll be flying from London to New York on a Boeing 787. That’s a typical aircraft for this flight.
Jaap Bouwer: In economy class, we may have 192 seats. If 90 percent of them are filled, that would yield 173 passengers.
Steve Saxon: Based on some checks of available prices, a round-trip fare comes out to be about $800 for such a trip. This is one-way, so we’ll take half of that, or $400 per passenger.
Jaap Bouwer: 173 passengers times $400 equals about $69,000 in revenue.
Steve Saxon: But that’s not the only cabin on board this aircraft. You might have sprung for premium economy class or business class, for example.
Jaap Bouwer: Thirty-five premium economy seats 75 percent filled, that’s 26 passengers in premium economy.
Premium economy round-trip fare might be $2,000 on average for this type of flight, so that means $1,000 one-way. That comes out to $26,000 in revenue from premium economy.
In business class, there may be 31 seats. If we assume they’re 70 percent full, that means 22 passengers. Average business fares will be higher. Maybe it’s around $6,000 round trip for this kind of flight. So that means $3,000 one way.
Steve Saxon: So let’s add it all up. The airline gets about $160,000 in ticket revenue on this flight.
But what other ways does this flight make money?
Let’s talk about ancillaries, things that the airline sells beyond the ticket. For example, maybe you checked a bag, or maybe you paid for your seat selection, or maybe you bought something [during the flight], or maybe the credit card you used bought some points from the airline.
Jaap Bouwer: Ancillaries will average roughly $30 per passenger. There are 221 passengers on board, so that’s about $6,600 in revenue.
Steve Saxon: There’s another revenue source you might not think of as an airline passenger. Let’s talk about cargo.
Jaap Bouwer: Roughly half the world’s air freight is carried in the bellies of passenger aircraft. An aircraft like this will have roughly ten metric tons of capacity available for air cargo. If we assume that 50 percent is filled, that means five metric tons of cargo.
Steve Saxon: Cargo prices vary. Let’s assume $1.40 per kilo for cargo revenue. That would give us a total of $7,000 in cargo revenue for the flight.
Now let’s total up all the revenue. The airline’s bringing in about $174,000 for this flight.
Sounds like a decent haul, but the story doesn’t end there. Let’s look at the other side of the ledger.
Jaap Bouwer: Let’s think about the cost the airline incurs when it flies you from place to place.
Steve Saxon: An aircraft such as the 787 can be leased or owned. Let’s assume it’s leased. A lease rate for an aircraft like this is around $1.3 million per month. We need to figure out how much that is per hour, and therefore how much for this flight.
Jaap Bouwer: This type of aircraft might fly 14 hours per day, so that means around 5,000 hours per year. If you do the math, that’s $3,150 per hour.
Steve Saxon: This plane will be in operation for about eight hours, which gives us a total of about $25,000 for leasing cost.
Jaap Bouwer: The airline needs to pay the flight attendants.
Steve Saxon: A flight like ours will have around eight flight attendants on board. Typical salary and benefits for a flight attendant could be $70,000 per year.
Jaap Bouwer: Cabin crew may fly about 60 hours per month, meaning 720 hours per year, and therefore, $97 per hour.
This flight takes eight hours. There are eight crew onboard, so there’s $6,200 in cabin crew cost.
Steve Saxon: But flight attendants aren’t the only crew; someone needs to fly the plane.
Jaap Bouwer: A flight like this will have two pilots in the cockpit. Let’s assume $270,000 in salary, training, and benefits cost.
Steve Saxon: For an eight-hour flight with two pilots onboard, total pilot cost is around $6,000.
There are some passenger-related costs, such as amenities, catering, and in-flight entertainment.
Jaap Bouwer: These can vary by length of haul and cabin of service, but let’s assume the cost [for this flight] is $4,400.
Steve Saxon: These are [amenities] you can see from your seat, and we’re up to almost $42,000 in costs. What about things that are harder to see?
You know what it’s like to fill up your car at the pump or maybe plug in your EV [electric vehicle], but what does an airline spend on jet fuel?
Jaap Bouwer: An aircraft like this will burn about 2,900 gallons of fuel per hour. There are eight hours in this flight, so that means about 23,000 gallons of jet fuel burned.
Jet fuel prices vary. If we assume a current jet fuel price of around $2.20 per gallon, that means almost $51,000 in fuel costs—the largest single cost item for the airline.
Steve Saxon: The airline needs to make sure the aircraft is in tip-top shape.
Jaap Bouwer: An aircraft like this may have maintenance costs on average of $1,300 per hour. For an eight-hour flight, that means about $10,000 in maintenance costs.
Steve Saxon: Air traffic control charges depend on the distance flown, the takeoff weight of the aircraft, and which countries are overflown. For this flight, let’s assume an air traffic control charge of $2,000.
So far we’ve been talking about the costs needed to keep the plane in the air and the passengers happy, but what about the costs on the ground?
Jaap Bouwer: To access airports at either end of the journey, airport charges need to be paid.
Steve Saxon: Yes, airlines need to pay airport costs on each side of the flight. London and New York are particularly expensive, and we might expect $35,000 for this flight.
Jaap Bouwer: Ground handling charges are for checking in passengers and their bags, handling [the boarding and disembarking ramp] for the aircraft, unloading cargo, and so forth. We can expect about $3,000 for this flight.
Steve Saxon: Marketing and sales costs can include advertising, promotion, and commissions paid to travel agents.
Jaap Bouwer: Let’s assume marketing and sales costs are about $15 per passenger. With 221 passengers onboard that’s about $3,300 in cost.
Then there are overhead costs for things like the airline’s corporate office building, or the staff that works there.
Steve Saxon: We can assume about $30 per passenger for that, which would give us a total of $6,600 overhead.
Jaap Bouwer: Add it all up, and the total costs for operating this single flight are about $153,000.
Let’s put it together. We can subtract the operating cost from the revenue to see how much the airline made from this flight.
Steve Saxon: We have $174,000 in revenue and $153,000 in cost.
Jaap Bouwer: We subtract cost from revenue. So that gives us an operating profit of $21,000, or roughly 12%.
Steve Saxon: That sounds like a good margin. But it’s a bit more complicated than that. The average airline industry margin is only around 3 percent to 6 percent.
Jaap Bouwer: Why was our margin higher?
Steve Saxon: First, we chose a healthy route. Lots of people want to fly between London and New York.
And they’re willing to pay for it. The London to New York route is one of the most premium in terms of business passengers.
If we picked a less healthy route, things might look different.
Jaap Bouwer: Furthermore, some passengers may be connecting passengers. Connecting-passenger yields are typically 20 to 30 percent lower than point-to-point passengers.
Steve Saxon: On the cost side, maybe the airline’s using sustainable aviation fuel, which is more expensive. Or maybe the flight was delayed, which would trigger additional charges.
Jaap Bouwer: This is a rough example, and we left a few things out. But as you look at the revenue and cost drivers, you start to get a better feel of how the airline industry works.
Steve Saxon: Maybe you can see why airlines are at the edge of profitability. They’re on thin margins, and it’s easy for things to change and go wrong quickly.
Jaap Bouwer: Airlines have developed and continue to develop various strategies to improve their profit.
Steve Saxon: On the revenue side, they can enhance pricing and revenue management, or they can build bundles of products.
Jaap Bouwer: On the cost side, the airline might work to enhance its aircraft utilization, optimize its maintenance checks, or lower its distribution charges.
Steve Saxon: You can think about airline revenue the next time you pay for a ticket or pay to check a bag.
Jaap Bouwer: And you can think about the airline’s costs the next time you step off a flight that was perfectly on time, with the cabin crew taking great care of you.
Steve Saxon: Now you’ve got something to talk to the passenger next to you about while you’re waiting for takeoff.
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