Expedia Buying Orbitz and Travelocity

How Will This Affect Travelers?

Expedia Buying Orbitz and Travelocity
February 25, 2015

Online searches and booking sites for hotels, airline tickets, and other travel-related needs are undergoing an unusual change in recent years. While their overall numbers are increasing, the ownership of all these sites is rapidly consolidating.

Expedia (NASDAQ: EXPE) has taken a large step forward over the last few weeks, buying Travelocity (NASDAQ: SABR) in January for $280 million, and then announcing several weeks later that it will buy Orbitz (NASDAQ: OWW) for $1.33 billion. The acquisition of Orbitz combines the largest and third-largest players in the industry, leaving rival Priceline (NASDAQ: PCLN) a somewhat distant second.

Consolidation has been going on for some time, unbeknownst to most consumers. Aside from Travelocity and Orbitz (which in turn includes CheapTickets, HotelClub, and eBookers), Expedia owns other sites such as Hotels.com, Hotwire, Trivago and eLong. Rival Priceline owns Kayak, Booking.com, and OpenTable, among other entities.

Within the U.S market, we seem to be heading toward Expedia vs. Priceline, with any unaffiliated sites left in the dust. The global travel market research group Phocuswright estimates that this acquisition gives Expedia approximately three-quarters of the U.S. market share for online travel agencies. However, regulators seem to be unconcerned for two major reasons:

  • Worldwide Market Share – Worldwide travel is a $1.3-trillion industry. When viewed through that prism, both U.S. major entities seem tiny. Expedia would come in at around 6.3% of the global market share after the Orbitz deal with Priceline at around 4.9%, according to Euromonitor International.

  • Alternatives – Direct booking remains a viable alternative and tends to act as a governor on prices. Expedia and Priceline exist for convenience, leverage, and bundling capabilities – but in the end, they are still middlemen. If their prices rise to the extent that it swamps the convenience factor, direct booking through vendor sites such as AA.com, Hilton.com and Southwest.com will become more attractive.

Industry analysts also note that there is little barrier for entry into the market, should others wish to try their hand. For example, Google lurks as a potential contender through Google Flights, its existing platforms, and a demonstrated willingness to acquire and expand. Several antitrust analysts expect that the Justice Department or the Federal Trade Commission may put up a fight but that the deal is likely to go through in the end.

What does this mean for you as a traveler? Probably nothing at all, aside from a few potentially better deals based on Expedia’s improved clout with hotels and airlines. Orbitz is still expected to operate as a separate entity within the Expedia group, and for many travelers, there will be no obvious difference. Seasoned veterans of travel searches know how often the same algorithms are used and how similar the pricing results are between competing sites.

George Hobica of AirfareWatchdog refers to the current buying frenzy as “a free-for-all and a race for survival” instead of a means of incorporating enough leverage to raise prices. Right now, it appears more likely that leverage will go back in the other direction and squeeze vendors into even lower prices or more attractive package options.

Expedia appears to be done with their acquisitions in the short-term, according to input from their CEO, Dara Khosrowshahi, during a recent conference call with investors. Priceline does not have any other acquisitions obviously on their radar – after all, who at this point is left for them to buy that would be beneficial?

The Expedia deal may be one of those rare cases where market consolidation is good for consumers. Let’s see if the deal suffers any regulatory pushback, and if Priceline and direct vendor options keep Expedia’s pricing in check.

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