Travelocity, the online booking site owned by Sabre, has given in to the intense competition in the online booking sector, and gone with the least risky option short of actually selling itself off: it has done a deal with once-competitor Expedia, to use its technology platform to power its North American sites.

The agreement includes a provision whereby Expedia could acquire certain of Travelocity’s assets at a later date.

Essentially, Travelocity becomes a marketing arm for the Expedia business in the U.S. and Canada, although Travelocity will focus on promoting its own brand and will remain as part of parent company Sabre.

“It’s a virtual merger,” says Henry Harteveldt, travel analyst for Hudson Crossing. “This is really the evisceration of the Travelocity product and a great win for Expedia.”

As Sabre considers an IPO, this will it enable to reduce an enormous amount of costs and boost its profits, all of which will look good to potential investors, Harteveldt says.

“It’s as if Costco said it would source everything from Walmart and use Walmart’s ordering system and inventory management system and everything else,” Harteveldt said.”Since launching in 1996, Travelocity has grown from a pioneering Internet start-up to one of the leading brands in travel,” said Carl Sparks, president and CEO, Travelocity Global. “In staying true to our core values of meeting the needs of both consumers and travel suppliers, we have elected to evolve and strengthen our business model in the US and Canada by working with Expedia, Inc. to offer a top-notch booking platform and a more robust supply of travel options, allowing us to focus increased resources on building our competitive strengths in marketing and retailing.”

Details of the deal:

• This is an “exclusive, long-term strategic marketing agreement,” Expedia will power the tech platforms for Travelocity’s existing websites in the US and Canada, while providing Travelocity access to Expedia, Inc.’s supply and customer services.
• After the deal gets implemented: Travelocity will focus its efforts on promoting its brand.
• Travelocity will remain wholly-owned by Sabre, and independent of Expedia.
• Travelocity-owned lastminute.com in Europe and the Travelocity Partner Network are not included in this marketing arrangement.
  
• Both parties plan to begin development and implementation immediately, with an expected launch in 2014.
• Travelocity will be compensated through a performance-based marketing fee related to bookings powered by Expedia made through Travelocity-branded websites in the US and Canada.
• The parties have also agreed to customary mutual protective provisions, as well as certain exit rights which, if exercised, could result in the acquisition of certain assets relating to Travelocity’s business by Expedia at a later date.

The agreement comes as parent company Sabre, which is privately held by TPG and Silver Lake Partners, has been shedding assets in preparation for an IPO, expected next year.

The Sabre board has been looking for a solution for its Travelocity woes for some time, and there reportedly was some mixed opinion on whether Travelocity should be sold or included in an IPO.

In June, Travelocity sold Travelocity Business, its corporate travel unit, to BCD Travel for an undisclosed sum.

At the same time, but in a separate action, Travelocity agreed to sell London-based Holiday Autos, which has more than 5,000 car rental locations, to Dublin-based CarTrawler. Terms of the deal were not disclosed.

And, last year Travelocity sold Zuji, its travel agency business in Asia-Pacific, to Webjet for $25 million.

While Expedia and Priceline’s Booking.com have been competing for global leadership in the hotels business, Travelocity and Orbitz have lagged the pack.

Sparks was brought in a couple of years ago to turn around the company, which needed a wholesale upgrading of its back-end systems in order to make a go of it, but apparently the transition fell short.

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