The Month That Was For Online Travel Agencies

PCLN: Priceline Group logo
PCLN
Priceline Group

The month of September witnessed acquisition related activities for the two biggest online travel agencies (OTAs), Priceline (NASDAQ: PCLN) and Expedia (NASDAQ:EXPE). Expedia’s Orbitz acquisition received a regulatory go-ahead and ironically one of its rivals, TripAdvisor (NASDAQ:TRIP), might be indirectly responsible for that. The Department of Justice gave Expedia a go-ahead presumably because it believes that TripAdvisor will be adding meaningful competition on the online travel space and hence Expedia’s consolidation of the U.S. online travel space might not thwart a healthy, competitive market. In related news, TripAdvisor’s Instant Booking platform has been made available throughout the U.S. and the U.K. in September. With its Instant Booking, TripAdvisor evolved from a travel review and meta-search website to a full-service OTA, wherein customers can book flights and hotels on the TripAdvisor website itself.

Expedia

Expedia completed its Orbitz acquisition this month after receiving the regulatory go-ahead. Expedia had been facing regulatory scrutiny because market participants felt that its multiple acquisitions might lead to a consolidation in the U.S. online travel market, where Expedia is expected to gain almost 75% of the market share post the Orbitz merger. [1] Tourism is currently a $960 billion industry in the U.S. [2] Between 2012 to 2017, the North American online travel market is forecast to grow at 7% CAGR. With revenues of over $200 billion in 2013, it remains the biggest online travel market in the world and is expected to maintain an important position at least for the next few years. [3] You can read more about our views of whether the concerns raised about Expedia’s market consolidation are justified, here.

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

Also, towards the beginning of the month, Expedia renewed its agreement with American Airlines Group, due to which the Expedia affiliated websites including Expedia, Travelocity, and Hotwire would feature flights from US Airways and American Airlines. Starting from late 2015, the websites will also provide paid seating options, including Main Cabin Extra seats providing extra legroom and priority boarding, Preferred Seats with standard legroom in a more favorable cabin location, etc. Additionally, the Expedia Affiliate Network (EAN) and AA Vacations collaborated to enable EAN to supply hotel content through the www.aa.com website. [4]

American Airlines’ collaboration with Expedia comes at a time when some airlines such as Lufthansa are trying to bypass OTAs (and hence the global distribution systems (GDS)) by levying additional charges for booking through the OTAs. Expedia had confirmed that it will access American Airlines’ seat data through global distribution systems and not through a direct-connect with American Airlines Group. [5] This might indicate that American Airlines recognizes the rising power of the OTAs in the flight distribution system and has hence decided to collaborate with Expedia even through the GDS. To give a perspective, in 2014, 44% of the 766 million travelers in the U.S. booked flight ticket through OTAs. [6]

Expedia’s stock gained around 2% over the month through last Friday. We have a  price estimate of $117 for Expedia’s stock which is slightly below the current market price. For the year 2015, we estimate revenues of around $7 billion and EPS of $4.29, both in line with the consensus estimate.

Priceline

Priceline acquired AS Digital, an Australian-based restaurant reservation website on September 3rd.  AS Digital will be integrated with Priceline’s North-America based restaurant booking website, OpenTable. This, in turn, will help build OpenTable’s presence in Australia, Japan, and across the Asia Pacific region. [7] Priceline is the leader in the North American restaurant reservation segment after its Open Table acquisition. Priceline was gearing up for international expansion of Open Table and this move will further strengthen its plans.

TripAdvisor has, so far, been holding the leading position in restaurant booking websites outside the U.S. with its multiple acquisitions over the last year. TripAdvisor has rebranded its restaurant platform as TheFork and it currently spans across 12 countries. TheFork caters to reservations in over 28,000 restaurants. [8] Priceline might provide additional competition to TripAdvisor on the international front with its recent acquisition.

Priceline’s stock didn’t reflect significant movement over the last one month. We have a  price estimate of $1,282 for Priceline’s stock which is slightly above the current market price. For the year 2015, we estimate revenues of around $10 billion and EPS of $57.80, both in line with the consensus estimate.

TripAdvisor

TripAdvisor might have inadvertently played a big role in the final go-ahead of the Expedia–Orbitz merger. The Department of Justice had allegedly investigated the relevance of TripAdvisor as a competitor in the online travel space before allowing Expedia to complete its Orbitz acquisition. [9]

TripAdvisor’s Instant Booking, introduced in the first half of 2014, requires hotel partners to pay a commission for each completed transaction. This commission based model is similar to most of the OTAs’ pricing process of a fee per transaction, charged after the completion of a stay. [10]

In September, Instant Booking was made available across all platforms on the U.S. and U.K. [11]. Instant Booking allows users to book directly from the TripAdvisor platform, instead of being directed to the hotel website.  Instant Booking is currently available for almost one-third of the e-commerce enabled properties (roughly, 235,000 properties) on the TripAdvisor platform.

TripAdvisor’s Instant Booking apparently charges a lower commission than its OTA rivals, Priceline and Expedia. As a result, chains like Marriott have entered into agreements with TripAdvisor, wherein, some of their rooms can be only booked through TripAdvisor. [12] In Q2 2015, TripAdvisor partnered with 10 leading hotel chains for the Instant Booking Platform. TripAdvisor’s low pricing strategy might provide a future roadblock in the path of its competitors’ growth.

TripAdvisor’s stock lost around 8% over the month through last Friday. We have a  price estimate of $80 for TripAdvisor’s stock which is over 20% above the current market price. For the year 2015, we estimate revenues of around $1.5 billion and EPS of $2.59, both almost in line with the consensus estimate.

 

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

Notes:
  1. Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition, Skift, February 13, 2015 []
  2. Amazon Launches Amazon Destinations: Here’s What It Offers, Tech Times, April 23, 2015 []
  3. The New Online Travel Consumer, Euromonitor, February 2014 []
  4. Expedia, Inc. And American Airlines Group Expand Partnership Bringing More Choices To Travelers, Expedia Press Release, September 2, 2015 []
  5. Expedia and American Airlines Break Through Four Years of Dysfunction, Skift, September 3, 2015 []
  6. Delta infuriates travelers by withholding data from booking sites, but sites band together to fight back, Road Warrior Voices, May 20, 2015 []
  7. The Priceline Group Announces the Acquisition of AS Digital, Priceline Press Release, September 3, 2015 []
  8. TripAdvisor’s Q2 2015 earnings Call Transcript, Seeking Alpha, July 23, 2015 []
  9. TripAdvisor Is a Key Focus of the Expedia-Orbitz Merger Investigation, Skift, September 15, 2015 []
  10. What TripAdvisor’s instant booking means for hotels, tnooz, November 2014 []
  11. TripAdvisor’s Instant Booking Now on All US & UK Platforms, NASDAQ, September 15, 2015 []
  12. Hotels Fight Back Against Sites Like Expedia and Priceline, The New York Times, August 31, 2015 []