Is AI Reshaping the Travel Industry's Power Dynamics

Key Takeaways

• Hotel chains are rapidly integrating AI across operations, from revenue management to guest services, posing a significant competitive challenge to online travel agencies (OTAs) like Expedia and Booking Holdings.
• While OTAs face potential disintermediation as hotels drive direct bookings through AI, their established market reach and data scale still offer avenues for adaptation and collaboration.
• Investors are right to be cautious, but the long-term outlook for Expedia and Booking Holdings hinges on their ability to leverage AI to enhance their own value proposition and forge strategic partnerships.

Is AI Reshaping the Travel Industry's Power Dynamics?

The travel industry is at a critical juncture, with artificial intelligence rapidly transforming how hotels operate and engage with guests. This seismic shift is creating palpable jitters among investors in online travel agencies (OTAs) like Expedia Group (NASDAQ: EXPE) and Booking Holdings (NASDAQ: BKNG). For years, these platforms have been the dominant intermediaries, connecting travelers with accommodations and commanding significant market share. Now, as hotel chains ink deals with AI firms and embed intelligent systems into their core operations, the question isn't just about efficiency gains for hotels, but about the very relevance of the traditional OTA model.

Expedia Group, currently trading at $199.76, has seen its shares fluctuate, with a 52-week range spanning from a low of $130.01 to a high of $303.80. Its market capitalization stands at $23.37 billion. Booking Holdings, a much larger entity, trades at a hefty $4007.45, down significantly from its 52-week high of $5839.41, though still well above its $3871.01 low, with a market cap of $129.18 billion. The recent price action, including Booking Holdings hitting a 52-week low on February 19, 2026, and a subsequent announcement of a 25-for-1 stock split effective April 2, 2026, underscores the volatility and investor uncertainty swirling around the sector. This isn't just market noise; it's a reflection of deeper structural changes driven by AI that could redefine who holds the power in the travel ecosystem.

The core concern for investors is whether hotels, armed with sophisticated AI, can bypass OTAs more effectively, driving guests directly to their own booking channels. This potential disintermediation could erode the commission-based revenue models that have fueled Expedia and Booking Holdings for decades. While the hype around AI has often outpaced practical application, the hospitality sector is now seeing genuinely transformative shifts. The industry is moving beyond buzzwords, with nearly all hotel owners (98%) already incorporating AI in some form, signaling that broad adoption is not just on the horizon, but already here, albeit with uneven execution.

How Hotels are Leveraging AI to Transform Operations and Guest Experience

The narrative around AI in hospitality has moved beyond theoretical discussions to concrete, impactful applications that are reshaping everything from back-office efficiency to hyper-personalized guest interactions. Hotel owners are not just dabbling; they are strategically deploying AI to drive tangible value, with 64% using it for operational efficiency, 54% for energy efficiency, and 53% for revenue optimization. These are not minor tweaks; they are direct levers for profitability.

Consider the real-world examples: Hilton Hotels deployed "Connie," an IBM Watson-powered robot concierge, which has processed over 10 million conversations, reducing customer service wait times by 30% and supporting guests in 20 languages. Hyatt Hotels implemented an AI-powered conversational system across eight global contact centers, handling 7 million annual calls and achieving $4.4 million in annual savings by automating routine reservation processes. Marriott International, which invested between $1 billion and $1.2 billion in technology initiatives focused on AI, reports a 35% increase in direct booking conversions and a 28% reduction in front desk call volume through its AI assistants.

Beyond these giants, boutique experiences are also being enhanced. The Cosmopolitan Las Vegas's "Rose" chatbot concierge processed over 100,000 guest interactions in six months, generating $2.8 million in incremental revenue and seeing guests engaging with Rose spend 30% more. Edwardian Hotels London's SMS-based virtual host, Edward, handles room service orders and recommendations, with orders placed through Edward averaging significantly higher than traditional phone orders. These examples illustrate a clear trend: AI is moving from a novelty to a strategic asset, enabling hotels to offer seamless, personalized experiences while simultaneously optimizing their bottom line. The global AI in hospitality market is projected to reach $1.44 billion by 2029, reflecting this steady rise in adoption.

The Competitive Threat: Direct Bookings and Disintermediation

The rapid adoption of AI by hotel chains presents a direct and growing competitive threat to online travel agencies like Expedia and Booking Holdings. For years, OTAs have benefited from their extensive marketing reach and ability to aggregate inventory, but AI is empowering hotels to reclaim control over their customer relationships and, crucially, their booking channels. The most significant concern for OTAs is the potential for increased direct bookings, which bypass their commission fees entirely.

Marriott's AI deployment, for instance, has already led to a 35% increase in direct booking conversions. The Cosmopolitan's Rose chatbot successfully drives return visitors toward direct bookings, creating lasting customer relationships and reducing dependency on third-party sites. This trend is not isolated; case studies highlight AI agents' ability to guide guests through booking processes, raising direct booking rates by up to 25% and cutting costly third-party commissions for hotels. With 78% of large hotel groups investing in AI for dynamic pricing across multiple distribution channels, the incentive to drive direct traffic is stronger than ever.

Moreover, AI-driven personalization allows hotels to tailor offers and experiences directly to guests, potentially diminishing the value proposition of generic OTA search results. If a hotel can proactively offer a guest a customized room upgrade or a local experience based on their past preferences, the need to browse through an OTA's vast, but less personalized, inventory becomes less compelling. This shift is compounded by the fact that 50% of consumers find AI-powered virtual tours of hotels highly influential in their booking decisions, a feature hotels can integrate directly into their own websites. While OTAs still offer unparalleled reach, the battle for customer loyalty and direct engagement is intensifying, putting pressure on the traditional OTA business model.

OTA Response: Adapting, Collaborating, and Investing in AI

While the competitive landscape is undoubtedly shifting, it would be premature to write off Expedia and Booking Holdings. These giants possess immense resources, established brand recognition, and vast troves of data that can be leveraged to adapt to the AI-driven future. Their response will likely involve a multi-pronged strategy: enhancing their own AI capabilities, forging new partnerships, and emphasizing their unique value propositions.

Both Expedia and Booking Holdings are already investing in AI. Expedia, for instance, is reportedly embedding AI-driven copilots to assist both guests and employees, aiming for more seamless and efficient operations. Booking Holdings, too, is likely to be exploring similar avenues, especially given its recent 25-for-1 stock split announcement, which could make its shares more accessible to a broader investor base and potentially signal a renewed focus on growth strategies. The sheer scale of their platforms means they can collect and analyze data on a level that individual hotel chains cannot, offering opportunities for superior predictive analytics and personalized recommendations across a wider array of travel products.

Furthermore, the challenges for hotels in fully implementing AI are significant. Data privacy and security concerns are cited by 46% of hoteliers as a top barrier, followed by the costs of investing in AI tools (42%) and difficulty integrating AI with legacy systems (40%). This complexity creates an opportunity for OTAs to act as strategic partners, offering AI-powered solutions that integrate seamlessly with various hotel systems, or by providing a platform where hotels can access advanced AI tools without the prohibitive upfront investment. The future may not be a zero-sum game, but rather one of collaboration where OTAs provide the AI infrastructure and reach, while hotels focus on the on-property guest experience.

Investor Implications: Navigating the Shifting Sands of Travel Tech

For investors, the evolving role of AI in hospitality presents both risks and opportunities for Expedia and Booking Holdings. The "skittish" sentiment is understandable, given the potential for hotels to drive more direct bookings and reduce their reliance on OTAs. Booking Holdings' recent stock performance, including hitting a 52-week low of $3871.01 on February 19, 2026, and a subsequent drop of -6.15% to $4007.45 on high volume of 905,369, reflects this uncertainty. Expedia, trading at $199.76, also saw a -1.98% dip on volume of 5,044,132, indicating similar pressures.

The bull case for OTAs rests on their enduring network effects, marketing prowess, and ability to offer a comprehensive travel planning experience beyond just hotels. They can leverage their vast user data to develop even more sophisticated AI-driven personalization, dynamic pricing, and package deals that individual hotels struggle to match. Moreover, the high cost and complexity of AI implementation for many hotels mean that OTAs could pivot to offering AI-as-a-service or enhanced distribution tools that integrate with hotel-specific AI, becoming a necessary partner rather than a threatened competitor. Booking Holdings' analyst consensus remains a "Buy" from 71 analysts, with a median price target of $6000.00, suggesting confidence in its long-term strategy. Expedia, however, holds a "Hold" consensus from 75 analysts, with a median price target of $260.00, indicating more caution.

The bear case, conversely, highlights the accelerating trend of direct bookings and the potential for hotels to build stronger, AI-powered direct relationships with guests. If hotels can significantly reduce their OTA commission spend, it could put downward pressure on OTA take rates and overall revenue growth. Investors should closely monitor key metrics such as the percentage of direct bookings for major hotel chains, the evolution of OTA commission rates, and the return on investment from AI initiatives by both hotels and OTAs. Expedia's next earnings are on May 14, 2026, and Booking Holdings' on May 5, 2026, which will offer crucial insights into how these companies are navigating the AI revolution.

The integration of AI into the travel industry is not a fleeting trend but a fundamental shift. While the competitive landscape is evolving, both Expedia and Booking Holdings possess the scale and resources to adapt. Their success will hinge on their ability to innovate with AI, either by enhancing their existing platforms or by finding new ways to collaborate with hotels, ensuring they remain indispensable players in the future of travel. Investors should anticipate continued volatility but also recognize the potential for these companies to redefine their value proposition in an AI-powered world.

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