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Expedia and Travelocity Join Forces

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Expedia Inc. (EXPE) and Travelocity recently announced a strategic long-term marketing partnership to strengthen the latter’s core business. Financial terms of the deal were not disclosed.

Based in Texas, Travelocity is an online travel agency and a wholly-owned subsidiary of Sabre Holdings Corporation. The company offers corporate travel services, under which it books plane trips, hotel rooms and car reservations. These services help companies to plan, buy and manage their travel through its online and offline capabilities.

As per the agreement, Expedia will handle the majority of Travelocity’s operations. It will pick up the orders for Travelocity, collect the fees from providers (hotels, airlines etc) and pay Travelocity a commission for the sales generated on the Travelocity platform. Infact, Travelocity will now become more of a brand of Expedia’s website than a true travel agency.

Management stated that the marketing agreement covers only Travelocity’s brands in North America. However, Travelocity-owned lastminute.com in Europe and the Travelocity Partner Network brands are not included in the deal.

We believe the deal will help Travelocity to cut the cost of operating the platform and divert resources to marketing. It will give Travelocity access to a more powerful search tool and Expedia’s inventory.

The deal will help Expedia to better position itself in the competitive online-travel industry. The deal will boost Expedia’s already large corporate travel portfolio and expand its business worldwide in a much more effective way. Recently, the company acquired 61.6% equity stake in hotel search website, Trivago, to expand into the European online travel market and gain market share.

We believe these strategic alliances and acquisitions will help Expedia to grow in the future.

Expedia, one of the leading online travel companies in the world, reported second-quarter earnings of 14 cents, missing the Zacks Consensus Estimate. However, revenues were $1.21 billion, up 19.0% sequentially and 15.9% year over year.

Despite the positive long-term trends in online travel booking, currently the company is not doing very well. It is seeing increasing competition from players like Priceline.com (PCLN) and OrbitzWorldwide (OWW). Also, Google has entered the travel search and booking market through its purchase of ITA Software in 2010.

Expedia’s shares carry a Zacks Rank #3 (Hold). Another stock that is performing well at current level includes Ctrip.com International Ltd. (CTRP), carrying a Zacks Rank #1 (Strong Buy).

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