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Skift Take

Expedia is expected to retain the Travelocity brand. It would be foolish not to because the whole value proposition is to tap into the allegiances of Travelocity loyalists. And that leaves Orbitz out in the cold. It is unable to achieve scale and Expedia and the Priceline Group are apparently not interested in scooping Orbitz up.

— Dennis Schaal

As expected after the early termination of a Federal Trade Commission antitrust review two weeks ago, Expedia Inc. acquired Travelocity outright for an underwhelming $280 million in cash.

The acquisition from Travelocity’s parent, Sabre Corp., is for Travelocity’s websites in the U.S. and Canada. Switzerland-based Bravofly has an agreement to acquire Lastminute.com, often referred to as Travelocity Europe, for $120 million. Subject to regulatory approvals, the LastMinute.com deal is expected to close in the next couple of months.

Under a 2013 agreement between Expedia and Sabre, Expedia has certain options to acquire Sabre’s Travelocity for a fair market price. We predicted in May 2014 that today’s acquisition would happen.

Sabre entered into the 2013 agreement with Expedia to cut Sabre’s losses and expenses related to Travelocity as Sabre was poised to execute its now-completed IPO. Sabre got to downsize its Travelocity operation into mostly a marketing team of around 50 employees in North America, and was able to trim expenses and cut losses to focus on its global distribution, airline and hospitality businesses.

Expedia Inc. stands to gain additional marketshare, particularly in North America, for the Travelocity acquisition. Expedia has already integrated Travelocity’s technology platforms and was bullish on the uplift from the 2013 agreement.

In the third quarter of 2014, which are the latest available results, Travelocity contributed 4 percentage points to Expedia Inc.’s 24 percent global room night growth.

Sabre’s Losses are Expedia’s Gain

The Expedia-Sabre agreement, which essentially amounted to a white label pact with Expedia powering Travelocity’s North American websites and hotel and airline relationships, gave Expedia the option to acquire Travelocity at a fair market value.

That acquisition price, presumably at fair market value, turned out to be for $280 million in cash.

To put that in context, Travelocity, which at one point was the leading online travel company in the world, was sold today for just $80 million more than TripAdvisor paid in August for tours and activities provider Viator.

Expedia Inc. confirms it will retain the Travelocity brand, which will complement brands such as Expedia, Hotels.com, Hotwire, Venere etc. It would have been foolish not to keep the Travelocity brand because the whole value proposition is to tap into the allegiances of Travelocity loyalists. Travelocity services 20 million travelers a month, according to the new chief of the Travelocity brand, Expedia Inc. CEO Dara Khosrowshahi.

“The Travelocity team will be part of the Brand Expedia group within the Expedia, Inc. family allowing it to tap into Brand Expedia’s scale and expertise while still maintaining a strong independent brand,” says Expedia Inc. spokesperson Sarah Waffle Gavin.

And what of Travelocity’s remaining employees?

Travelocity had roughly 3,000 people on the payroll globally as recently as a couple of years ago, but the Travelocity workforce has been whittled to around 50 employees in North America with many based in the Dallas area.

“The Travelocity business will continue to be run from Dallas and key leadership roles will continue to be based there,” Waffle Gavin says. “Everyone will continue to work from the Sabre office until we complete our transition activities, including working with Travelocity leaders to identify a permanent location for the Travelocity team. That search has already begun and we are scouting new locations as well as evaluating the Hotels.com office. There is no plan to move the team or leadership to Bellevue.”

What’s Next for Third Wheel Orbitz?

And that leaves Orbitz out in the cold. Orbitz has been unable to achieve scale as it was late getting into the hotel business and faces an uphill fight against Expedia and Priceline/Booking.com. Expedia and the Priceline Group are apparently not interested in scooping up Orbitz.

Orbitz has hired bankers and is looking for bidders.

When you ask industry pundits who the likely buyers for Orbitz Worldwide might be, a common response, although overly dismissive in nature, is “who’d want to buy them.”

Likely candidates might be a foreign company looking for a U.S. footprint or an “outsider,” namely a big brand looking to get serious about the travel business. A private equity buyer might be a possibility, as well.

 

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