Expedia CEO on AI and ChatGPT, B2B growth, summer travel, earnings

Expedia Group CEO Peter Kern sits down with Yahoo Finance's Brian Sozzi to discuss consumer resiliency ahead of the summer travel demand, earnings, and the integration of artificial intelligence services such as ChatGPT.

Video transcript

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BRIAN SOZZI: Welcome back to Yahoo Finance Live. I'm Brian Sozzi. And it's almost time to pull out the old swim trunks and suntan lotion, hit the road for summer vacation. The summer travel season will come against a backdrop of a slowing US economy and nagging inflation. Concerns about the debt ceiling aren't helping, sentiment around travel either.

Let's check in with Expedia Group CEO Peter Kern. Peter, always great to get some time with you here, where we're getting ready for the heart of the summer travel season. From your perspective, what are you seeing in terms of demand?

PETER KERN: Well, I think it's already summer, so you should get your swim trunks out and get going. But we're seeing a ton of demand. Obviously, a big pickup you probably heard in international travel this summer as international trends have come back. So lots of demand domestically, lots of demand internationally. Still not all of the airlift back across the world. So still some tightness in supply in air. And, you know, unfortunately, that means prices are going to stay high for the summer.

BRIAN SOZZI: Peter, how do trends in the business compare today or compare them to pre-pandemic levels?

PETER KERN: Yeah. A lot of trends have actually returned to kind of pre-pandemic levels when you look at the splits between domestic and international, when you look at the splits between big city versus beaches and mountains, which were, you know, popular during COVID as getaway places. And we also saw a big stretch above duration of stay, length of stay during COVID, where people were basically fully hybrid or weren't going in the office, or you could go work for a month from wherever if you could afford to.

And so those trends have all basically returned to pre-pandemic, which is length of stay has shrunk. Big cities are back in a big way. And-- and everything's kind of normalized international to domestic. There are still a few spots. China is not fully back, parts of Asia. But generally, things are returning to pretty much pre-pandemic normalcy.

BRIAN SOZZI: Why are the prices climbing?

PETER KERN: Why the price is high, is that what you say?

BRIAN SOZZI: Yeah.

PETER KERN: Well, it's a surprise-- well, first of all, we had two years, several years of inflation. We had more demand than supply. There's still demand outstripping supply when you think of, you know, we think there's been a structural change and more people just want to travel generally. It's not revenge travel anymore. It's just more travel as opposed to spending money on other things. And you still, as I mentioned, got pockets where supply is not back fully.

So prices were driven higher when there was tons of revenge travel, tons of inflation. And they got to a point. And now, they're basically holding, because demand has stayed up. And if you think about air travel. There's a little less supply in the world, so they can keep prices high. And in the hotel world, hotels have generally been willing to trade off a little volume for price, because getting employees is harder. There's other issues.

So we've seen, you know, hotels, airlines, et cetera, sustain price. Car rental is a little different. Car supplies come back. And those prices have come down considerably. But certainly, in hotel and in air, they're staying pretty high.

BRIAN SOZZI: How could this-- how long could this recovery and leisure travel continue? And I ask you that, Peter, because today, we get an earnings report from a Walmart, yesterday Target. And they're telling us that consumers are very cautious, so cautious that they're maybe not putting an extra pair of socks or another pair of bathing suits into their shopping basket, because inflation is so high.

PETER KERN: Yeah. Look, I think so far again, we're not seeing any signs of it. I think it's clear that people are prioritizing travel over many other things. I don't know about stocks. But you know, I think we're going to-- it appears like it will sustain itself. And I think people, you know, again, have slightly more time, not as much time as during COVID. But with hybrid work, there's a little more time for leisure travel.

There's a lot of, you know, factors going into it. But I think so far, and this is really across the globe, we're not seeing any real downturns from anything that we would all call, you know, economic pressure. So will it sustain itself forever? Who knows. But depending on the depth of any, you know, economic pressure we get, et cetera, it appears like travel will remain the top of the list of what people want to spend on. And-- and that means we should see travel and leisure travel hold up. Corporate travel slightly different. But certainly, in the leisure space, it's been incredibly strong.

BRIAN SOZZI: Last time we talked, Peter, it sounded like you were getting ready to launch a new rewards program. And I know a lot of the analysts on the Street are excited to think about what that might mean to your bottom line. Where are you in that?

PETER KERN: Yeah. So I'm even more excited than the analysts. So we are launching in July, in the US, it's basically what's called One Key. It will encompass our big three brands-- Expedia, hotels.com, and Vrbo. And you'll be able to earn cash, burn cash. We're calling it One Key cash across all of the products. So you can take a cruise and earn points and use it for vacation rental or vice versa, hotel, air, et cetera.

So we're really excited about it. It's the first of its kind. We obviously have a huge member base. And we think putting the member bases together. And in vacation rentals, there hasn't even been a way to get rewarded. So now, this will be the first real rewards program for vacation rental, which we think is really powerful for Vrbo, and, even more importantly, the fact that you'll be able to share across all the brands. And we'll take that whole consumer base and be able to give them more benefits, more member discounts.

We're sourcing more high-level discounts for people. There's going to be more package discounts. So there's a lot of benefits coming. And we're really excited. So we're launching that July 6 and have a big party in New York. You should come. And it's going to be great.

BRIAN SOZZI: Well, you know my email, Peter. By all means, send the invite. And, you know, maybe when I do come to that party, we can talk about your AI initiatives. You, along with a lot of other companies, are teaming up with or looking into ChatGPT. What are you doing there? And how will AI change the travel experience?

PETER KERN: Yeah. Well, first of all, we've got to work on your party game, because if you want to talk about AI at a party, we have an issue. But putting that aside, we're really excited about AI. We've been working in the space for a long time. And as I said on our earnings call and many other calls, you know, we've been working the space to enhance the consumer proposition for years. And that goes into every big and little thing you see, whether it's what images we show you, how we sort and filter for you, and a bunch of other things.

But the onset of large language models and ChatGPT in particular was exciting to us. As I say, we stayed on the front foot on AI for a long time. And when that came, we really got after it to see how we could use it to enhance the consumer experience. So the first place we've experimented with is we have a plug-in into ChatGPT. And people can be in ChatGPT, ask travel questions, get recommendations from ChatGPT, and then click off into our environment.

Now, that's only for the developer universe and the page universe. So it's not available to everybody yet. But we were basically the first in travel to get there. And then the inverse is, maybe more exciting, we brought ChatGPT into our app, our iOS app. And we're basically allowing people to use ChatGPT to ask, where should I stay near the Empire State Building or near the Eiffel Tower? What are the best hotels there? Whatever, they can ask a bunch of questions.

And then as they get recommendations, we save those recommendations to our trip planning products. And you can go in and search and compare and do all those things. But there's lots more potential for that. And we are looking at interesting ways to use ChatGPT to help in service. Perhaps, help people in search and sort if they want to ask longer, bigger questions.

So there's really a lot of areas where it has application. And we're working closely with ChatGPT and looking at ways where we can utilize the technology.

BRIAN SOZZI: As a leader working so closely with AI, Peter, I know there's some very interesting initiatives. Bigger picture, do you have any concerns how AI impacts the economy over time?

PETER KERN: Yeah. You know, we've watched a lot, I've watched a lot of the debates. I think they're really interesting. And obviously, there are implications for humanity. And I know people like to get focused on the political environment and other places where it can be used or perhaps abused. I think, you know, many have said, including Sam Altman, that, you know, probably regulation will be required. And I think that's a healthy thing.

But I think when people think about it, they get over bias towards all of those dramatic stories. There are a lot of really, really good applications that don't take jobs away, don't change the political climate. They really just enhance people's experiences with products that we use every day or try to use every day. And I think, if you think about all the ways that can enhance people's experience, you know, if searching is complicated, there's all kinds of applications that people with that have disabilities or other challenges.

So there's a lot of great uses and utility to really enhance what people are doing as opposed to replace what people are doing. So I think in our environment as a perfect example, you know, we had to build guardrails for ChatGPT, so that it would only answer travel questions. We didn't want it to get into other things with our consumers. We're not interested in answering those problems.

So you have to-- you know, you can't just set it free and see what happens. You have to use it for a particular application. But if used in the right ways, we think it's incredibly valuable to enhancing a consumer experience, our workers experience. Our service personnel can we'll be able to use it someday. And we're constantly working to enhance those things. So if this helps us do better, that'll be great.

BRIAN SOZZI: Well, when I see you at that party in New York City, Peter, we have bathing suits in artificial intelligence to talk about. Expedia Group CEO Peter Kern, always good to see you. We'll talk to you soon.

PETER KERN: Thanks, Brian. Look forward to your bathing suit recommendations. Thanks.

BRIAN SOZZI: I'm just going to show up wearing it. Peter Kern, thanks so much.