Priceline Partners with Delta Airlines as OTAs and Airlines Get Hitched

June 12th, 2011 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Priceline (NASDAQ:PCLN) has announced a partnership with Delta Airlines (NYSE:DAL) wherein members of Delta’s SkyMiles Frequent Flyer Program can earn SkyMiles whenever they book hotels through Agoda.com, Priceline’s very popular hotel booking site in Asia. SkyMiles members will earn two miles for every dollar spent on hotel bookings over Agoda.com, in addition to Agoda Reward Points worth 4% of the price of the stay.  This follows a string of partnerships between airlines and online travel agents (OTA’s). Expedia (NASDAQ:EXPE) recently entered a JV with AirAsia (see Expedia Partners with AirAsia) and South African Airways.

We value Priceline with a $506 Trefis price estimate of its stock, in line with its current market price.

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What does the partnership mean for Priceline?

Delta Airlines flew over 160 million passengers last year making it the world’s largest air carrier. [1] With more than 140 worldwide partners and over 81 million members, Delta’s SkyMiles is among the longest and most successful loyalty programs in the travel industry. [2] Hence being a SkyMiles partner provides access to a massive audience, which could help Priceline sell significantly more hotel bookings.

What does the partnership mean for Delta Airlines?

The list of Delta’s SkyMiles hotel partners already includes the big and established hotel chains such as Marriott, Starwood, Accor and Hyatt. [3] However, partnering with Agoda.com helps Delta Airlines offer travelers SkyMiles on even stay in small, low budget and independent hotel properties, which dominate the Asian hotel and lodging market.

How much could be the impact?

Partnering with Delta’s SkyMiles Program could potentially increase Priceline’s market share of hotel stays leading to upside to our current $506 Trefis price estimate of Priceline’s stock.

Here’s how we think of the potential impact:

More hotel stays for Priceline through the SkyMiles partnership

SkyMiles membership stood at 81 million in June 2010. [4]

Frequent flyers travel more often and are believed to take on an average 3 or more round trips in a year, [5] making a total of 243 million SkyMiles member-trips (81 million Sky Miles members x 3 trips per year)

Assuming even if 1 in every 10 SkyMiles member booked tickets at Agoda.com for even one-third of the trips in a year, this translates into 8.1 million (81 million SkyMiles members x 1/ 10 of the SkyMiles members x 3 average trips per year x 1/3 of the trips every year) more hotel stays.

More hotel nights booked through Priceline

We estimate that on average there will be 2 persons per hotel room and 2 nights per stay leading to 8.1 million hotel room night bookings at Priceline per year (8.1 million visitors / 2 visitors per room X 2 nights per stay).

However not all 8.1 million hotel bookings are incremental. Assuming even a one-third cannibalization leaves 5.4 [6] million additional hotel bookings on account of Agoda.com’a partnership with Delta’s SkyMiles Program. The resulting 0.12% incremental market share could lead to a 4% potential upside to our current $506 Trefis price estimate of Priceline’s stock.

Notes:
  1. Agoda.com Partners with Delta Air Lines, San Francisco Chronicle, May 12’ 2011 [↩]
  2. Delta Air Lines and GOL Announce Shared Benefits for SkyMiles and SMILES Members, Delta, July 6 ‘ 2010 [↩]
  3. Hotel Partners, Delta Airlines [↩]
  4. Delta Air Lines and GOL Announce Shared Benefits for SkyMiles and SMILES Members, Delta, July 6 ‘ 2010 [↩]
  5. Peter D. hart Research Associates, Power of Travel [↩]
  6. 1-1/3) x 8.1 million bookings [↩]