US View – October 2006

Dennis Schaal reports on developments from across the Atlantic Ocean

Issues for Expedia in US

The common thinking stateside is that US-headquartered online agencies Р Expedia, Travelocity, Travelport and Priceline Р need to accelerate their push into Europe because growth in their domestic businesses, challenged by travel search engines and supplier-direct inroads, has peaked.

Well, expansion throughout Europe, and Asia-Pacific, will proceed apace, but a review of their second-quarter financial results shows the online agencies, with the exception of Expedia, are showing some life in their US operations and are growing faster here than many had envisioned.

In the four months ending June 30, Orbitz-Cheaptickets increased domestic gross bookings 40% to 45% year-on year. Travelocity grew 22%, Priceline’s domestic business climbed 16%, and Expedia lagged the field, growing 7% year-on-year, but falling 2% compared with the first quarter. And these trends go beyond the second quarter: gross domestic sales have been on the up for the past three quarters at Travelport, Travelocity and Priceline, and they have been slowing for the past four quarters at Expedia.

In a research note to clients, Thomas Weisel Partners’ equity research unit concludes that “Orbitz-Cheaptickets is outpacing the group by a wide margin, growth for the group as a whole is much more rapid than initially calculated, and Expedia’s decelerating growth appears to be company-specific, not a channel issue”.With’s US market share dipping, Expedia Inc shuffled management at Expedia North America recently and hired a new ad agency to hone the image of the country’s still-leading online travel agency.

Expedia Inc appointed Paul Brown, president of Expedia North America, to replace Steven McArthur, who will resign.

McArthur’s exit came as saw its US online agency market share erode in the first half of this year compared with the first six months of 2005. In the first and second quarters of 2006, Expedia Inc’s market share relative to leading competitors dropped six points to 44%; Travelocity’s rose five points to 25%; Travelport’s was flat at 23%; and Priceline’s increased one point to 8%, according to travel research firm PhoCusWright.

The shuffle of top management at Expedia North America came as dumped its long-time ad agency, Interpublic Group’s Deutsch Inc last month. That ad agency, which choreographed’s ‘Enjoy Your Trip’ campaign and spearheaded advertising for the company over the past seven years, was replaced by Doner Advertising, which handles sister company

Diane Clarkson, travel industry analyst at Jupiter Research, says Expedia, as the industry leader, is “everyone’s target” and faces supplier-direct inroads, as do its competitors, but it also confronts its own challenges.

“Expedia’s ad campaign early in the year did not resonate and the fact that it shifted ad agencies is indicative of that as well,” Clarkson says. “This is not an end-of-Expedia story. It is just facing some challenges right now. It is going to take a while but it will come out swinging.”

The online agency category faces pressures on its business model and stiff competition from travel search engines and suppliers. For example, Jupiter forecasts that suppliers’ share of online travel revenue will grow five points to 62% in the next five years.

But, although laying down footprints all over Europe and Asia are strategic imperatives, the US-based online agencies are now showing some signs of life at home, as well.

Credibility or control?

Travel companies are now seeing the benefits of developing social networking sites with user-generated content, but they are finding that it is a full-time effort to police the sites.

Hoteliers often seek to plant reviews, passing them off as guest-written, and increasingly public relations personnel and other suppliers seek to hone their messages by influencing the dialogue with anonymous or misleading posts.

Meanwhile, suppliers, see travel blogs as a way to disseminate news, often in a manner that’s more effective than a traditional press release.

Addressing a panel of travel bloggers at a recent New York City forum, Marriott International corporate communications official John Wolf explained how the chain used blog sites to get the word out about new check-in kiosks. “We learned a lot from it. What it did was show the influence that you guys have with mainstream media,” he said.

Wolf was speaking at a BudgetTravelOnline ‘Blog Party’ that featured a panel of travel-oriented bloggers from,, and has become so important to some airlines and hotel chains that they have established an official presence on the site to set the record straight when they feel misinformation has been published.

Many community sites ban anonymous reviews so they can track down reviewers and investigate issues that don’t pass the sites’ litmus test. So the challenge for travel companies is how to maintain the democratic nature and credibility of their communities as they grow and gain traction.

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