Expedia (NASDAQ:EXPE) recently announced a private-label partnership with South African Airways (SAA), the leading airline carrier in Africa. This follows a trend of online travel agencies offering hotel bookings on airlines’ websites, and now Expedia will provide hotel bookings at each of the 35 destinations served by SAA.  The announcement comes soon after Expedia’s joint venture with AirAsia, the leading budget carrier in Asia. (See Expedia Partners With AirAsia) We believe these moves will help it compete against other leading online travel agencies such as Priceline (NASDAQ:PCLN), Orbitz (NASDAQ:OWW) and Travelocity.
How do these partnerships work?
- Expedia Q1 2016 Earnings Results
- How Did The Top Two OTAs Perform In The Hotel Booking Segment Over The Last Five Years?
- How Have Expedia’s Different Segments Performed Over The Last Five Years?
- What Drove Expedia’s Revenue And EBITDA Growth Over The Last Five Years?
- Where Can Expedia’s Growth Come From In The Next 5 Years?
- Expedia Year 2015 Review
In a previous article, we discussed partnerships between airlines and online travel agencies is part of an evolving business model. (See How About a New Business Model for Priceline) Airlines’ websites offer the most competitive airfares and attract a majority of air ticket bookings over the Internet. Offering hotel bookings on airlines’ websites provides an added convenience and a seamless one-stop travel bookings experience. It also helps online travel agencies sell their inventory of hotel inventory to a relevant audience at the most crucial stage in the travel bookings process.
How much could it impact Expedia’s stock?
Partnering with South African Airways could potentially increase Expedia’s market share of hotel stays to leading to upside to our current $30.6 Trefis price estimate of Expedia’s stock.
Here’s how we think of the potential impact:
- More hotel stays for Expedia through the AirAsia partnership
- South African Airways flew 7 million passengers in 2010. 
- Assuming that even if a conservative 1 in every 10 passengers booked a hotel stay at Expedia, this translates into a 700k more hotel stays
- More hotel nights booked through Expedia
- We estimate that on average there will be 2 persons per hotel room and 3 nights per stay leading to additional 1.05 million hotel room night bookings at Expedia in 2011 (0.7 million visitors / 2 visitors per room X 3 nights per stay)
You can drag the graph below to see the impact on Expedia’s stock price estimate. The above estimate would lead to a 2-3% price increase for the SAA addition alone. However if Expedia could secure more of these partnerships and the market share for occupied hotel nights rose to around 3% by the end of our forecast, this implies roughly 12-15% upside.
Expedia Affiliate Network, Expedia’s division dedicated to such private-label partnerships works with several such partners across the globe and is aggressively pushing its direct-to-business model. However, Orbitz provides private-label solutions to Delta Airlines, KLM, LAN Airlines and Alaska Air and recently nabbed a contract with Eurostar from Expedia so competition for this business is heating up. See Expedia Loses Eurostar to Orbitz.
You can see a detailed analysis of our $30.60 Trefis price estimate of Expedia’s stock here.Notes:
- South African Airways selects Expedia affiliate network to power hotel offering, Travel Daily News, May 10’ 2011 [↩]
- South African Airlines [↩]