Expedia’s Partnership with Travel Agents Adds New Leg of Growth

July 26th, 2011 by Trefis Team
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According to PhoCusWright’s Global Online Travel Overview Second Edition report, travelers are expected to book one third of the world’s travel sales online by the end of 2012. [1] While online leisure travel bookings are growing twice as fast as the travel industry in general, the majority of travel bookings still happen offline – mostly through the traditional brick-and-mortar travel agents. And this is exactly what Expedia (NASDAQ:EXPE) is targeting through its Travel Agent Affiliate Program (TAAP) wherein travel agents get access to Expedia’s database of hundreds of thousands of hotel destinations, air ticket bookings and car rentals across the globe and earn a commission on the bookings while helping Expedia liquidate its inventory of travel products. [2] Expedia competes with other leading online travel agencies such as Priceline (NASDAQ:PCLN), Travelocity and Orbitz (NASDAQ:OWW). We value Expedia with a $30.60 Trefis price estimate of its stock, at over 10% premium to its current market price.

How does partnering with traditional travel agents impact Expedia?

1. Expedia evolves from being another ‘competitor’ to a ‘supplier’ to travel agents

The brick-and-mortar travel agents have always viewed online travel agencies as competitors. Partnering with travel agents helps Expedia serve as suppliers to this traditional sales channel. Also, this helps Expedia improve customer service through these retail outlets apart from increasing its presence beyond the Internet.

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2. Growth opportunity in markets with an already high Internet penetration

Online travel has grown exponentially primarily on account of increasing Internet penetration. In 2010, the developed economies of the U.S. and Europe had 59% and 43% of the total travel booked online respectively. Compare this with Asia-Pacific where online travel made up only 21% of the total travel sales. [1]

Given the growth opportunity and increasing Internet penetration in the emerging economies of China (with only 18% travel booked online currently), India (at 25%) and Brazil (at 20%), it makes sense for Expedia to focus on selling online in these markets for the time being. However, as the Internet penetration in the mature markets of the U.S. and Europe slow, the split between online and offline travel sales is stabilizing. Hence, targeting offline sales through partnerships with travel agents could add a new source of growth.

In the U.S., 1,840 travel agents have enrolled in TAAP during the first year alone. With 100-200 new agent affiliates signing up every week, there are no signs of the program is slowing down anytime in the near future. [3]

View our detailed analysis for Expedia here.

Notes:
  1. New Media Trend Watch [↩] [↩]
  2. Expedia TAAP Introduction [↩]
  3. Why Expedia went retro, recruiting travel agents, The Baltimore Sun, June 14’ 2011 [↩]