Expedia (EXPE, Financial) is an American online travel company, headquartered in Bellevue, Washington. It is the parent company of many global online travel brands, which includes Expedia.com, trivago, Hotels.com, Egencia, Hotwire.com, Venere, Classic Vacations, Expedia Local Expert, eLong, and Expedia CruiseShipCenters.
In October 22, 1996 Expedia was initially launched as Microsoft internet property. The division was spun off in 1999, and in 2001 was acquired by TicketMaster, or as currently named InterActiveCorp (IAC). In August 2005, IAC spun off its travel set of businesses under Expedia, Inc.
The company is used by customers to book airline tickets, car rentals, vacation packages, hotel reservations, cruises, and other various travel-related services through the internet or phone.
The first and biggest acquisitions by Expedia were Travelscape for $89.75 million, and VacationSpot.com purchased for $80 million on March 17, 2000.
Expedia acquired the online travel agency Travelocity in January 2015, for $280 million from the tech firm Sabre Corporation (SABR, Financial).
Yet again, it seems the travel company is about to acquire another fish of the same industry. Let’s dive in to find the details of the story.
Expedia announces new acquisition plans
Expedia has announced plans to acquire Orbitz (OWW, Financial), an online travel site and its rival, for around $1.34 billion to establish itself as the front runner in the travel-booking industry. This acquisition will see Expedia, the largest online travel agency in the U.S. fitting in the segment’s third-largest player, Orbitz.
Orbitz.com, the flagship brand of Orbitz Worldwide, Inc. was established through a joint venture of major airlines, and subsequently possessed by various bodies, has been active since 2001. Other online companies included in Orbitz Worldwide are: HotelClub and RatestoGo, based in Sydney, CheapTickets, and the Away Network in the Americas, and ebookers in Europe. Moreover, Orbitz Worldwide also owns and runs a corporate travel company called Orbitz for Business.
According to Dara Khosrowshahi, CEO of Expedia, the Orbitz acquisition is primarily to help the company get an upper hand while competing with bigger rivals, which include Google (GOOG, Financial) and TripAdvisor (TRIP, Financial), in the $1.3 trillion online travel market.
According to the terms of the deal, Expedia will pay $12 per share in cash for Orbitz, and the company expects the deal to help boost its full-year revenue by roughly 75% per share, though it emphasized that the assessment relies on numerous factors.
The boards of both companies have approved the transaction, but it is awaiting approval by shareholders and regulators. The companies are not sure of a definitive closing date.
A step to tackle the heat of competition
Expedia’s acquisition of Orbitz is primarily to thwart off competition from other industry giants and to appeal to a broader set of travellers globally.
The newly expanded Expedia will control almost 75% of the U.S. online travel agency (OTA) market, based on 2013 figures.
This expansion is assumed to make the distribution network stronger and to retain the capacity to comparison shop in the future, along with countering the monopoly influence of the airlines. It is expected to reduce consumer choice. There could be more acquisitions by Expedia in the future.
Though Expedia's acquisition of Orbitz may not bring about a big and sudden change in the hugely competitive travel market for consumers, but it surely does depict a big move in the bigger, and running battle for profits, travellers' clicks, and long-term loyalty. And while according to reports, Expedia’s acquisition is mainly to expand the company’s customer base, the package-deal signifies that major business-to-business operations will now be directed to Expedia.
Last word
As seen in the past, Expedia has always gone for acquiring companies of its choice to tackle rising competition and the merger with Orbitz is surely a step in the same direction. Investors should wait and watch the impact of such a merger on the financial playbook of Expedia to ascertain whether the online travel giant did tread on the right path or not.
