The travel-related search market has become more competitive with Google (NASDAQ:GOOG) recently adding flight schedules to its search results. The Google search allows the user to see flight timings, flight duration and available airlines, but it does not give information on airfare or seat availability. Instead it provides links to the airlines’ websites, where the user can proceed to make bookings. For now, Google does not plan to offer bookings in the near future, but the addition of flight schedules to its search results could have a significant impact on online travel agencies such as Expedia (NASDAQ:EXPE). We value Expedia’s stock with a $30.60 Trefis price estimate, at roughly a 10% premium to its current market price. On the other hand, we expect very little downside to Priceline (NASDAQ:PCLN). Here we explain why.
Why Flight Schedules in Google Searches Threaten Expedia’s Stock
Google’s flight schedule is accompanied with links to airlines’ websites to make bookings and thereby drives visitors away from online travel agencies. While airlines’ own websites offer best fares without any booking fee or agent commission, online travel agencies bundle air tickets with offers on hotel bookings and car rentals into a comprehensive travel plan. Hence, despite low commissions in air ticket bookings (around 4%), online travel agencies have always struggled to attract bookings from airlines’ own websites to cross-sell other travel products on which they earn a handsome margin (often in excess of 20%).
Air ticket bookings make up almost two-thirds of the overall bookings at Expedia. However, given the competitive pricing, the third-party online travel agencies get a very low margin on air ticket bookings that make up less than 10% of our $30.60 Trefis price estimate of Expedia’s stock.
Negligible Impact on Priceline’s Stock
Priceline draws majority of its value from hotel bookings (over 91% of its stock value) and less than 2% from air ticket bookings. So redirecting users to the airlines’ website will have a lower impact on Priceline. Similarly, Priceline’s advertising revenues (about 0.4% of its stock value) will have a negligible impact due to the reduced number of visitors on Priceline’s websites.
See our full analysis for Expedia and See our full analysis of Priceline
