Priceline.com Earnings Preview: Airlines Partnerships in Focus
Priceline (NASDAQ:PCLN), one of the leading online travel agencies, plans to release Q2 earnings on Thursday. The last quarter has been particularly interesting for online travel agencies and was characterized by a spate of alliances with mostly airlines. The leading online travel agencies such as Expedia (NASDAQ:EXPE), Priceline and Orbitz (NASDAQ:OWW), which had pursued consumers by offering so called ‘best’ deals, now are partnering with airlines in “exclusive” private-label partnerships by offering hotel bookings on airlines’ websites.
We value Priceline with a $506 Trefis price estimate of its stock, which is roughly in line with the current market price. Here we revisit the highlights of the past quarter and how these will impact Priceline’s business in the future.
Partnerships with airlines
Priceline entered into private-label partnerships with airlines wherein it shall offer hotel bookings at airlines’ website itself. This not only helps airlines offer consumers a more comprehensive travel package including air travel and hotel stay at the destination but also helps the online travel agencies sell more hotel bookings on which they stand to make handsome commissions, often in excess of 20%. Priceline announced partnerships with Jetstar Airways and Cathay Pacific Airways. See Priceline Partners with Jetstar Airways as OTAs Race to Pair up with Airlines and Priceline Partners with Cathay Pacific Airways.
Banking on customer loyalty
Priceline also announced a partnership with Delta Airline (NYSE:DAL) wherein the 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. See Priceline Partners with Delta Airlines as OTAs and Airlines Get Hitched.
While the impact of these partnerships will only be noticeable after a few quarters, these have the potential to securely put Priceline on a long-term growth trajectory.
The stock has been hovering at close to its historical highs reflecting the market’s overall optimistic outlook from the long-term growth prospects of the company. The favorable short-term outlook is reinforced by further recovery in both leisure and business travel with improving economic conditions post the downturn in 2008-09, which had led to rising hotel occupancy levels resulting in higher booking volumes for Priceline.