Online Travel is Booming
Looking at the earning releases of Expedia (EXPE), Sabor Holdings (TSG – Owner of Travlocity), and Priceline (PCLN) with the exception of Cendant (Owner of Orbitz) have surprised the street with their tremendous growth. Expedia reported adjusted earnings of 35 cents a share beating the consensus of 31 cents, Sabor Holdings reported 50 cents a share beating the forecast of 47 cents, and Priceline earned 47 cents blew the consensus of 37 cents away.
Priceline surprised everyone by reported a tremendous quarter with gross travel booking increase 40% from a year ago. The hotel room night increase 68%, car rental days grew 24%. Priceline Europe is the fastest growth story for the company. Its European operation grew 75.5%. The company announced stock buyback of 50 million dollars. The negatives of third quarter are the slow US operation with growth of just 5%, decrease of its opaque airline business, and operating expenses increased dramatically. The advertising had double and the personnel cost increase 68%.
Sabor Holdings consists of three major divisions: Travelocity, Sabre Travel Network, and Sabre Airline solutions. Travelocity revenue was 276 million an increase of whopping 98 percent including the recent acquisition Lastminute.com which contributed 100 million. Sabre Travel Network’s revenue was 403 million and increase of just 4%. Sabre Airline Solutions was 67 million and increase of 11%. Obviously the growth of Sabor Holdings is coming from Travelocity and most importantly the acquisition of lastminute.com put travelocity as the number one European online travel agent. With online travel penetration of just 9% in Europe versus 24% for North American, Europe represent a tremendous opportunity for Sabor Holdings. The company does have few challenges ahead like integration of Lastminute and its slower business of Sabor Travel Network. The company recently has said the integration of lastminute is ahead of schedule. The biggest problem is with the STN. STN operates in the segment which allow agents to book travel electronically with the suppliers. But recent trend have starting to erode the business as suppliers direct more and more of their booking directly to their own sites and the deregulation have squeeze the profit margin as the supplier gaining more negotiation power.
Expedia is the best of the breed in this group. Gross booking grew 21% to $3.9 billion , revenue increased 16%, merchant hotel business increase 15%, and on pace to generate $900 million of free cash flow. Its international operation grew 39% and Domestic operation grew 16%. The company is making significant stride in re-branding the Hotel.com from cheap price to value added hotel expert with rich content like reviews. Hotwire.com is targeting consumers that value price as the most important factor in travel. Overall Expedia is differentiating its holdings from competition and the separation from IAC will help the company focus on its core business.
There’s no question that online travel business is growing rapidly. More and more consumers are using the internet to book their trips. Europe and international present the biggest growth opportunity as Expedia, travelocity, and Priceline all enjoyed great success this past quarter. I believe all three companies will continue to thrive in the next few years with Expedia leading the pack. Expedia has the largest market share, strong brand identity, and focus on value added content instead of pricing will set it apart from competitions.
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