Why Google's Flight Search Could Hurt Expedia, but Not Priceline
Jun 23rd 2011 8:00AM
Updated Jun 23rd 2011 10:20AM
The travel-related search market became more competitive recently when Google (GOOG) added flight schedules to its search results. The Google search allows the user to see flight schedules, flight duration and available airlines, but it does not give information on airfares or seat availability. Instead it provides links to the airlines' websites, where the user can proceed to make bookings.
Google says it doesn't plan to offer bookings in the near future, but the addition of this information to its search results could have a significant impact on online travel agencies such as Expedia (EXPE).
We value Expedia's stock with a $30.60 Trefis price estimate, at roughly a 10% premium to its current market price. On the other hand, we expect this move to cause very little downside to Priceline (PCLN). Here we explain why.
Why Flight Schedules in Google Searches Threaten Expedia ...
Google's flight schedule is accompanied with links to airlines' websites to make bookings and thereby drives visitors away from online travel agencies. While the airlines' own websites offer the best fares without any booking fees or agent commissions, online travel agencies bundle air tickets with offers on hotel bookings and car rentals into a comprehensive travel plan. Hence, despite low commissions in air ticket bookings (around 4%), online travel agencies have always struggled to attract bookings from airlines' own websites to cross-sell other travel products on which they earn a handsome margin (often in excess of 20%).
Air ticket bookings make up almost two-thirds of the overall bookings at Expedia. However, given the competitive pricing, the third-party online travel agencies get a very low margin on air ticket bookings that make up less than 10% of our $30.60 Trefis price estimate of Expedia's stock.
... But Will Have Negligible Impact on Priceline
Priceline draws majority of its value from hotel bookings (over 91% of its stock value) and less than 2% from air ticket bookings. So redirecting users to the airlines' websites will have a lower impact on Priceline. Similarly, Priceline's advertising revenues (about 0.4% of its stock value) will have a negligible impact due to the reduced number of visitors on Priceline's websites.
See our full analysis for Expedia and See our full analysis of Priceline
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