Expedia (NASDAQ:EXPE), the world’s largest online travel agency, recently announced an alliance with AirAsia to sell flights, hotel bookings and holiday packages in South-East Asia, the world’s fastest growing aviation and tourism market which is expected to continue growing between 30%-40%.  We take a look at what each might gain from this partnership below.
The joint venture entails forming a new company by merging Expedia’s businesses in Japan, Singapore, India, Malaysia and Thailand along with AirAsia’s businesses – AirAsiaGo and Gorooms. The partnership will give Expedia exclusive distribution rights for AirAsia and AirAsia X (the long haul associate of AirAsia) flights, which until now could only be booked on AirAsia’s own websites.
What does the joint venture mean for Expedia?
- Expedia gets exclusive distribution right of AirAsia air tickets, apart from the airlines’ own websites. The exclusivity clause ensures high traffic, which will translate into higher sales of hotel stays and holiday packages.
- Expedia stands to benefit from AirAsia’s distribution network both online and offline (retail outlets) along with its expertise in the local markets, something it could not have managed itself.
- The shrinking margins make scale crucial for an online travel agency’s sustainability. The merged regional entity will catapult Expedia to size comparable with Priceline’s. Expedia’s Asia-Pacific revenues of around $40 million combined with AirAsia’s sales of $30 million puts the combined assets to close to $70 million. Priceline’s Agoda’s SE Asian revenues for 2010 were $72 million. 
What does the joint venture mean for AirAsia?
- AirAsia gets access to Expedia’s inventory of over 130,000 hotels across the globe. Partnering with the leading online travel agency gives AirAsia a competitive edge over other upcoming low cost carriers in the region such as Tiger Air.
- AirAsia’s long haul operations into the U.S., Europe and Australia need global distribution and Expedia’s strong presence in these markets can serve this purpose. AirAsia is largely unknown in the U.S. and Europe, and hence it needed a partner for selling air seats in these markets.
- The joint venture helps AirAsia sell its inventory of tickets while bypassing the Global Distribution System (GDS).
Moreover the joint venture between Expedia and AirAsia isn’t just an exception, but the partnership between an online travel agency and an airline is a natural next step in the evolution of online travel industry.
Expedia competes with other leading online travel agencies across the globe such as Priceline (NASDAQ:PCLN), Orbitz (NASDAQ:OWW) and Travelocity. We value Expedia with a $30.60 Trefis price estimate of its stock, which is roughly a 23% premium to its current market price.
See our full analysis for Expedia here.Notes:
- AirAsia and Expedia offer steep travel discounts, CNN GO, March 29’ 2011 [↩]
- Why Expedia moves in Asia could be game-changing or desperate, Tnooz, March 31’ 2011 [↩]