Gone are the days when travel in India primarily referred to inbound tourists to the Taj Mahal and to palaces in Rajasthan. The increasingly affluent Indian middle class is now packing its bags and heading out on international holidays. Expedia (NASDAQ:EXPE), the largest online travel portal came to India almost two years ago and now plans to significantly scale up its India operations. Expedia competes with other leading online travel companies such as Priceline (NASDAQ:PCLN) and Orbitz (NASDAQ:OWW). We value Expedia with a $30.60 Trefis price estimate of its stock, at over a 19% premium to its current market price. Here we explore what makes India an attractive destination for Expedia.
Why Enter the Indian Market?
- Significant market size: The Indian travel market could grow to $22 billion by 2012, of which $7 billion be online. 
- Promising growth prospects: What’s even more fascinating is the pace at which Indian online travel segment has been growing, from a mere $295 million in 2005 to almost $6 billion in 2010,  at a staggering rate of over 80% year-on-year. The trend should continue well into the future due to rising disposable income levels, higher standards of livings and a younger demographic where almost half the population is under 25 and eagerly looks forward to exploring the increasingly interconnected world.
- Increasing Internet penetration to favor online travel: Asia-Pacific has a significantly lower market share of online travel in the overall travel market at 24% compared to US at 40% and Europe at 36%.  The increasing Internet penetration contributes much to the steep growth expectation in the online travel market in India.
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These drivers will help increase online bookings for air travel online, which is a key driver to our estimates.
What is Expedia’s Presence in India to this Point?
Expedia essentially served the travelers in the US and Europe to plan travel to India by partnering with Indian travel agencies for access to travel inventory (airtickets, hotel stays). Since its launch in India almost two years ago, Expedia has focused on inbound travelers and has tied up for its back-end services with Cleartrip, which provides Expedia access to inventory for domestic flights.
Given the scope and potential of the Indian travel market, Expedia now plans to focus on its India operations. It has recently launched an elaborate ‘Big Daddy’ (of travel bookings) advertising campaign in India and has elaborate plans for the Indian market, which we shall discuss in a subsequent article.
You can see a detailed analysis of our $30.60 Trefis price estimate of Expedia’s stock here.Notes: