How The Travel Booking Giants Stack Up and Where They Are Heading

With the announcement that Travelocity will basically become a virtual clone of Expedia in 2014, the lay of the land in the online travel market will be shifting. While Expedia will bolster its leading position among the ranks of the major players in the U.S., it will still play second fiddle to Priceline, including its Booking.com unit, in the global online travel agency pecking order.

The Priceline-Expedia gap is especially wide in the all-important, global hotel business, where Booking.com is growing at a much faster pace than Expedia’s brands. Priceline’s Booking.com currently offers more than 340,000 hotels, apartments, vacation rentals and B&Bs while Expedia’s Hotels.com unit provides around 200,000 accommodations.

The surprise decision for Travelocity and Expedia to strike a strategic marketing agreement finally ends years of speculation about the fate of one of the weaker online travel agencies, and it would normally portend more consolidation — if there were anything left worth buying.

Consider the following rankings of the major online travel agencies.  We’ve included TripAdvisor, which is more of an advertising play, but is heading toward transactions:

Major Online Travel Agencies Ranked by Q2 2013 Revenue

* TripAdvisor gets bulk of revenue from advertising, but took in $32.7 million from Business Listings subscriptions and transactions.
** This is admittedly a wild guesstimate, and the real number is likely smaller. Travelocity generated $825.3 million in revenue for full-year 2011, the latest revenue number known, but sold Zuji in 2012.
*** CheapOair did $2.55 billion in 2012 gross bookings, and we’ve estimated Q2 2013 gross bookings.
Source: Financial reports, Skift reporting, and estimates

Where do each of these online players stand, and where are things heading?

Priceline Group
The Priceline Group, including Priceline.com, Kayak, Booking.com, Agoda, and Rental Cars.com, is the largest global online travel player, and it is growing faster than Expedia, based in great measure on Booking.com’s lucrative hotel business. Priceline is weak in the U.S. compared with Expedia, where it is dominant, but Priceline’s U.S. advertising campaigns for its Express Deals and Booking.com have been taking share from Expedia’s Hotwire, in particular, and Booking.com could be a long-term threat to Expedia.com in the U.S., too.

The Expedia-Travelocity agreement wouldn’t upset the applecart, but would help Expedia increase its lead in the U.S. — unless Booking.com’s and Priceline’s advertising blitz can further eat into Expedia’s businesses.

Most of the merger and acquisition activity of late has happened in the metasearch space, with Priceline acquiring Kayak, and Expedia taking majority control of Trivago. The Expedia-Travelocity agreement won’t likely trigger more OTA consolidation because the remaining pieces, Orbitz Worldwide and CheapOair, wouldn’t do much to advance either Priceline’s or Expedia’s hotel-business aspirations. Hotels is where the money is.

A wild card in the lack of consolidation thesis is TripAdvisor, which launched hotel metasearch this summer as an advertising play. But, TripAdvisor is headed on a path toward hotel transactions. TripAdvisor could decide to buy an online travel agency or another Kayak-like metasearch player, but Orbitz Worldwide, which has been struggling for years to build its hotel business, and flight-oriented CheapOair, don’t seem to be attractive targets among the online booking sites.

Expedia Inc.
Expedia, with its dozen or so brands, including Hotels.com, Venere, Hotwire, Egencia, eLong and now Trivago, is by far the dominant OTA in terms of U.S. marketshare, but it trails the Priceline Group globally. In the hotel sphere, Expedia was slow to embrace the agency model, which catapulted Booking.com’s growth. Expedia will pick up some share from the Travelocity relationship, but the caveat is that Expedia will have to share some of this incremental revenue with Travelocity. And, the agreement does little to help Expedia with the central battle: The competition between Expedia and its Venere unit with Priceline’s Booking.com and Agoda over the global hotel business.

TripAdvisor 
Spun off from Expedia Inc. in late 2011, TripAdvisor, with $246.9 million in Q2 2013 revenue, is just a fraction of the size of Priceline and Expedia, but it is growing fast, and its profit margins in the advertising business are off the charts. TripAdvisor fields more than two dozen TripAdvisor-branded websites around the world, and they chiefly make their money off hotel advertising tied to consumer hotel reviews.

TripAdvisor is a go-to source for travel information in the U.S., and in addition to its TripAdvisor-branded sites, the company owns about 20 other brands. It has obviously been busy over the years making relatively tiny acquisitions. TripAdvisor’s brands include FlipKey, Holiday Lettings, SeatGuru, GateGuru, Jetsetter, Tingo, Cruise Critic, and many others.

TripAdvisor is now competing with Priceline’s Kayak and Expedia’s Trivago in hotel metasearch, with travelers who want to book a hotel shuffled off to an OTA or hotel website to complete the actual booking. TripAdvisor already has transaction sites in FlipKey and Holiday Lettings for vacation rentals, and Tingo for hotel bookings, and could be interested in acquiring an OTA for e-commerce experience, or another metasearch player, maybe a Hipmunk, Room 77 or an international player, to move the hotel metasearch business forward.

Orbitz Worldwide
Orbitz Worldwide traces its roots to its founding by major U.S. airlines, and has been struggling ever since to reduce its reliance in the minimal-margin flight-ticket business, and to expand its more lucrative hotel business so it might get in the conversation with Expedia and Priceline. It has been a very long-haul; Orbitz has been making some limited strides in its hotel business, has total revenue approaching TripAdvisor’s, but Orbitz is a tiny when measured against Priceline and Expedia.

Orbitz Worldwide, with Travelport as a major investor, owns brands including Orbitz.com and CheapTickets in the U.S, ebookers in Europe, and Hotel Club and ratestogo in Asia-Pacific. The latter two businesses have been struggling, while ebookers is showing some life after years of being in the doldrums.

As a merger and acquisitions target, Orbitz Worldwide wouldn’t really advance a bigger player’s hotel aspirations, and Orbitz itself likely doesn’t have the cash to go on a major buying spree of its own.

Travelocity
Owned by Sabre Holdings, Travelocity was once king of the OTA hill, but fell behind the times from a technology perspective and never really adapted to competitors’ expansions in the global hotel business. Travelocity still owns lastminute.com in Europe, but overpaid for it at a roughly $1 billion price tag in 2005, and had difficulties integrating it.

Since last year, Travelocity has been shedding assets, including zuji in Asia-Pacific, Travelocity Business in the U.S. and Holiday Autos in Europe, in anticipation of an expected Sabre IPO in 2014. Travelocity is holding onto lastminute.com for now, but likely is looking to sell it, as well.

Travelocity’s agreement with Expedia is by no means a guarantee that Travelocity will survive or thrive. It has taken a radical approach to hanging on, and success in such an unusual arrangement will be a crapshoot, although Travelocity’s overhead costs will be greatly reduced. Travelocity is the fourth or fifth largest OTA in the U.S. — meaning it ranks at or near the bottom of the major OTAs, if you include TripAdvisor in the mix.

CheapOair 
Privately held CheapOair tells Skift that it did $2.55 billion in gross bookings in 2012, and we estimate that it is the fourth or fifth among the U.S. OTAs. But, CheapOair is definitely a different animal than the other OTAs because it is highly dependent on flight bookings.

Although CheapOair’s gross bookings may appear substantial, its revenue and profits are likely smaller than its peers. Unlike the other OTAs, it still charges consumers booking fees, depending on the itinerary, and emphasizes phone bookings. It doesn’t have much a hotel business.

CheapOair’s relatively unique value proposition, besides its name, is that it works with international consolidators and is owned by corporate travel agency Fareportal. Between the consolidators and its Fareportal ties, CheapOair can negotiate advantageous deals with airlines, and make healthier profits on the flight business than its OTA competitors likely do in their respective air-ticket businesses.

Besides the relative lack of attractiveness among remaining OTAs such as Orbitz and CheapOair as acquisition targets by the larger players, another factor weighing against a rash of consolidation would be the U.S. Department of Justice’s new activist stance on antitrust issues as is evident in the DOJ suit to stop the US Airways-American Airlines merger.

If Expedia and Travelocity had ever considered such an outright acquisition of Travelocity by Expedia, the DOJ suit likely would have virtually eliminated that from consideration.

Asked whether the DOJ’s latest stance played into the Expedia-Travelocity discussions, a Sabre spokesperson states: “Our transaction is not a merger. We will continue to compete with Expedia.”

Travelocity may do a lot of marketing of its own brand once the Expedia deal kicks in next year, but there won’t be much competing with Expedia because any strides Travelocity makes will be to Expedia’s benefit.