Expedia – Travelocity deal: A stepping stone to something bigger?

Last night’s big news of the strategic alliance forged between formally ‘mortal enemies’ Expedia and Sabre-owned Travelocity may have caught some by surprise.

Last night’s big news of the strategic alliance forged between formally ‘mortal enemies’ Expedia and Sabre-owned Travelocity may have caught some by surprise.

But for keen watchers of the OTA space a move towards consolidation in this sector won’t have been a huge shock given the pincer movement by meta-search and booking direct.

The two sides in the agreement that was revealed on the PR Newswire shortly before 10.30pm UK time (after the NASDAQ closed) said it only related to Travelocity’s US and Canadian sites.

It was further clearly stated that Travelocity’s European subsidiary lastminute.com was not part of the agreement under which Travelocity sites will be powered by Expedia technology.

However, overlooked in much of the analysis to date is the fact that while not a part of the deal, lastminute.com will start taking Expedia’s deals.

Travelocity content is available to all of its sites globally, not just those operating in the US and Canada, meaning Expedia’s influence will be felt from the off.

So it appears speculation that yesterday’s announcement of the tie-up is a prelim to a more all-encompassing deal that will emerge over time, is certainly not too wide of the mark.

It will be interesting to look back on this week’s developments in, say, three year’s time to see where things have progressed.

The driver for consolidation in the OTA space is coming from changes in the online travel market that is seeing price comparison continue its rise to dominance.

Given that this tends to expose the price differential between booking direct and through an intermediary, this is not likely to favour OTAs.

Last year’s $1.8 billion buy-out of Kayak by booking.com parent Priceline was testimony to that trend, as was Expedia’s own purchase of hotel website Trivago.

But even at the domestic UK level the deals comparison game is becoming an increasingly crowded marketplace.

Pure-play metas like Kayak have entered the package holiday comparison market while Skyscanner and Momondo have both diversified their product reach.

And in the UK’s traditional beach holiday market, incumbents like Teletext Holidays and Icelolly have seen the likes of loveholidays.co.uk and icecreamholidays.com enter the fray.

They are not likely to be the last new entrants into this market which lastminute.com, in effect, outsourced to the Lowcost Holiday Group in 2011 in a partnership deal.

Former Expedia subsidiary TripAdvisor’s switch away from being a pure review site has been reported to have hurt the online agency as it directs booking leads more widely.

The boost to Expedia’s share price from news of the Travelocity will have been welcome given the $2 billion wiped off its valuation in July after a second quarter earnings update.

But Expedia remains the world’s largest online travel agency and arguably Travelocity’s need to secure this deal was greater, although insight is more difficult into a private company.

Sabre, which operates enormous divisions in more core sectors than online travel agency like GDS, airline operations and hospitality, spoke about sticking to its strengths.

Carl Sparks, president and chief executive of Travelocity Global, said: “In staying true to our core values … we have elected to evolve and strengthen our business model in the US and Canada by working with Expedia to offer a top-notch booking platform and a more robust supply of travel options.”

The deal comes under a week since Sabre announced president Tom Klein was to take over from Sam Gilliland, known to have been a big supporter of Travelocity, as chief executive.

Travelocity has also been cutting its cloth accordingly, having sold off its business travel division and lastminute.com’s Holiday Autos brand in June.

The Dallas Morning News offered this analysis of the relative position of the now partners on August 15:

“Sabre operates, in part, in the increasingly fragmented world of online travel agents.

“And numbers from ComScore, which collects data on consumer behaviour online, show Travelocity yielding market share.

“Market leader Expedia has consistently been at the top of the pack, with about 60% of the unique visitors to online travel websites.

“Travelocity has seen its share dip from 23.5% of visitors in July 2010 to 17.8% last month. That’s a nearly 35% drop in the number of unique visitors.”