Expedia Inc. talked with the U.S. Justice Dept., expressing its concerns about the pending Google-ITA deal, and is mulling whether to actively oppose the agreement.
As the Justice Dept. reviews the proposed transaction, Tnooz conducted the following interview with Expedia Inc. President and CEO Dara Khosrowshahi about Expedia's role in the regulatory review.
Tnooz: Is Expedia pushing the Justice Dept. to block the Google-ITA deal?
Khosrowshahi: “The DOJ contacted us for our thoughts about the deal . We are not pushing them one way or the other. So, obviously we’ve got some concerns about the potential transaction. We shared our views with them. But, it is not up to us to push the DOJ one way or the other. They will make up their own minds.”
Tnooz: What kinds of concerns are you expressing to them?
Khosrowshahi: “I don’t want to get into specifics. I think in general, you have two pretty dominant services. Obviously, Google is the dominant search provider in the U.S. and in Europe that extends to travel, which is our category. And, then you got ITA which is arguably the dominant flight search technology that is selling to third parties. To the extent those two come together, there are some potential concerns about what that combined company can do. And the DOJ asked us various questions. We answered the questions …”
Tnooz: So, in your talks with the DOJ you are not advocating a position one way or the other? Are you asking that any conditions be put on the deal like the DOJ did recently with its review of the United-Continental merger?
Khosrowshahi: “We haven’t had discussions about conditions etc. with the DOJ at this point. From my understanding, the DOJ is in fact-finding mode and obviously a lot of people in this industry are concerned about this deal and, based on both Google’s and ITA’s market position, I don’t blame anyone for their concern. But I think the DOJ generally is in fact-finding mode and that’s where we stand right now.”
Tnooz: So you don’t anticipate being more forceful in your opinions about what should happen?
Khosrowshahi: “I think at this point we haven’t determined what we are going to do. Obviously, we want to talk to Google and have discussions with them about what their intentions are etc. But it is pretty early in the process. You know, I think we haven’t fully fleshed out what our intentions are at this point.”
Tnooz: Google is saying this deal could close in a couple of months, but you are saying these are the early days of the DOJ process?
Khosrowshahi: “At this point they asked us some questions and we shared some concerns with them. That’s where our discussions with the DOJ are now. It may change early enough.”
Tnooz: There’s been talk that Expedia is playing an active role in the industry in rallying the troops against this deal. Are you talking to the GDSs and other online travel agencies in trying to get their support to get this deal stopped?
Khosrowshahi: “Obviously because of our position in the industry, we talk to the GDSs and we talk to suppliers on a daily basis and, as you might expect, in the more recent discussions this potential transaction has come up. It’s just something that you talk about. It’s a big deal. So we talk to other players in the industry about it. The DOJ has reached out to a number of folks and at this point we haven’t determined whether we are going to move in an active direction or not. At this point, we are talking to people, we talked with the DOJ and that’s where we stand.”
Tnooz: You said you will talk to Google. So you haven’t talked to Google yet about the deal and how it might play out?
Khosrowshahi: “We talk to them [Google] all the time. They are a great partner of ours and we work with them quite well on a daily, weekly, monthly basis, and again, the subject comes up. They let us know about the transaction signing pretty early on and the discussions with Google are ongoing, just as our relationship is ongoing.
Tnooz: Expedia’s public statements about the deal seem to have changed since you first talked about it, saying Expedia would not be overly exposed to this deal. Chairman Barry Diller made some strong statements about how this would be a dangerous move. So, your position seems to have changed a bit, right?
Khosrowshahi: “I think it’s consistent in that from a short-term perspective we are not an ITA consumer. As a result, the near-term consequences for us are not significant. Hotwire and TripAdvisor use ITA and obviously the concern there is to ITA’s availability to them on a long-term basis. I think when you step back, I think what Barry was talking about is that strategically you are combining the dominant search provider and the dominant air search service provider and from that standpoint we don’t think it is a good thing. We talked to the DOJ about that. Now Google is a great partner and they are telling us the right things, but structurally, we don’t think this deal’s a good thing for the industry. We’ll see how it plays out.”
Tnooz: Are there any thoughts about dropping ITA for Hotwire and TripAdvisor?
Khosrowshahi: “Again, we are in wait and see mode. Google has told us nothing will change and for now we’ll take their word for it. And, If something changes, we’ll evaluate ITA based on the product. … There are no specific plans changing based on this transaction, at least not yet.”
Tnooz: Are there any plans to commercialize your own air-search product, Best Fare Search, and to market it to third parties, now that there is a lot of concern about ITA in the industry?
Khosrowshahi: “We haveno specific plans at this point. It is theoretically possible. But there are a number of hurdles there, and it would be pretty costly to do so for us. We have to find customers etc. We’ve had some discussions about it. It is a bit of leap taking BFS from an internal technology to a technology that’s consumable by third parties. “
Tnooz: There’s been a lot of talk about leading up to the Google-ITA deal that Expedia sought to invest in Kayak and in some kind of way to keep ITA out of Google’s hands. Can you explain what happened there and are you still considering taking a stake in or buying Kayak?
Khosrowshahi: “I don’t want to comment on deal talk. Obviously what happened is that Google and ITA came to an agreement. But I don’t want to comment specifically on what could have happened or what you read about what happened.”
Tnooz: Is the $750 million you recently raised in a debt sale related to the Google-ITA deal and the fallout?
Khosrowshahi: “Unrelated. The cost of debt capital right now is at historical lows. We thought it was a great time right now to go to market and raise some capital.”