Stock market analysts have handed down their verdicts on the long-term marketing agreement announced last week under which Expedia Inc will power the search results for Travelocity.
The overall view? Positive.
Analysts generally praise the arrangement, which goes into effect next year.
But none of the 29 US analysts following Expedia like it enough to adjust their ratings of the corporation. (Travelocity is held by privately-owned Sabre Holdings.)
Win-win
Essentially, Travelocity is becoming a distribution channel for Expedia's inventory, with cost savings for both sides, according to Zacks Equity Research.
Details on the deal remain scarce, but analyst Kevin Kopelman at Cowen and Company likes the broad outlines.
Expedia will will pick up the orders for Travelocity and pay a commission for the sales generated. Kopelman estimates Travelocity's average commission is 7.5% -- with each company profiting $90 million in savings after all costs and cannibalization are accounted for. Adds Kopelman:
Given Expedia's recent slowdown and increased competition from Booking.com, the deal has been interpreted by some as a lack of confidence from Expedia in its own brands' growth prospects.... We don't share that view.
Brian Nowak, an analyst at SIG (Susquehanna International Group) is also upbeat.
His study of Comscore data leads him to estimate that Travelocity is the 5th-most-visited online travel agency (OTA) in the US, with about 7.2 million unique visitors in July 2013. (Expedia, Priceline, Orbitz, and Hotels.com were ahead of it, in that order.)
Out of the full category of travel conglomerates, Travelocity was in eighth place.
Nowak says Travelocity's and Expedia's user bases hardly overlap, given that 45% of travelers who visit Travelocity.com don't visit Expedia.com.
"Travelocity as an Expedia affiliate"
Many analysts, such as Kopelman, see this as an extension of Expedia's affiliate strategy -- only on a larger canvas. The Expedia Affiliate Network (EAN), which powers hotel bookings engines on hundreds of sites, operates with a typical half/half revenue split between each platform and the company. Similar terms are likely for the Travelocity deal.
Travelocity could grow as a brand if Sabre Holdings pours more marketing dollars into it -- a substantial "if". The tech improvements that Expedia has invested in during the past two years could improve conversion on Travelocity, helping all parties.
Expedia will benefit from scale efficiencies due to increased volumes, predicts Naved Khan at Cantor Fitzgerald.
Hudson Crossing, the travel technology research firm, says this transaction offers a lesson for all travel marketers, especially for OTAs and metasearch sites. Writes analyst Henry Harteveldt:
Having a great brand image — which Travelocity certainly has — means little without a compelling user experience to support it. A company cannot feed surface elements of a brand — logo, advertising, email — while it starves its product, technology, and UX/UI, arguably the elements where ‘the rubber meets the road.”
With low brand loyalty among online travelers and a lack of any meaningful barriers to shopping across sites, all travel intermediaries must provide compelling points of differences. It’s not easy to rely on price — a competitor can easily match.
Developing a compelling, distinctive user experience built on solid customer insights that support useful customer targeting and personalization, supported by unique content and creative tools that make trip planning tangibly more helpful than your competitors, is essential for a brand to be successful in today’s mature digital online marketplace.