Skift Take

Expedia, Travelocity, Orbitz, CheapTickets,, Hotwire, and Trivago -- they would all belong to Expedia Inc. if this Expedia-Orbitz deal gets approved by regulators. It's nice to be king -- although Priceline and may have something to say about that.

After acquiring Travelocity last month and Wotif in Australia a few months earlier, Expedia Inc. cleaned up a few missing pieces and agreed to acquire Orbitz Worldwide, including Orbitz, CheapTickets, eBookers, and HotelClub in a $1.6 billion cash deal.

The deal would give Expedia Inc. a 75 percent market share among U.S. online travel agencies, according to Phocuswright.

The announcement of the deal today was a stunner — although it shouldn’t have been. When Expedia initially began running Travelocity’s North America sites in late 2013 Expedia stated that it was interested in similar deals.

And last week during Expedia’s fourth quarter of 2014 earnings call, Expedia Inc. CEO Dara Khosrowshahi said the company would continue to be acquisitive in 2015. “As far as acquisitions go, acquisitions are a part of our game plan,” Khosrowshahi said February 5. “We’ve had a number of acquisitions over the years and I would say that our technology platforms now and our operating practices now are at a different level where we are good at and have a very strong practice at bringing in and consolidating acquisitions and realizing synergies.”

The big four U.S.-based online travel agencies, including Expedia, Travelocity, Orbitz, and, have now just become the big two, with CheapOair rounding out the field.

Given the consolidation in the U.S. travel industry, the Expedia-Orbitz deal could trigger a regulatory fight with the U.S. Justice Department or Federal Trade Commission, although Expedia officials in a conference call today played down that possibility.

It won’t just be online travel agency competitors which will be raising eyebrows. The deal makes Expedia-Travelocity-Orbitz even more powerful in negotiating deals with hoteliers around the world.

Related: Expedia Vs. Priceline: Adding up the Acquisitions

Itty-Bitty Expedia

Expedia CFO Mark Okerstrom argued that Expedia Inc., which would now include Expedia, Travelocity, Orbitz,, Hotwire, Trivago, eBookers, and eLong, among other brands, is a “small player” in the $1.3 trillion global travel industry, commanding overall market share in the single digits.

According to Euromonitor International, Expedia’s share of the global travel retail market in 2014 would have been 6.3% if Orbitz’ assets are added, compared to Priceline’s 4.9%.

That’s the argument that Expedia will undoubtedly make to regulators. Inferring that there might be a protracted regulatory process, Okerstrom said he doesn’t expect the deal to close until “the back half of the year.”

A spokesperson for the Priceline Group declined to comment when asked whether the company would fight the Expedia-Orbitz deal on antitrust grounds. CheapOair didn’t immediately respond to a request for comment.

There are also break-up fees for each side if the deal doesn’t go through, although the details on this haven’t been released yet.

Weak Link

Apart from Travelocity, Orbitz Worldwide has been the weakest of the three higher-profile U.S. online travel agencies, struggling to achieve scale as Expedia and the Priceline Group grew much faster.

Many in the travel industry have looked askance at Orbitz Worldwide and its performance in recent years, although things have been improving of late.

Still, it was interesting to hear Expedia officials wax on about what a great company their hoped-for new property is.

Okerstrom said the Orbitz acquisition is different than the Travelocity deal because Orbitz has “actually been managed very well,” adding that Orbitz has a strong tech team and a “unique” set of assets, including the affiliate business, the Orbitz Partner Network.

“This is not an incredibly sick business,” Okerstrom said, referring to Orbitz Worldwide. “This is a pretty darn healthy business.”

Interestingly, Okerstrom called the Orbitz loyalty program, Orbucks, “very interesting.”

Okerstrom made that statement despite the fact that Expedia Inc. CEO Dara Khosrowshahi disparaged the program during a Skift interview in September.

“When we look at the Orbitz program, I wouldn’t call it as much a loyalty program because a loyalty program rewards you for being loyal,” Khosrowshahi said in September. “I think we see the Orbitz program as being more of a cross-sell program. If you buy an air ticket then you have some Orbucks to spend immediately. So it doesn’t necessarily reward loyalty; it rewards cross-sell.”

What’s the Plan?

The plan going forward is that Orbitz Worldwide properties would still operate as separate brands within the Expedia Inc. portfolio, although Orbitz’s hotel inventory would be tied into the Expedia technology platform and Orbitz would be able to market Expedia’s wider array of global hotel properties.

Okerstrom said the acquisition would be a big revenue opportunity because Orbitz would now be able to offer hotel rooms at “our economics.”

Talking financials, Okerstrom said Expedia would be able to achieve $75 million in synergies from the deal, and Expedia Inc. would generate an additional 75 cents per share in earnings in 2015, depending on when the deal closes.

What’s Next?

Will Orbitz Worldwide CEO Barney Harford, who didn’t speak during Expedia’s conference call about the deal, stay on after the deal closes — if it closes?

An Orbitz Worldwide spokesperson said “there have been no discussions about staffing or personnel matters.”

Expedia plans on keeping the Orbitz brands, which will continue to compete against Expedia’s brands for non-loyal customers, Khosrowshahi said.

Said Khosrowshahi: They will continue “to compete for the toss-up customer.”

Expedia officials obviously don’t feel that getting regulatory approval for the acquisition is a toss-up but that remains to be seen.


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Tags: expedia, orbitz, travelocity

Photo credit: All of Orbitz's rewards belong to Expedia and CEO Dara Khosrowshahi.

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