Shares of Orbitz Worldwide (OWW) soared 18 percent last week after posting better than expected quarterly results. Revenue climbing 4 percent and profitability clocking in at 5 cents a share may not seem very impressive, but analysts were settling for the volatile travel portal to merely break even on flattish revenue growth. Strength in its hotel bookings were more than enough to offset weakness in airline reservations.
Orbitz Worldwide's larger and faster-growing peers priceline.com (PCLN) and Expedia (EXPE) went along for the ride, climbing 7 percent and 4 percent respectively. They both went on to hit new all-time highs.
Seeing an industry laggard start to grow profitably again -- and Orbitz Worldwide is calling for modest continued growth into 2014 -- was enough to get the market behind the popular providers of lodging, air travel, car rental, cruise and vacation package reservations.
This isn't just a one-week phenomenon. Priceline and Expedia shares have soared 174 percent and 171 percent since the end of 2011. Orbitz Worldwide has also more than doubled in that time, and it's up a whopping 223 percent since the start of 2013.
The Ins and Outs of Inn Outings
Orbitz Worldwide's report would have been better if it wasn't held back by an 11 percent decline in airline ticket sales. Priceline and Expedia are growing their airfare sales, but modestly, compared to their hotel reservations.
This isn't a surprise. Airlines have done a good job of marketing directly to passengers. There are a lot of people on frequent flyer programs, so they often head directly to an air carrier's website when it's time to book a trip. Pricing is also pretty competitive between airlines. There may not be a lot of carriers offering the desired route, but they are quick to respond to what rivals are doing. This makes it less likely for folks researching travel on their PCs, tablets, or smartphones to hit up a portal to see what flights are available.
So it's not a surprise to see that air ticketing accounted for just 8 percent of Expedia's business during the holiday quarter, but hotel bookings gobbled up 71 percent of the mix.
Given the larger number of options and the wider pricing disparity, the pricing game is different. Lodging establishments get more aggressive in filling up vacant rooms since they have lower costs to justify than an airline. There are also so many classes of hotels, motels and other overnight resting spots that they can march to their own pricing beat.
Investors are not just limited to domestic travel websites, even though it should be noted that the three major publicly traded portals also have a lot of exposure overseas. Priceline generates a lot of its revenue through its European Booking.com subsidiary, and there's a reason why the company name is Ortbitz Worldwide and not just Orbitz.
MakeMyTrip hasn't been as fortunate, but India's economy has yet to embrace travel and the Internet the way that most other large nations have. India's rupee currency has also been diminishing in value, making it harder for investors to participate in the potential growth.
Investors have still generally been profiting from buying into the global providers of online travel. As long as the worldwide economy continues to show signs of life, that's unlikely to change anytime soon.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Ctrip.com International and Priceline.com. The Motley Fool owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days.