Priceline to See Limited Impact from Middle East Unrest

May 5th, 2011 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

The unrest in Middle East and N. Africa is certainly impacting tourism to the region, but it has had a limited impact on the major online travel booking sites like Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE). Strength in Europe and Asia are offsetting weakness in this region, and within the region, travelers are still going to safer destinations like the Dubai, Abu Dhabi & Saudi Arabia. One of the largest economies, Egypt is seeing travel rebound, and in other countries where political unrest persist, many families are traveling and staying in places like Dubai and Abu Dhabi.

1) Low Exposure to Air Ticket Bookings

Air ticket bookings make up less than 2% of our $506 Trefis price estimate of Priceline’s stock while hotel bookings make up for a substantial 92%.

Even if the air ticket bookings to the region were to decline significantly, it would have a negligible impact on Priceline’s stock. On the contrary, even small fluctuations in the hotel room bookings could move the stock significantly. Compare this to Expedia where air ticket bookings constitute almost 10% of our $30.60 Trefis price estimate of its stock, Expedia is more vulnerable to changes in demand for air ticket bookings.

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2) Hotel Bookings

Many of the countries in the Middle East and N. Africa rely heavily on tourists, and tourism has obviously been impacted. Egypt’s tourism industry makes up for a tenth of its gross domestic product and employs one in every eight. Some reports estimates that the country suffered a 25% drop in tourism revenues for 2011 due to the unrest and Egyptian officials say that by September it should be back on its feet. [1]

Capacity has sky rocketed in many areas — Abu Dhabi is expected to report an 89% jump in capacity followed by Riyadh with 77%, Jeddah with 50%, Oman with 49% and Dubai with 49% capacity growth in terms of hotel rooms coming available. [2]

With such huge investments in tourism, we expect the government to focus on attracting tourists by restoring favorable conditions. While the short-term (2011-12) might be unpredictable, the long-term outlook of hotel occupancies in the region is definitely promising. And Priceline stands to gain the most from the focus on hotel and lodging industry in the region.

Near-Term Unrest Drives Travelers to Safer Destinations

Egypt saw a 79% drop in hotel occupancy rates in February 2011, Lebanon saw a drop of 39% while Bahrain hotels also suffered amid the unrest. However, Abu Dhabi witnessed a steep rise of over 27% in occupancy and Saudi Arabia also had 9% more of its hotel capacity occupied in February, primarily on account of the unrest in neighboring countries.

So for a global online travel agency, the overall travel bookings in the region did not suffer as drastically as one would imagine as much of this was offset by bookings elsewhere. [3]

You can see a detailed analysis of our $506 Trefis price estimate of Priceline’s stock here.

Notes:
  1. Egypt’s tourism revenue to suffer 25% drop in 2011, minister says, Arabian Business, April 10’ 2011 [↩]
  2. Gulf hotel markets set to see ‘challenging’ conditions-expert, Arabian Business, March 19’ 2011 [↩]
  3. MENA hotels see occupancy rates fall 12% in Feb, Arabian Business, March 25’ 2011 [↩]