Travel websites like Expedia and Airbnb have found a clever way to invest their temporary holdings from customer pre-payments into additional profits.
- When a customer books a trip through a travel website, the hotels and recipients don’t immediately cash the money put down on those bookings. That money sits in bank accounts controlled by travel companies, sometimes for months.
- Companies like Airbnb and Expedia park those funds in safe bonds and funds for short periods of time. Airbnb processes more than $80 billion in payments like this which account for 30% of the company’s invested assets, The Wall Street Journal reports.
- Due to the Federal Reserve’s interest rate hikes above 4%, Airbnb alone earned $58.5 million doing this in the third quarter of 2022, an increase from $3 million a year prior. Expedia earned $20 million in income in the same way that quarter.
Why It’s News
The Federal Reserve’s policies have been a detriment to the economy over the past year. As inflation has risen, the Fed has sought to raise interest rates from almost nothing to very high in less than a year. As we’ve reported, investors like Elon Musk and Cathie Wood have warned that this tightening policy could unintentionally deflate currency following a severe economic recession. The Fed remains determined to stop inflation at any cost.
This hasn’t meant that every company has suffered. Companies like Airbnb have been very good at taking advantage of the changing economy. Just this past fall, Airbnb made efforts to take advantage of the rise of remote work by offering deals on extended stays for remote workers.
Airbnb and Expedia’s practices could create liquidity concerns. FTX collapsed in the fall because it internally shifted customer money behind the scenes before a run on the exchange drained its funds.
Travel companies have terms and conditions agreements that allow them to invest money from their customers in this fashion. The types of bonds and funds these companies are investing in are considered more traditionally safe as well, The Wall Street Journal notes.
“Most businesses don’t get to hang on to $7.5 billion of other people’s money,” says RBC Capital Markets analyst Brad Erickson.
“We are conservative in our approach and primarily invest in very low-risk securities such as Treasurys, overnight accounts, and term deposits,” says Expedia.