Expedia (NASDAQ: EXPE) recently lost the renewed contract for Eurostar to Orbitz (NADSAQ:OWW) in ‘a highly competitive bid process.’ Expedia lost the contract after having provided hotel bookings for over five years on a private label basis to Eurostar – the high-speed passenger train service that links UK (London) with mainland Europe (Brussels and Paris). Expedia is the world leading online travel agency and competes with Priceline (NASDAQ:PCLN) and Travelocity.
We value Expedia with a $30.60 Trefis price estimate of its stock, at roughly 20% premium to its current market price. Below we explain why Eurostar was important for Expedia and now for Orbitz.
What Makes Partnering with Eurostar So Crucial?
Europe is well connected with high-speed railway networks. Eurostar has alone carried about 120 million  travelers since its launch in 1994 and ferries over 10 million each year.  Given the sizable passenger traffic, Eurostar is touted to be one of the top-five private label contracts available in the booming European travel market.  As such, losing Eurostar’s private label contract to Orbitz could dent Expedia’s growth prospects in Europe.
Hotel bookings make up almost 55% of Expedia’s stock. You can drag the graph below to see the impact of Expedia’s share of the total hotel rooms booked, on its stock price estimate.
Why Partnering with Eurostar is Important for Orbitz?
Amid the sluggish and competitor U.S. travel market, overseas hotel bookings have contributed to the steep rise of Expedia and Priceline in the recent years. Orbitz’ dispute with American Airlines, its largest customer at one point in time, had eroded almost 5% of its sales. Until now, Orbitz was mainly focused on domestic air ticket bookings. Now the Eurostar partnership gives Orbitz the much-needed exposure to international hotel bookings that have benefitted other leading players.
In a previous article, we discussed the partnerships between travel suppliers and online travel agencies as an evolving business model. (See How About a New Business Model for Priceline). All leading online travel agents are aggressively pursuing private label partnerships with airlines. Orbitz also offers its private-label solutions (hotel bookings at travel supplier websites) to Delta Airlines, KLM, LAN Airlines and Alaska Air, among others. Expedia, however, continues to expand its private-label business, Expedia Affiliate Network, with tie-ups with AirAsia and the recently announced partnership with South African Airways.
You can see a detailed analysis of our $30.60 Trefis price estimate of Expedia’s stock here.Notes: