Will AI Start Making Your Hotel Reservations? – Transcript

00:00Welcome to Thoughts on the Market. I'mSteven Grahamling, Morgan Stanley's US gaming, lodging, and leisure analyst.Today, how AI could transform hotel bookings and reshape the economics ofthe travel industry. It's Monday, November 2nd at 10:00 a.m. in New York.

00:22So, we all love dreaming about and goingon vacations, right? But you know what we don't love as much? scrolling throughdozens of hotel listings, comparing prices across websites, contemplatingwhere and how much we can use our rewards or even maximize points, or evenwondering if we're getting the best deal for the right experience.>> Absolutely. Paris in December is a lovely choice. You'll get Christmaslights, festive window displays,

00:48Christmas markets, cozy cafes, andbeautiful winter streets. When would you like to travel? So, imagine the reliefof having an AI assistant understand you and your family's preferences, all ofyour status and loyalty points, aggregated details and reviews of allthe hotels you've ever traveled to and you might want to travel to, and all youneed to do is evaluate locations. Then, it finds the right hotel and books itfor you. That future is coming into

01:15focus and it could reshape the economicsassociated with the marketing and distribution behind the $640 billionglobal hotel industry. We estimate that every year the lodging industry spendsbetween 22 to5 billion in marketing. Add roughly $30 billion in fees collected byonline travel agencies or OTAAS and

01:37we're talking about 55 to85 billion inspending that AI could influence. Today, when you book through a third partytravel website, hotels typically pay commissions of 10 to 20% if it's abranded hotel or 20 to 30% if it's independent. Booking directly through ahotel's website costs the brand closer to only 5%. That difference can have ameaningful impact on the profitability

02:03for their owners.As AI agents increasingly help travelers find hotels, compare options, andpotentially book on their behalf, we could see a major pivot in brandpreference and booking channel. In our analysis of hotel searches across eightUS destinations, traditional search engines directed travelers to officialhotel websites just 13% of the time.

02:26with AI powered searches that jumped to97%. But perhaps the most interesting findinginvolves loyalty programs. When we told the AI agent that a traveler belonged toa hotel loyalty program, 100% of the resulting links pointed to officialhotel websites. When we specified a membership in an online travel agency'sloyalty program, the results shifted entirely to that third party bookingplatform. That means the AI agent is

02:54already factoring in your rewards,memberships, and loyalty preferences into travel recommendations. We sawsimilar effects in Europe. For major hotel brands, this creates a significantopportunity. Their large loyalty programs and established customerrelationships could help drive more direct bookings at a lower cost. Andeven small shifts add up. We estimate that moving just 1% of bookings fromthird-party platforms to hotel websites

03:21could boost hotel owners ebid die byroughly.1% to.5%.Looking ahead, we expect hotel margins to start benefiting from these savingsin the second half of 2027 with further gains in 2028.Independent and boutique hotels could also profit as AI gets better atmatching travelers with unique properties that fit their preferences.Meanwhile, online travel agencies aren't

03:46going away. Their extensive hotelinventories, loyalty programs, and scale and payments and fulfillment remainimportant competitive advantages. For now, AIdriven referrals still accountfor only a small fraction of travel website traffic. But as AI platformsdevelop their own advertising and commission models, the economics couldchange. So, what does this mean for the travel industry? AI could help hotelsattract guests at a lower cost while

04:13making it easier for travelers to findthe right state. Hotel brands have an edge with their loyalty programs,whereas online travel agencies can leverage unique inventory, boostingindependent hotels. It's too early to declare an outright winner, but expectmore from us as this battle evolves.

04:35Thanks for listening. If you enjoy theshow, please leave us a review wherever you listen and share thoughts on themarket with a friend or colleague today. The proceeding content isformational only and based on information available when created. Itis not an offer or solicitation, nor is it tax or legal advice. It doesnot consider your financial circumstances and objectives and may notbe suitable for you.