Expedia’s Game Plan for the Indian Travel Market
Expedia (NASDAQ:EXPE), the largest online travel portal came to India almost two years ago and now plans to scale up its India operations. This is a follow up note to one we published earlier this week that discussed why India is an attractive market, What Brings Expedia To India? Expedia competes with other leading online travel companies such as Priceline (NASDAQ:PCLN) and Orbitz (NASDAQ:OWW). We value Expedia with a $30.60 Trefis price estimate, which is around a 19% premium to its current market price. Here we explore what plans Expedia has for the Indian market and what impact these might have on its stock.
What are Expedia’s Plans in India?
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Expedia now plans to position itself in the domestic and international travel market in India. This will involve coming in closer contact with the people and travel suppliers. Expedia plans to take on the local market leaders MakeMyTrip, Cleartrip, Yatra, Travel Guru and climb up to the fourth position in less than a year. Here’s how Expedia plans to go about doing this.
Connecting with Indian Consumers
Expedia is now armed with a significant $6 million budget for its marketing initiatives in India.
- Building its brand: Expedia is making heavy investments in building a brand in India. It has partnered with MSN and hindustantimes.com to form a customized Indian offering Expedia.co.in. Its ‘Big Daddy’ advertising campaign can be found on TV, billboard, taxis and trains all over the country.
- Expanding distribution channels: Given the high penetration of mobile phones, Expedia has partnered with Nokia to create an avenue for mobile browsing and booking to compensate for the rising, although still low, Internet penetration.
- Affordable: Expedia does not charge the customer any booking fee but gets a commission from the travel supplier (airlines, hotels) instead. This could be particularly attractive for the increasingly affluent but still very much value-conscious Indian consumer.
Partnering with local travel suppliers and agents
- Directly sourcing travel inventory: Expedia is now in talks with domestic carriers for directly getting a share of their inventory.
- Partnering with travel agents: It is also partnering with small brick-and-mortar travel agents through the Travel Agents Federation of India (TFAI) by providing them access to its own travel inventory of air tickets and hotel stays. This shall have a very significant impact in expanding Expedia’s distribution to remote and rural geographies with low Internet penetration.
- Expanding hotel inventory to suburban and rural India: The Indian hotel and lodging market is essentially unorganized with the prominence of family run independent properties. Increasing presence in India shall greatly enhance Expedia’s hotel inventory (currently at over 130,000 hotels) to include small hotels in sub-urban and rural areas.
What upside could an Indian expansion present to Expedia’s stock?
As Expedia increases its presence in India, we can expect an increase in overall bookings via Expedia.co.in. We currently estimate Expedia’s share of hotel bookings to rise from 2.07% in 2010 to 2.37% in our forecast period. However, India with its over 1.2 billion people can help Expedia gain a higher share of the overall hotel bookings.
Even a 0.2 percentage point increase in incremental market share on account of expansion in India could lend a 5% upside to our current $30.60 Trefis price estimate of Expedia’s stock.
You can see a detailed analysis of our $30.6 Trefis price estimate of Expedia’s stock here.