Travelocity Teams Up With Expedia to Power Searches; Rivals in Online Travel Industry Strike Long-Term Agreement

August 22, 2013, 8:19 p.m. ET

Travelocity Teams Up With Expedia to Power Searches

Rivals in Online Travel Industry Strike Long-Term Agreement

JACK NICAS And DREW FITZGERALD

Travelocity is teaming up with longtime rival Expedia Inc. EXPE +1.68% to power the core of its business: finding hotels and airfares. The two companies said Thursday that they are entering a long-term agreement under which Expedia will handle most of Travelocity’s operations, from running searches to answering customers’ questions to processing bookings. In turn, Travelocity will largely become a brand aimed at attracting customers to its website rather than a true travel agency.“These are two companies that have been mortal enemies for probably 15 years coming together,” Expedia Chief Executive Dara Khosrowshahi said.

Travelocity Chief Executive Carl Sparks said that as the online-travel industry has become more competitive in recent years, Travelocity has fallen behind its rivals on search capabilities. The deal with Expedia gives Travelocity access to a more powerful search tool while allowing it to shift resources to marketing and promotions to build more brand loyalty. “We get access to a world-class platform,” Mr. Sparks said. And instead of operations, “we can focus on marketing and promotions,” he added.

Online travel agencies make much of their revenue from booking fees they charge airlines, hotels and rental-car companies. Under the agreement, Expedia will now handle most of Travelocity’s bookings and collect the related fees from airlines and hotels, and then pay a commission back to Travelocity. Travelocity is a unit of closely held Sabre Holdings Corp. Last week, Sabre’s CEO Sam Gilliland stepped down and the company promoted its president Tom Klein to the top job.

Expedia will benefit from “one of the best known travel brands in the U.S. and Canada,” Mr. Khosrowshahi said, boosting the volume of customers using its platform, while Travelocity can gain from its competitor’s broader array of hotel and airfare offers, which include inventory from roughly 400 airlines and more than 200,000 hotels.

The unusual agreement illustrates the challenges of an increasingly crowded online-travel industry. The legacy players—Expedia, Travelocity, Priceline.com Inc.PCLN +1.27% and Orbitz Worldwide Inc.—known as online travel agencies, have been joined in recent years by websites like Kayak and Hipmunk that also scan the online travel agencies in their searches for travel deals. Google Inc. and Microsoft Corp. have also entered the market with flight- and hotel-search tools.

The online travel agencies search airline and hotel data to look for the best rates and earn commissions by booking lodging and transportation on travelers’ behalf, a fiercely competitive business that often hinges on the size of a website’s network. A bigger pool of hotels and airlines often gives online travel agents more leverage when negotiating rates and fares.

Online travel agents also vie for customers’ attention, a challenge that hurt Expedia earlier this summer after aggressive advertising by Priceline.com drew away much of its business. Expedia’s profit fell 32% during the second quarter even as its marketing costs jumped 33%.

Shares of Expedia rose 1.7%, or 77 cents, to close at $46.47 Thursday on the Nasdaq Stock Market.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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