Though Expedia (NASDAQ:EXPE) remains the largest global online travel agency (OTA) in terms of gross bookings, Priceline (NASDAQ:PCLN) overtook the company as the world’s biggest OTA by sales in 2010 on account of its aggressive international expansion. As growth in the U.S. online travel market slows down, OTAs are turning towards opportunities in other promising markets such as Asia-Pacific and Europe.
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Expedia has managed to increase its revenue contribution from international markets from 35% in 2008 to 45% in 2012. With its continued focus to leverage long-term growth opportunity in new markets, Expedia envisions deriving over 50% of its revenues from international markets in the future. The company targets to increase its footprint in Europe and Asia-Pacific by partnering with some of the leading players in these regions.
In a previous article, we explained how Expedia’s acquisition of Trivago will help it leverage growth opportunities in the European travel market. In this article, we discuss the rising opportunities in the Asia-Pacific online travel market and some recent steps taken by Expedia which support our belief that the company’s penetration in the region will increase in the future.
Growth Potential In The Asia-Pacific Travel Market
Valued at $68 billion in 2012, online travel sales in Asia-Pacific accounted for 23% of the total travel market in the region. Estimated to grow at a CAGR of 18% through 2016, the region has the fastest growing online travel market in the world after Latin America. Thus, the Asia-Pacific region offers long-term growth prospects for Expedia and remains one of its primary focus areas. A healthy macro economic environment leads to rising per capita income, which combined with low Internet penetration provides tremendous growth opportunities for the OTAs.
Rising per capita income: Despite the global economic downturn in 2008-09, countries in the Asia-Pacific region continued to grow at a strong pace. The average per capita disposable income in Asia-Pacific grew by 19.3% over 2007-2012. Rising incomes lead to higher consumer expenditure and a favorable shift towards discretionary spending such as travel. Asia-Pacific’s per-capita consumer expenditure is expected to grow by 37.2% in real terms between 2013 and 2020. 
Low Internet penetration: The relatively low Internet penetration in Asia (27.5% ) compared to Europe (63.2%) and the U.S. (78.6%) presents upside to the online travel industry as customers increasingly access the Internet for travel planning.
Growing Partnerships Can Increase Expedia’s Market Share In Asia-Pacific
Currently Expedia accounts for only 4% of the Asia-Pacific online travel market.  It intends to tap growth potential in these economies by leveraging its diversified assets including Air-Asia Expedia joint venture, eLong, hotels.com, Egencia and other affiliate businesses. We think that the growing collaborations will help Expedia increase its market penetration in the region. Here are some recent deals that reiterate our belief:
Technology partnership with Sabre: With over $100 billion in travel deals purchased annually, Sabre is a leading technology provider for the travel industry and operates the world’s largest travel marketplace. Expedia entered into a partnership with Sabre in 2005 in North America and later in Latin America. Earlier this week the two companies extended their collaboration into Asia, providing Expedia users some of the broadest and most competitively-priced travel options in the region.
Air-Asia Expedia collaboration: Expedia entered into a partnership with Air-Asia in mid-2011 which gave it exclusive distribution rights to sell AirAsia tickets, apart from the airline’s own websites. Benefiting from AirAsia’s distribution network and its expertise in the local markets, Expedia has witnessed increasing travel bookings from Asia-Pacific. The AirAsia Expedia partnership has launched localized websites in Singapore, Thailand and Philippines, which are among the top online travel agencies in these countries. Reinforcing its commitment toward the Asian economy, AirAsia Expedia plans to launch Expedia sites in several other Asian markets to tap the fueling growth.
eLong Partnership in China: With a product portfolio of over 32,000 hotels in China and 155,000 international hotels in more that 100 countries, eLong offers the largest directly-bookable hotel options for its customers. Expedia is the largest shareholder in eLong and the relationship between the two companies has strengthened as they entered into a new agreement in November 2012 that increases their level of strategic cooperation. The agreement provides for greater knowledge-sharing as well as cooperation for potential mergers and acquisitions and amends certain non-competitive provisions initially entered into in connection with Expedia’s investment in eLong.
With the largest population and as one of the fastest growing economies in the world, China is probably one of the most attractive markets in the Asian market. Expedia feels that China provides robust growth opportunities and estimates the Chinese travel market to reach over USD 105 million by 2013.
Partnership with Thomas Cook India: In July 2012, Expedia partnered with Thomas Cook India to provide end-to-end visa services to its customers in the country. Under the partnership, Expedia has waived visa-processing charges for its users booking international packages. In addition, it now enables registered users to access updated visa information and downloadable application forms via a simple interface. Using the new interface, Expedia’s customers can view information about visa procedures of the country of travel, documentation, processing time, fees, etc.
India is one of the fastest-growing outbound markets with a projected growth rate of 16%. We believe that given Thomas Cook’s credibility in the market, the deal puts Expedia in a better position to leverage the projected growth from the Indian market.
Our price estimate of $69 for Expedia is at a premium of over 10% to the current market price.Notes:
- Regional Focus: Asia Pacific’s Changing Consumer Pattern Spur New Opportunities, Euromonitor International, April 2, 2013 [↩]
- Expedia’s Investor Presentation, June 2012 [↩]