The Chinese market is just too big and growing too quickly for any online travel agency to ignore. In fact the sheer size and dynamism of the Chinese population along with the robust near double-digit growth of its economy makes it commercially feasible to customize the products and services to suit local tastes and preferences. It should then come as no surprise if Expedia (NASDAQ:EXPE), the leading online travel agency, adopts a different strategy to target the travel market in China. Here we take a closer look at some ways in which Expedia could do that. Expedia competes with other leading online travel agencies such as Priceline.com (NASDAQ:PCLN), Travelocity and Orbitz (NASDAQ:OWW), all of which, in some way or the other, have a presence in China.
We have a $30.60 price target on Expedia which represents a 15% upside to its current market price.
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Partnering with local players in online travel industry
Armed with a $50 million  budget for investments in China, Expedia has already increased its stake in the leading Chinese online travel agency, eLong earlier this year. The firm had explicitly outlined a strategy of working through local Chinese brands rather than building its own brand name. Chinese customers are known to prefer web sites that are written in their native language that offer travel products to meet their tastes and budgets as well as those that can facilitate convenient payment options such as cash-on-delivery. Of equally importance, any travel agency must have a call center support with local language capabilities.
Hence, it would not be unrealistic to assume that Expedia would try and acquire significant stakes in other small local/regional players in the online travel industry. Niche travel sites, both publicly and privately held, such as the ones focusing on adventure sports, for honeymooners, vacation home rentals etc. could be an attractive investment opportunity for Expedia, more so because of Expedia’s potential to expand these outside China, if need be.
Partnering with traditional brick-and-mortar travel agents
Expedia via its Travel Agent Affiliate Program (TAAP) partners with traditional brick-and-mortar travel agents by providing them access to its database of hundreds of thousands of hotel properties and air tickets. We published a note on this Tuesday titled Expedia Recruits Asian Travel Agents to Expand Reach.
This program not only helps agents earn a commission on the bookings but it also enable Expedia to liquidate more of its own inventory of travel products in the process. The program was met with a very favorable response in the West and Expedia has only recently announced expanding the same to Southeast Asia via Singapore, with subsequent launches planned in Japan, Indonesia, Malaysia and Thailand.
Expedia’s TAAP could help it evolve from being another ‘competitor’ to a ‘supplier’ to travel agents and is in fact a noteworthy growth opportunity in markets with an already high Internet penetration. By providing back-end services to travel agents, Expedia could really strengthen its presence in China using a successful model implemented in other markets. In addition this will warrant installing an active and locally recruited sales team to serve the travel agents.
Partnering with regional airlines
Expedia had announced a partnership with AirAsia earlier this year, wherein the leading budget carrier’s tickets were exclusively available for sale at Expedia’s site apart from the airlines own official website. There are several other regional airlines in China with which Expedia could enter into a private-label partnership and sell hotel bookings at the airlines’ website itself.
Broadly speaking, given the nature of Chinese consumer and market, it is more likely that Expedia would enter into business-to-business partnerships with airlines, hotel chains, brick-and-mortar and local travel agencies instead of investing in building a brand name for itself amidst the consumer base.Notes: