Is Expedia’s $1.6 billion acquisition of Orbitz Worldwide, announced in February, in trouble from an antitrust perspective?

With the U.S. Justice Department reviewing the combination of Expedia and Orbitz out of competition concerns in a process that could take the rest of 2015 or even run as far as May 2016, financial services firm UBS downgraded Orbitz Worldwide’s stock last week in part because of fears that DOJ will eventually sue to block the deal. Expedia also acquired Travelocity in January 2015.

“Based on a combination of recent press reports & our own industry conversations, we believe there are increasing antitrust concerns surrounding the proposed EXPE-OWW transaction,” UBS stated. “Specifically, our conversations suggest increasing levels of concern being voiced by travel suppliers to regulators regarding an already largely consolidated US OTA market.”

In that regard, there are rumors that major hotel chains and/or their trade association, the American Hotel & Lodging Association, are preparing statements/position papers urging the DOJ to alter the deal or oppose it outright.

How DOJ Will Define the Market

The fate of the Expedia-Orbitz deal could hinge on whether the DOJ looks at the acquisition from the perspective of consolidation in the U.S. online travel agency market alone or the U.S. travel market as a whole.

Conventional wisdom holds that the deal would get a much harder look if the DOJ views it from the online travel agency-only lens, and that the acquisition would sail through if regulators evaluate the impact on the entire U.S. travel market.

UBS estimates that the combined Expedia-Travelocity-Orbitz would wield a commanding 73 percent share of the U.S. online travel agency market but only about 11 percent of the overall U.S. travel market.

But Cowen and Co. issued a note July 17 challenging the prevailing view that Expedia-Orbitz would wield a 70-80 percent share of the market.

“Besides ignoring vacation rentals, this fundamentally misrepresents how
consumers shop for travel online,” Cowen stated. “Taking the traveler’s point of view — by analyzing traffic to top comparison sites — we found Expedia’s post-deal share is only 28%, or 15% including suppliers. As such, we see deal approval at 90% probability.”

Trends Favoring Deal Approval

Even if the DOJ were to analyze the Expedia-Orbitz combination through the narrow online travel agency/booking site lens — and it is by no means a certainty that regulators would take that route — just consider the trends arguing in the deal’s favor.

Marriott International recently became the latest U.S.-based hotel chain to sign up for TripAdvisor Instant Booking, the feature enabling guests to complete their reservations on TripAdvisor without having to navigate to the hotel website. Online travel agency consolidation likely isn’t a major issue for Marriott, which gets only a mid-to high single-digit percentage of its bookings from OTAs, according to UBS.

TripAdvisor Instant Booking cuts out big online travel agencies such as Expedia and, which have so far declined to sign up for the TripAdvisor program. The TripAdvisor booking program, as it begins to sign up hotel chain after hotel chain, has the potential to emerge as a viable alternative for hotels and a major competitor to Expedia-Orbitz and even though TripAdvisor is not on the road toward becoming a full-fledged online travel agency. It doesn’t have to.

Although TripAdvisor is farther along, Google is introducing a similar program that enables third-party hotel technology companies to tie into Google’s hotel program. Participating hotels are choosing to let guests book their rooms directly on Google.

Given Google’s market dominance in search and maps and its ties with third-party hotel-tech companies such as Sabre, Trust International and others, Google would have the ability to scale up this hotel-booking service rapidly if it chooses to do so.

Thus Google is another threat that Expedia-Orbitz and would have to consider.

Then there are sister companies and, which have been advertising heavily in the U.S., as have TripAdvisor and Expedia/Trivago., by all accounts, has been stealing market share from

When you consider these trends, plus Amazon’s modest moves to expand its hotel-booking program, it is easy to see how, even with the addition of Orbitz, Expedia would have plenty of competiion and wouldn’t have the market locked down.

Expedia Gets Tough in Australia

Opponents of the Expedia-Orbitz deal could point to Expedia’s actions in Australia after acquiring online travel agency Wotif in late 2014.

Gauging the prospects of the Expedia-Orbitz deal from an antitrust perspective in May, an analysis from the Capitol Forum noted that Expedia, which had about a 45 percent share of the Australia online travel agency market after buying Wotif, raised commissions from to about 15 percent, up from 12 percent, only a few months after the deal closed.

The DOJ could take a look at Expedia’s actions in Australia as a precursor of things to come in the U.S. if the Expedia-Orbitz deal passes muster.

The Capitol Forum analysis points out, however, that one big hotel pulled out of Expedia after the commission hike, suggesting there are distribution alternatives aplenty. Just because Expedia managed to raise commissions in Australia, a move that isn’t necessarily permanent, doesn’t mean that Expedia-Orbitz would have the clout to do likewise in the U.S., the analysis stated.

The Capitol Forum cited a consensus of 81 percent believing the deal would go through but characterized that as “slightly too bullish.”

No Momentum to Quash the Deal

In citing chatter among suppliers opposing the Expedia-Orbitz merger, UBS noted that there have been several recent proposed transactions, including Comcast & Time Warner, Sysco & US Foods, Electrolux & GE Home Appliance, that died because of regulator distaste.

UBS didn’t mention it but you might also toss in the DOJ probe of possible U.S. airline collusion over airfares and capacity constraints as indicative of a more critical regulatory climate. Most observers note, however, that the issue of OTA consolidation and alleged airline coordination over fares aren’t necessarily related.

One of the characteristics of the Expedia-Orbitz deal is that it likely will be an all or nothing kind of thing. Either the DOJ sues to block it or the department will let it go through. There aren’t gates to divest, as happened in the American Airlines-US Airways merger, and selling off assets like or Cheaptickets isn’t a practical solution in the Expedia-Orbitz situation.

A settlement that would bar Expedia-Orbitz from raising commissions isn’t one that the DOJ would likely seek to propose or that Expedia-Orbitz would accept.

There really isn’t any momentum pointing to the building of opposition to the deal. Orbitz and Expedia officials have likely had a few routine meetings with Congressional staffs and the DOJ isn’t believed to have taken any of the preliminary steps that it would it if were preparing for a suit to block the deal.

You don’t see any U.S. Senators or Representatives calling on the DOJ to take a critical look at the Expedia-Orbitz acquisition like several did when Google was acquiring ITA Software, a deal that ultimately went through after a settlement.

To the contrary, with the emergence of TripAdvisor and Google as online travel agency alternatives and Amazon waiting in the wings if it ever figures out what it wants to do in travel, all the signs point toward an increasingly competitive online travel agency and overall travel market in the U.S.

Then again, it isn’t as if Orbitz Worldwide was killing it in the U.S. anyway.

Photo Credit: Dara Khosrowshahi, President & CEO, Expedia Inc, second from right, at this year's WTTC Global Summit. World Travel & Tourism Counci / Flickr