Expedia Partners with AirTran Airways, Extending its Affiliate Network

June 28th, 2011 by Trefis Team
-21.72%
Downside
184
Market
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Trefis
EXPE: Expedia logo
EXPE
Expedia

After having partnered with AirAsia and South African Airways, Expedia (NASDAQ:EXPE) is expanding its private-label partnership with AirTran Airways, now a subsidiary of Southwest Airlines (NYSE:LUV). Through this partnership, Expedia will provide bookings at over 70,000 hotel properties at AirTran destinations in the US, Mexico and the Carribean.  [1] We believe these ongoing partnerships between online travel services providers and airlines/hotels will make competition more fierce in the online travel industry with players such as Expedia,  Priceline (NASDAQ:PCLN), Orbitz (NASDAQ:OWW) and Travelocity.

We have a Trefis price estimate of $30.60 for Expedia’s stock, implying an upside of ~10% to current market price.

A Boost to Expedia’s Occupied Hotel Rooms Market Share

  • More hotel stays for Expedia through the AirTran Airways partnership
    • AirTran Airways flew 24 million passengers in 2010. [2]
    • Assuming that 1 in every 10 passengers booked a hotel stay at Expedia, this translates into 2.4 million more hotel stays
  • More hotel nights booked through Expedia
    • We estimate, on average, there will be 2 persons per hotel room and 3 nights per stay leading to additional 3.6 million hotel room night bookings at Expedia in a year (2.4 million visitors / 2 visitors per room X 3 nights per stay). Over the remaining 6 months (July-Dec) in 2011, this shall contribute 1.8 million (3.5 million/2) hotel-nights booked at Expedia.
    • We assume the hotel-nights booked at Expedia through AirTran partnership to grow in line with the passenger traffic at AirTran, at the moderate 3% ((AirTran Airways)) historical growth rate. This leads to 3.8 million additional bookings in 2012, rising to almost 4.4 million by 2017, the end of our forecast period.
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We currently estimate Expedia’s share of hotel-rooms booked to grow from 2.07% in 2011 to 2.37% through our forecast period. Expedia’s partnership with AirTran Airways could result in Expedia’s market share rising from 2.11% in 2011 to 2.44%, resulting in small upside to our estimate.

However, if Expedia could secure more of these partnerships and the market share for occupied hotel nights rose to around 3% by the end of our forecast period, this would result in 12-15% upside. You can drag the graph below to see the impact on Expedia’s stock price estimate.

Expedia Affiliate Network, Expedia’s division dedicated to such private-label partnerships, works with several such partners across the globe and is aggressively pushing its direct-to-business model.  However, Orbitz provides private-label solutions to Delta Airlines, KLM, LAN Airlines and Alaska Air and recently nabbed a contract with Eurostar from Expedia. So competition for this business is definitely heating up. See Expedia Loses Eurostar to Orbitz.

See our full analysis for Expedia

Notes:
  1. AirTran Airways Partners With Expedia Affiliate Network to enhance travel offering, Expedia.com, June 1, 2011 [↩]
  2. AirTran Airways [↩]