Online Travel Giants Increase Exposure To Car Rentals Market

July 2nd, 2014 by Trefis Team
-21.72%
Downside
184
Market
144
Trefis
EXPE: Expedia logo
EXPE
Expedia

Expedia (NASDAQ:EXPE) acquired France’s car rental company, Auto Escape, and Priceline (NASDAQ:PCLN) launched a premium car rental service named Fun Rides, last week. These developments highlight the agenda of online travel agencies (OTA) to increase their exposure to the $36.9 billion global car rental industry, which is expected to grow at a compounded rate of 13.6% to reach $79.5 billion by 2019, according to Transparency Market Research. [1] Although the contribution of car rentals and cruises to the valuation of these OTAs is in low single-digits, as per our estimates, we believe that the recent steps will help them sell more vacation packages and destination services, as car rental is an integral part of such offerings.

According to a survey conducted by Priceline, one in every two Americans feels that his car rental experience is not as great as the rest of his vacation. Fun Rides allows these customers to choose from a lineup of luxury sedans, muscle cars, sportsters, convertibles, hybrids and minis for special occasions such as a vacation, a wedding or a road trip. The new offering has been made available at airport locations in 63 major markets across the U.S., from several suppliers including Avis, Budget, Hertz and Sixt. [2]

We have a price estimate of $642 for Priceline’s stock, nearly 50% lower compared to its market price.


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Auto Escape offers car rental services from over 300 car rental suppliers in 125 countries, and has a fleet of over 800,000 vehicles. It is estimated that Auto Escape’s revenues increased fivefold in the last five years to €120 million ($160 million). [3] Auto Escape will become a part of the CarRentals.com brand, a business unit managed by Expedia’s Hotwire Group, when Expedia completes the acquisition in the third quarter. The terms of this deal were not disclosed.

We have a $77 price estimate for Expedia’s stock, in line with its market price.


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Notes:
  1. Global Car Rental Market is Expected to Reach USD 79.46 billion in 2019: Transparency Market Research, PR Newswire, June 25, 2014 [↩]
  2. Priceline.com Gets Drivers’ Adrenaline Pumping with New Lineup of Specialty and Luxury Rental Cars, Priceline Investor Relations, June 23, 2014 [↩]
  3. Expedia prend le volant chez Auto Escape, Les Echos, June 26, 2014 [↩]